SEC Filings

DEF 14A
SCOTTS MIRACLE-GRO CO filed this Form DEF 14A on 12/18/2013
Entire Document
 
SMG-2014-Proxy
        

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )
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¨     Soliciting Material Pursuant to §240.14a-12
The Scotts Miracle-Gro Company

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The Scotts Miracle-Gro Company
Proxy Statement for 2014 Annual Meeting of Shareholders
 
 
 


        


14111 Scottslawn Road
Marysville, Ohio 43041

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on Thursday, January 30, 2014

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The Scotts Miracle-Gro Company (the “Company”) will be held at The Berger Learning Center, 14111 Scottslawn Road, Marysville, Ohio 43041, on Thursday, January 30, 2014, at 9:00 A.M. Eastern Time (the “Annual Meeting”), for the following purposes:

1.    To elect four directors, each to serve for a three-year term expiring at the 2017 Annual Meeting of Shareholders.

2.    To conduct an advisory vote on the compensation of the Company’s named executive officers.

3.    To approve an amendment and restatement of The Scotts Company LLC Amended and Restated Executive Incentive Plan.

4.    To ratify the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2014.

5.    To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

The Proxy Statement accompanying this Notice of Annual Meeting of Shareholders describes each of these items in detail. The Company has not received notice of any other matters that may be properly presented at the Annual Meeting.

Only shareholders of record at the close of business on Wednesday, December 4, 2013, the date established by the Company’s Board of Directors as the record date, are entitled to receive notice of, and to vote at, the Annual Meeting.

On or about December 18, 2013, the Company is first mailing to shareholders either: (1) a copy of the accompanying Proxy Statement, a form of proxy and the Company’s 2013 Annual Report or (2) a Notice of Internet Availability of Proxy Materials, which indicates how to access the Company’s proxy materials on the Internet.

Your vote is very important. Please vote as soon as possible even if you plan to attend the Annual Meeting.

By Order of the Board of Directors,

JAMES HAGEDORN
Chief Executive Officer
and Chairman of the Board
December 18, 2013




        

Proxy Statement for
Annual Meeting of Shareholders of
THE SCOTTS MIRACLE-GRO COMPANY
To Be Held on Thursday, January 30, 2014
TABLE OF CONTENTS
 
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Outside Back Cover



        


14111 Scottslawn Road
Marysville, Ohio 43041

PROXY STATEMENT
for
Annual Meeting of Shareholders
To Be Held on Thursday, January 30, 2014

GENERAL INFORMATION ABOUT VOTING

This Proxy Statement and the accompanying form of proxy are being furnished in connection with the solicitation of proxies on behalf of the Board of Directors (the “Board”) of The Scotts Miracle-Gro Company (the “Company”) for use at the Annual Meeting of Shareholders of the Company (the “Annual Meeting”) to be held at The Berger Learning Center, 14111 Scottslawn Road, Marysville, Ohio 43041, on Thursday, January 30, 2014, at 9:00 A.M. Eastern Time, and at any adjournment or postponement thereof. Should you wish to obtain directions to our corporate offices in order to attend the Annual Meeting and vote in person, please call us at (937) 644-0011. Directions to our corporate offices can also be found on the outside back cover page of this Proxy Statement.

Only holders of record of the Company’s common shares (the “Common Shares”) at the close of business on Wednesday, December 4, 2013 (the “Record Date”) are entitled to receive notice of and to vote at the Annual Meeting. As of the Record Date, there were 62,123,664 Common Shares outstanding. Holders of Common Shares as of the Record Date are entitled to one vote for each Common Share held. There are no cumulative voting rights.

Again this year, the Company is furnishing proxy materials over the Internet as permitted under the rules of the Securities and Exchange Commission (the “SEC”). Under these rules, many of the Company’s shareholders will receive a Notice of Internet Availability of Proxy Materials instead of a paper copy of the Notice of Annual Meeting of Shareholders, this Proxy Statement and the Company’s 2013 Annual Report. The Notice of Internet Availability of Proxy Materials contains instructions on how to access the proxy materials over the Internet and how shareholders can receive a paper copy of such materials. Shareholders who do not receive a Notice of Internet Availability of Proxy Materials will receive a paper copy of the proxy materials by mail. The Company believes this process will conserve natural resources and reduce the costs of printing and distributing proxy materials. Shareholders who receive a Notice of Internet Availability of Proxy Materials are reminded that the Notice itself is not a proxy card.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders To Be Held on January 30, 2014: The Notice of Annual Meeting of Shareholders, this Proxy Statement and the Company’s 2013 Annual Report are available at www.proxyvote.com. At www.proxyvote.com, shareholders can view the proxy materials, cast their vote and request to receive proxy materials in printed form by mail or electronically by e-mail on a going-forward basis.

If you received a copy of the proxy materials by mail, a form of proxy for use at the Annual Meeting was included. You may ensure your representation at the Annual Meeting by completing, signing, dating and promptly returning the form of proxy. A return envelope, which requires no postage if mailed in the United States, has been provided for your use. Alternatively, you may transmit your voting instructions electronically at www.proxyvote.com or by using the toll-free telephone number stated on the form of proxy or the Notice of Internet Availability of Proxy Materials. The deadline for transmitting voting instructions electronically or telephonically is 11:59 P.M. Eastern Time on January 29, 2014. The Internet and telephone voting procedures are designed to authenticate shareholders’ identities, allow shareholders to give voting instructions and confirm that such voting instructions have been properly recorded.

If you are a registered shareholder, you may revoke your proxy at any time before it is voted at the Annual Meeting by giving written notice of revocation to the Corporate Secretary of the Company, by revoking via the Internet site, by using the toll-free telephone number stated on the form of proxy or the Notice of Internet Availability of Proxy Materials and electing “revocation” as instructed or by attending the Annual Meeting and giving notice of revocation in person. You may also change your vote by: (1) executing and returning to the Company a later-dated form of proxy; (2) voting in person at the Annual


        

Meeting; (3) submitting a later-dated electronic vote through the Internet site; or (4) voting by telephone at a later date. Attending the Annual Meeting will not, in and of itself, constitute revocation of a previously-appointed proxy.

If you hold your Common Shares in “street name” with a broker/dealer, financial institution or other nominee or holder of record, you are urged to carefully review the information provided to you by the holder of record. This information will describe the procedures you must follow in order to instruct the holder of record how to vote the “street name” Common Shares and how to revoke any previously-given voting instructions. If you do not provide voting instructions to your broker/dealer within the required time frame before the Annual Meeting, your Common Shares will not be voted by the broker/dealer on any matters considered non-routine, including the election of directors, the advisory vote on the compensation of the Company’s named executive officers, and the vote to amend and restate The Scotts Company LLC Amended and Restated Executive Incentive Plan. The broker/dealer will have discretion to vote your Common Shares on routine matters, such as the ratification of the selection of the Company’s independent registered public accounting firm.

The Company will bear the costs of soliciting proxies on behalf of the Board and tabulating your votes. The Company has retained Broadridge Financial Solutions, Inc. to assist in distributing the proxy materials. Directors, officers and certain employees of the Company may solicit your votes personally, by telephone, by e-mail or otherwise, in each case without additional compensation. If you provide voting instructions through the Internet, you may incur costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, which the Company will not reimburse. The Company will reimburse its transfer agent, Wells Fargo Shareowner Services, as well as broker/dealers, financial institutions and other custodians, nominees and fiduciaries for forwarding proxy materials to shareholders, according to certain regulatory fee schedules.

If you participate in The Scotts Company LLC Retirement Savings Plan (the “Retirement Savings Plan” or “RSP”) and Common Shares have been allocated to your account in the RSP, you are entitled to instruct the trustee of the RSP how to vote such Common Shares. You may receive your form of proxy with respect to your RSP Common Shares separately. If you do not give the trustee of the RSP voting instructions, the trustee will not vote such Common Shares at the Annual Meeting.

If you participate in The Scotts Miracle-Gro Company Discounted Stock Purchase Plan (the “Discounted Stock Purchase Plan”), you are entitled to vote the number of Common Shares credited to your custodial account. If you do not vote, the custodian under the Discounted Stock Purchase Plan will vote the Common Shares credited to your custodial account in accordance with any stock exchange or other rules governing the custodian in the voting of Common Shares held for customer accounts.

Under the Company’s Code of Regulations, the presence, in person or by proxy, of the holders of a majority of the outstanding Common Shares entitled to vote is necessary to constitute a quorum for the transaction of business at the Annual Meeting. Common Shares represented by properly executed forms of proxy, including proxies reflecting abstentions, which are returned to the Company prior to the Annual Meeting or represented by properly authenticated voting instructions timely recorded through the Internet or by telephone will be counted toward the establishment of a quorum. Broker non-votes, where broker/dealers who hold their customers’ Common Shares in “street name” sign and submit proxies for such Common Shares but fail to vote on non-routine matters because they were not given instructions from their customers, are also counted for the purpose of establishing a quorum.

The results of shareholder voting at the Annual Meeting will be tabulated by or under the direction of the inspector of election appointed by the Board for the Annual Meeting.

Common Shares represented by properly executed forms of proxy returned to the Company prior to the Annual Meeting or represented by properly authenticated voting instructions timely recorded through the Internet or by telephone will be voted as specified by the shareholder. Common Shares represented by valid proxies timely received prior to the Annual Meeting that do not specify how the Common Shares should be voted will, to the extent permitted by applicable law, be voted FOR the election as directors of the Company of each of the four nominees of the Board listed below under the caption “PROPOSAL NUMBER 1 — ELECTION OF DIRECTORS”; FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers as proposed below under the caption “PROPOSAL NUMBER 2 — ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)”; FOR the approval of an amendment and restatement of The Scotts Company LLC Amended and Restated Executive Incentive Plan as proposed below under the caption “PROPOSAL NUMBER 3 — APPROVAL OF AMENDMENT AND RESTATEMENT OF THE SCOTTS COMPANY LLC AMENDED AND RESTATED EXECUTIVE INCENTIVE PLAN”; and FOR the ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2014 as described below under the caption “PROPOSAL NUMBER 4 — RATIFICATION OF THE

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SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.” No appraisal rights exist for any action proposed to be taken at the Annual Meeting.


THE BOARD OF DIRECTORS

Current Composition

There are currently ten individuals serving on the Board, which is divided into three staggered classes, with each class serving three-year terms. The Class I directors hold office for terms expiring at the Annual Meeting, the Class II directors hold office for terms expiring in 2015 and the Class III directors hold office for terms expiring in 2016.

Diversity

The Board believes that diversity is one of many important considerations in board composition. When considering candidates for the Board, the Governance and Nominating Committee (the “Governance and Nominating Committee”) evaluates the entirety of each candidate’s credentials, including factors such as diversity of background, experience, skill, age, race and gender, as well as each candidate’s judgment, strength of character and specialized knowledge. Although the Board does not have a specific diversity policy, the Governance and Nominating Committee evaluates the current composition of the Board to ensure that the directors reflect a diverse mix of skills, experiences, backgrounds and opinions. Depending on the current composition of the Board, the Governance and Nominating Committee may weigh certain factors, including those relating to diversity, more or less heavily when evaluating a potential candidate.

The Governance and Nominating Committee believes that the Company’s current directors, as a group, reflect the diverse mix of skills, experiences, backgrounds and opinions necessary to foster an effective decision-making environment and promote the Company’s culture. Board member experiences cover a wide range of industries, including consumer products, manufacturing, technology, financial services, media, regulatory and consulting. Three of the ten current directors are women, each of whom chairs one of the Board’s standing committees  the Audit and Finance Committee (Stephanie M. Shern), the Compensation and Organization Committee (Nancy G. Mistretta) and the Innovation and Technology Committee (Katherine Hagedorn Littlefield).

Experiences, Skills and Qualifications

The Governance and Nominating Committee is responsible for identifying candidates qualified to become directors and recommending director nominees to the Board. As noted above, when considering candidates for the Board, the Governance and Nominating Committee evaluates the entirety of each candidate’s credentials and does not have any specific eligibility requirements or minimum qualifications that candidates must meet. In general, as the Company’s Corporate Governance Guidelines indicate, directors are expected to have the education, business experience and current insight necessary to contribute to the Board’s performance of its functions, the interest and time available to be adequately involved with the Company over a period of years, and the functional skills, corporate leadership, diversity, international experience and other attributes that the Board believes will contribute to the development and expansion of the Board’s knowledge and capabilities.

Set forth below is a general description of the types of experiences the Board and the Governance and Nominating Committee believe to be particularly relevant to the Company:

Leadership Experience — Directors who have demonstrated significant leadership experience over an extended period of time, especially current and former chief executive officers, provide the Company with valuable insights that can only be gained through years of managing complex organizations. These individuals understand both the day-to-day operational responsibilities facing senior management and the role directors play in overseeing the affairs of large organizations. More than half of the current ten members of the Board are current or former chief executive officers, and nearly every current director has significant leadership experience.

Innovation and Technology Experience — Given the Company’s continued focus on driving innovation, directors with innovation and technology experience add significant value to the Board. As one of the few companies with an Innovation and Technology Committee, this is particularly important to the Company’s overall success.

International Experience — Directors with experience in markets outside the United States bring valuable knowledge to the Company as it expands its footprint in international markets.


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Marketing/Consumer Industry Experience — Directors with experience identifying, developing and marketing new and existing consumer products bring valuable skills that can have a positive impact on the Company’s operational results. Directors with experience dealing with consumers understand consumer needs and wants, recognize products and marketing/advertising campaigns that are most likely to resonate with consumers and are able to identify potential changes in consumer trends and buying habits.

Retail Experience — Directors with significant retail experience bring valuable insights that can greatly assist the Company in managing its relationships with its largest retail customers.

Financial Experience — Directors with an understanding of accounting, finance and financial reporting processes, particularly as they relate to a large, complex business, are critical to the Company. Accurate financial reporting is a cornerstone of the Company’s success, and directors with financial expertise help to provide effective oversight of the Company’s financial measures and processes.

A description of the most relevant experiences, skills, attributes and qualifications that qualify each director to serve as a member of the Board is included in his or her biography.

Leadership Structure

The Company’s governance documents provide the Board with flexibility to select the leadership structure that is most appropriate for the Company and its shareholders. The Board regularly evaluates the Company’s leadership structure and has concluded that the Company and its shareholders are best served by not having a formal policy regarding whether the same individual should serve as both Chairman of the Board and Chief Executive Officer (“CEO”). This approach allows the Board to elect the most qualified director as Chairman of the Board, while maintaining the ability to separate the Chairman of the Board and CEO roles when necessary.

Currently, the Company is led by James Hagedorn, who has served as CEO since May 2001 and as Chairman of the Board since January 2003. The Board believes that combining the roles of Chairman of the Board and CEO is in the best interests of the Company and its shareholders at this time as it takes advantage of the talent and experience of Mr. Hagedorn. The Board’s decision to appoint Mr. Hagedorn to lead the Company is supported by the Company’s success and track record of innovation since the time of Mr. Hagedorn’s appointment.

In addition to Mr. Hagedorn, the Board is currently comprised of nine non-employee directors, seven of whom also qualify as independent. In accordance with the Company’s Corporate Governance Guidelines and applicable sections of the New York Stock Exchange (“NYSE”) Listed Company Manual (the “NYSE Rules”), the non-employee directors of the Company regularly meet in executive session. These meetings allow non-employee directors to discuss issues of importance to the Company, including the business and affairs of the Company as well as matters concerning management, without any member of management present. In addition, the independent directors of the Company meet in executive session at least once a year and more frequently as matters appropriate for their consideration arise.

The directors elected Thomas N. Kelly Jr. to serve as the Company’s Lead Independent Director in July 2013. As Lead Independent Director, Mr. Kelly:

has the ability to call meetings of independent and/or non-employee directors;

presides at meetings of non-employee and/or independent directors;

consults with the Chairman of the Board and CEO with respect to appropriate agenda items for meetings of the Board;

serves as a liaison between the Chairman of the Board and the independent directors;

has the ability, in consultation with the Vice Chairman, to approve the retention of outside advisors and consultants who report directly to the Board on critical issues;

has the ability to approve the retention of outside advisors and consultants who report directly to the independent directors of the Board on critical issues, as needed or deemed appropriate;

can be contacted directly by shareholders; and

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performs such other duties as the Board may delegate from time to time.

In addition, the directors elected Katherine Hagedorn Littlefield to serve as Vice Chairman of the Board in July 2013. As Vice Chairman, Ms. Littlefield:

presides at meetings of the Board of Directors in the Chairman’s absence;

presides at meetings of the Shareholders in the Chairman’s absence;

has the ability, in consultation with the Lead Independent Director, to approve the retention of outside advisors and consultants who report directly to the Board on critical issues; and

performs such other duties as the Board may delegate from time to time.
 
Finally, the Board has established five standing committees to assist with its oversight responsibilities: (1) the Audit and Finance Committee (the “Audit and Finance Committee”); (2) the Compensation and Organization Committee (the “Compensation Committee”); (3) the Governance and Nominating Committee (the “Governance and Nominating Committee”); (4) the Innovation and Technology Committee (the “Innovation Committee”) and (5) the Strategy and Business Development Committee (the “Strategy Committee”). Each of the Audit and Finance, Compensation, and Governance and Nominating Committees is comprised entirely of independent directors.

The Board believes that its current leadership structure — including combined Chairman of the Board and CEO roles, seven out of ten independent directors, a Lead Independent Director, a Vice Chairman of the Board, and key committees comprised solely of independent directors — provides an appropriate balance among strategy development, operational execution and independent oversight and is therefore in the best interests of the Company and its shareholders.

Board Role in Risk Oversight

It is management’s responsibility to develop and implement the Company’s strategic plans and to identify, evaluate, manage and mitigate the risks inherent in those plans. It is the Board’s responsibility to oversee the Company’s strategic plans and to ensure that management is taking appropriate action to identify, manage and mitigate the associated risks. The Board administers its risk oversight responsibilities both through active review and discussion of enterprise-wide risks and by delegating certain risk oversight responsibilities to committees for further consideration and evaluation. The decision to administer the Board’s oversight responsibilities in this manner has a key effect on the Board’s leadership and committee structure.

Because the roles of Chairman of the Board and CEO are currently combined, to ensure proper oversight of management and the potential risks facing the Company, the directors annually elect a Lead Independent Director. In addition, the Board is comprised of predominantly independent directors and all members of the Board’s key committees — the Audit and Finance, Compensation, and Governance and Nominating Committees — are independent. This system of checks and balances helps to ensure that key decisions made by the Company’s most senior management, up to and including the CEO, are reviewed and overseen by independent directors of the Board.

In some cases, risk oversight is addressed by the full Board as part of its engagement with the CEO and other members of senior management. For example, the full Board conducts a comprehensive annual review of the Company’s overall strategic plan and the plans for each of the Company’s business units, including associated risks. To that end, management provides the Board with periodic reports regarding the significant risks facing the Company and how the Company is seeking to control or mitigate those risks. The Board also has responsibility for ensuring that the Company maintains appropriate succession plans for its senior officers and conducts an annual review of succession planning.

In other cases, the Board has delegated risk management oversight responsibilities to certain committees, each of which reports regularly to the full Board. The Audit and Finance Committee oversees the Company’s compliance with legal and regulatory requirements and its overall risk management process and oversight responsibility for financial risks. As part of its oversight role, the Audit and Finance Committee regularly reviews risks relating to the Company’s key accounting policies and receives reports regarding the Company’s most significant internal controls and compliance risks from the Company’s Chief Financial Officer as well as its internal auditors. Representatives of the Company’s independent registered public accounting firm attend each Audit and Finance Committee meeting, regularly make presentations to the Audit and Finance Committee, and comment on management presentations. In addition, the Company’s Chief Financial Officer and internal auditors, as well as

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representatives of the Company’s independent registered public accounting firm, individually meet in private session with the Audit and Finance Committee on a regular basis, affording ample opportunity to raise any concerns with respect to the Company’s risk management practices.

The Compensation Committee oversees risks relating to the Company’s compensation programs and practices. As discussed in more detail in the section captioned “Our Compensation Practices — Role of Outside Consultants” within the Compensation Discussion and Analysis, the Compensation Committee employs an independent compensation consultant to assist it in reviewing the Company’s compensation programs, including the potential risks created by and other impacts of these programs.

Finally, the Governance and Nominating Committee oversees issues related to the Company’s governance structure and other corporate governance matters and processes, as well as non-financial risks and compliance matters. In addition, the Governance and Nominating Committee is charged with overseeing compliance with the Company’s Related Person Transaction Policy. The Governance and Nominating Committee regularly reviews the Company’s key corporate governance documents, including the Corporate Governance Guidelines, the Related Person Transaction Policy and the Insider Trading Policy, to ensure they remain in compliance with the changing legal and regulatory environment and appropriately enable the Board to fulfill its oversight responsibilities.


PROPOSAL NUMBER 1

ELECTION OF DIRECTORS

At the Annual Meeting, four Class I directors will be elected. Three of the four individuals nominated by the Board for election as directors at the Annual Meeting are currently serving as Class I directors — James Hagedorn, Nancy G. Mistretta and Stephanie M. Shern. The Board also has nominated James F. McCann for election as a Class I director. The nomination of each individual was recommended to the Board by the Governance and Nominating Committee.

The individuals elected as Class I directors at the Annual Meeting will hold office for a three-year term expiring at the 2017 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified, or until their earlier death, resignation or removal. The individuals designated as proxy holders in the form of proxy intend to vote the Common Shares represented by the proxies received under this solicitation for the Board’s nominees, unless otherwise instructed on the form of proxy or through the telephone or Internet voting procedures. The Board has no reason to believe that any of the nominees will be unable or unwilling to serve as a director of the Company if elected. If any nominee becomes unable to serve or for good cause will not serve as a candidate for election as a director, then the individuals designated as proxy holders reserve full discretion to vote the Common Shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board following recommendation by the Governance and Nominating Committee. The individuals designated as proxy holders cannot vote for more than four nominees for election as Class I directors at the Annual Meeting.

The following information, as of December 4, 2013, with respect to the age, principal occupation or employment, other affiliations and business experience of each director or nominee for election as a director, has been furnished to the Company by each such director or nominee.


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Nominees Standing for Election to the Board of Directors

Class I — Terms to Expire at the 2014 Annual Meeting

 
James Hagedorn, age 58, Director of the Company since 1995 and Chairman of the Board since 2003
 
 
 
Mr. Hagedorn has served as CEO of the Company since May 2001 and Chairman of the Board since January 2003. In addition to serving as CEO and Chairman of the Board, he served as President of the Company from November 2006 until October 2008, and from April 2000 until December 2005. Mr. Hagedorn is the brother of Katherine Hagedorn Littlefield, a director of the Company.

Having joined both the Company and the Board in 1995, and having served as CEO for over a decade and Chairman of the Board for nearly as long, Mr. Hagedorn has more working knowledge of the Company and its products than any other individual. During his career at the Company, Mr. Hagedorn has developed extensive leadership, international, and marketing/consumer industry experience that has proven invaluable as he leads the Board through a wide range of issues.


 
James F. McCann, age 62, Nominee for Election as a Director of the Company
 
 
 
On October 31, 2013, the Board of Directors, upon the recommendation of the Governance and Nominating Committee, nominated Mr. McCann for election as a Class I member of the Board of Directors. Mr. McCann was recommended by Mr. Hagedorn. Mr. McCann is the Chairman of the Board and Chief Executive Officer of 1-800-Flowers.com, the world’s leading online florist and gift shop, and has served in that capacity since its inception in 1976, when Mr. McCann began a retail chain of flower shops in the New York metropolitan area.

Mr. McCann is currently a director and Chairman of the Board of Willis Group Holdings. During the past five years, Mr. McCann also has served as a director of Lottomatica Group S.p.A.

With nearly 40 years of business experience, and as a long-time Chairman and Chief Executive Officer of 1-800-Flowers.com, Mr. McCann brings considerable leadership, innovation and business acumen to the Board.


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Nancy G. Mistretta, age 59, Director of the Company since 2007
 
 
 
Ms. Mistretta is a retired partner of Russell Reynolds Associates (“Russell Reynolds”), an executive search firm, where she served as a partner from February 2005 until June 2009. She was a member of Russell Reynolds’ Not-For-Profit Sector and was responsible for managing executive officer searches for many large philanthropies, with a special focus on educational searches for presidents, deans and financial officers. Based in New York, New York, she was also active in the CEO/Board Services Practice of Russell Reynolds. Prior to joining Russell Reynolds, Ms. Mistretta was with JPMorgan Chase & Co. and its heritage institutions (collectively, “JPMorgan”) for 29 years and served as a Managing Director in Investment Banking from 1991 to 2005. Ms. Mistretta is currently a director of HSBC North America Holdings, Inc., HSBC USA Inc., and HSBC Bank USA, N.A.

Throughout her nearly 30-year career at JPMorgan, Ms. Mistretta has demonstrated a broad base of leadership, international, marketing/consumer industry, retail and financial experience, including through roles as Managing Director responsible for Investment Bank Marketing and Communications, industry head responsible for the Global Diversified Industries group and industry head responsible for the Diversified, Consumer Products and Retail Industries group. Her financial experience is particularly valuable to the Board in conjunction with her service as a member of the Audit and Finance Committee.

Committee Memberships: Audit and Finance; Compensation (Chair)

 
Stephanie M. Shern, age 65, Director of the Company since 2003
 
 
 
Mrs. Shern operated Shern Associates LLC, a retail consulting and business advisory firm, from February 2002 until 2011. From 1995 to April 2001, Mrs. Shern was the Vice Chairman and Global Director of Retail and Consumer Products for Ernst & Young LLP, and during that time and from 1981 was a partner at Ernst & Young serving various clients in the retail and consumer sectors. Mrs. Shern is a CPA and a member of the American Institute of CPAs and the New York State Society of CPAs. Mrs. Shern is currently a director and Chair of the Audit Committee and a member of the Remuneration Committee of Koninklijke Ahold N.V. (Royal Ahold) and a director and Chair of the Audit Committee of GameStop Corp., where she also serves as the lead independent director. During the past five years, Mrs. Shern has served as a director of CenturyLink, Inc.; Embarq Corporation; Sprint Nextel Corporation; and Nextel Communications, Inc.

Having spent a significant portion of her nearly 40-year career focused on retail and consumer industries in both the United States and abroad, Mrs. Shern has vast leadership, international, marketing/consumer industry and retail experience. In addition, as a CPA and Chair of the Audit Committee of both GameStop Corp. and Koninklijke Ahold N.V. (Royal Ahold), Mrs. Shern has extensive financial experience. This experience has proven valuable to the Board, where Mrs. Shern serves as Chair of the Audit and Finance Committee and as an “audit committee financial expert,” as that term is defined in the applicable rules and regulations of the SEC.

Committee Membership: Audit and Finance (Chair)



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Class II — Terms to Expire at the 2015 Annual Meeting

 
Alan H. Barry, age 70, Director of the Company since 2009
 
 
 
Mr. Barry is the former President and Chief Operating Officer of Masco Corporation (“Masco”), a manufacturer, distributor and installer of home improvement and building products, a position he held from April 2003 until his retirement in December 2007. Mr. Barry began his career at Masco in 1972. Mr. Barry serves as a director of two privately-held companies: IPS Corporation and H.W. Kaufman Financial Group, Inc.

As the former President and Chief Operating Officer of Masco, Mr. Barry brings significant leadership and marketing experience to the Board. His more than 35 years of experience at Masco, which emphasizes brand name products and services holding leadership positions in their markets, enable him to advise the Board on key brand-related strategies and initiatives. His current service as a director of H.W. Kaufman Financial Group, Inc. also provides him with extensive financial experience.

Committee Memberships: Audit and Finance; Governance (Chair)

 
Thomas N. Kelly Jr., age 66, Director of the Company since 2006
 
 
 
Mr. Kelly served as Executive Vice President, Transition Integration of Sprint Nextel Corporation, a global communications company, from December 2005 until April 2006. He served as the Chief Strategy Officer of Sprint Nextel Corporation from August 2005 until December 2005. He served as the Executive Vice President and Chief Operating Officer of Nextel Communications, Inc., which became Sprint Nextel Corporation, from February 2003 until August 2005, and as Executive Vice President and Chief Marketing Officer of Nextel Communications, Inc. from 1996 until February 2003. Mr. Kelly serves as a director of one other public company, GameStop Corp., where he also serves on the Compensation Committee.

Having served at various times as Chief Strategy Officer, Chief Operating Officer and Chief Marketing Officer of large communications companies, Mr. Kelly brings an extensive skill set to the boardroom. His blend of leadership, innovation and technology, international, marketing/consumer industry and financial experience make him a key advisor to the Board on a full range of consumer and strategy-related matters.

Committee Memberships: Compensation; Strategy


9

        

 
 John R. Vines, age 64, Director of the Company since 2013
 
 
 
On July 31, 2013, the Board of Directors, upon the recommendation of the Governance and Nominating Committee, appointed Lieutenant General (retired) Vines as a Class II member of the Board of Directors in order to fill an existing vacancy. General Vines has operated John R. Vines Associates LLC, a strategic provider of business consulting services since 2007. General Vines also has served as a Senior Consultant to McChrystal Group since 2011, as well as Senior Consultant to Mantech between 2007 and 2010. General Vines retired in 2007 from the U.S. Army after 35 years active service. He was in continuous command for his last six years of service, including Commander, U.S. Army’s XVIII Airborne Corps and Multi-National Corps Iraq. In addition, he commanded the Combined Joint Task Force 180 Afghanistan. General Vines also served as the Senior Defense Representative to Afghanistan and Pakistan and previously commanded the 82nd Airborne Division, which included a year-long deployment in Afghanistan. Following retirement, General Vines has acted as a Department of Defense Senior Mentor to U.S. Army and Joint senior leadership and deploying combat units, a member of the Defense Service Board and a member of the Army DARPA Senior Advisory Group.

With more than 35 years of active military service and significant consulting experience, General Vines brings extensive leadership, strategy and innovation experience to the Board.

Committee Memberships: Governance; Strategy

Class III — Terms to Expire at the 2016 Annual Meeting

 
Adam Hanft, age 63, Director of the Company since 2010
 
 
 
Mr. Hanft is the founder and Chief Executive Officer of Hanft Projects LLC, a strategic consultancy that provides marketing advice and insight to leading consumer and business-to-business companies as well as many leading digital brands. He writes broadly about the consumer culture for numerous publications and is the co-author of “Dictionary of the Future.” He is also a frequent commentator on marketing and branding issues. Prior to starting Hanft Projects LLC, Mr. Hanft served as founder and Chief Executive Officer of Hanft Unlimited, Inc., a marketing organization created in 2004 that included an advertising agency, strategic consultancy and custom-publishing operation.

As the Chief Executive Officer of Hanft Projects LLC, Mr. Hanft brings his extensive leadership, marketing/consumer industry and innovation and technology experience to the Board. His knowledge of the consumer marketplace, media and current branding initiatives has proven particularly valuable.

Committee Memberships: Governance; Innovation


10

        

 
Stephen L. Johnson, age 62, Director of the Company since 2010
 
 
 
Mr. Johnson is the President and Chief Executive Officer of Stephen L. Johnson and Associates Strategic Consulting, LLC (“Johnson and Associates”), a strategic provider of business, research and financial management and consulting services formed in 2009. Prior to forming Johnson and Associates, Mr. Johnson worked for the U.S. Environmental Protection Agency for 30 years, where he became the first career employee and scientist to serve as Administrator, a position he held from January 2005 through January 2009. Mr. Johnson serves as a director of M2 Renewables, Inc., Ener-Core, Inc. and as a Trustee of Taylor University.

As President and Chief Executive Officer of Johnson and Associates and the former Administrator of the U.S. Environmental Protection Agency, as well as a lifelong scientist, Mr. Johnson brings considerable leadership and innovation and technology experience to the Board. His appointment also filled a need for both regulatory and environmental expertise that was identified by the Governance and Nominating Committee.

Committee Memberships: Audit and Finance; Compensation; Innovation

 
Katherine Hagedorn Littlefield, age 58, Director of the Company since 2000
 
 
 
Ms. Littlefield is the Chair of Hagedorn Partnership, L.P. She also serves on the board for the Hagedorn Family Foundation, Inc., a charitable organization. She is the sister of James Hagedorn, the Company’s CEO and Chairman of the Board.

As the Chair of Hagedorn Partnership, L.P., the Company’s largest shareholder, Ms. Littlefield brings a strong shareholder voice to the boardroom. She also has significant innovation and technology experience, having served on the Company’s Innovation and Technology Committee since its formation in May 2004 and its Innovation Advisory Board (formerly known as the Scientific Advisory Board and the Innovation and Technology Advisory Board) since its formation in 2001.

Committee Memberships: Strategy; Innovation (Chair)

 
Michael E. Porter, Ph.D., age 66, Director of the Company since 2013
 
 
 
Professor Porter is the Bishop William Lawrence University Professor at Harvard Business School, where he has been a Professor since 1973. Professor Porter is a leading authority on competitive strategy and economic development. He is the author of 19 books and over 125 articles, and speaks widely on strategy, competitiveness, corporate responsibility and related subjects. Professor Porter is a founding member and member of the Executive Committee of the Council on Competitiveness, America’s leading private-sector competitiveness organization. He has served as a strategy advisor to top management in numerous leading U.S. and international companies and routinely advises national leaders in numerous countries on competitiveness.

Professor Porter currently serves as a director of Parametric Technology Corporation, a position that he has held since 1995. He is a director of Merrimack Corporation, where he has been director since December 2010. Professor Porter previously served as a director of Thermo Fisher Scientific Corporation.

As a professor of competitive strategy at Harvard Business School and a leading expert in the business strategy field, Professor Porter brings significant knowledge and expertise to the Board in the areas of strategy and international business.

Committee Membership: Strategy (Chair)


11

        

Recommendation and Vote

Under Ohio law and the Company’s Code of Regulations, the four nominees for election as Class I directors receiving the greatest number of votes FOR election will be elected as directors of the Company. Common Shares represented by properly executed and returned forms of proxy or properly authenticated voting instructions recorded through the Internet or by telephone will be voted FOR the election of the Board’s nominees, unless authority to vote for one or more of the nominees is withheld. Common Shares as to which the authority to vote is withheld and Common Shares represented by broker non-votes will not be counted toward the election of directors or toward the election of the individual nominees of the Board, as applicable.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF ALL OF THE ABOVE-NAMED CLASS I DIRECTOR NOMINEES.


MEETINGS AND COMMITTEES OF THE BOARD

Meetings of the Board and Board Member Attendance at Annual Meeting of Shareholders

The Board held seven meetings during the fiscal year ended September 30, 2013 (the “2013 fiscal year”). Each Board member attended at least 75% of the aggregate number of Board and applicable Board committee meetings during the 2013 fiscal year.

Although the Company does not have a formal policy requiring Board members to attend annual shareholder meetings, the Company encourages all directors to attend each such annual meeting. All of the directors attended the Company’s last Annual Meeting of Shareholders held on January 17, 2013.

Committees of the Board

The Board has established five standing committees to assist with its oversight responsibilities: (1) the Audit and Finance Committee; (2) the Compensation and Organization Committee; (3) the Governance and Nominating Committee; (4) the Innovation and Technology Committee and (5) the Strategy and Business Development Committee. Membership on each of these committees, as of December 4, 2013, is shown in the following chart: 
Audit and Finance
 
Compensation and
Organization
 
Governance and
Nominating
 
Innovation and Technology
 
Strategy and Business Development
Stephanie M. Shern (Chair)
 
Nancy G. Mistretta (Chair)
 
Alan H. Barry
(Chair)
 
Katherine Hagedorn Littlefield (Chair)
 
Michael E. Porter (Chair)
Alan H. Barry
 
Stephen L. Johnson
 
Adam Hanft
 
Adam Hanft
 
Thomas N. Kelly Jr.
Stephen L. Johnson
 
Thomas N. Kelly Jr.
 
John R. Vines
 
Stephen L. Johnson
 
Katherine Hagedorn Littlefield
Nancy G. Mistretta
 
 
 
 
 
 
 
John R. Vines

Audit and Finance Committee

In July 2013, the Board, upon the recommendation of the Governance and Nominating Committee, merged the previously existing Audit Committee and Finance Committee into a single combined Audit and Finance Committee. The Audit and Finance Committee, which was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is organized and conducts its business pursuant to a written charter adopted by the Board. A copy of the Audit and Finance Committee charter is posted under the “Corporate Governance” link on the Company’s Internet website at http://investor.scotts.com. At least annually, in consultation with the Governance and Nominating Committee, the Audit and Finance Committee evaluates its performance, reviews and assesses the adequacy of its charter and recommends to the Board any proposed changes thereto as may be necessary or desirable.

The Audit and Finance Committee is responsible for: (1) overseeing the accounting and financial reporting processes of the Company, including the audits of the Company’s consolidated financial statements; (2) appointing, compensating and overseeing the work of the independent registered public accounting firm employed by the Company; (3) establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing matters or other compliance matters; (4) assisting the Board in its oversight of: (a) the integrity of

12

        

the Company’s consolidated financial statements, (b) the Company’s compliance with applicable laws, rules and regulations, including applicable NYSE Rules, (c) the independent registered public accounting firm’s qualifications and independence and (d) the performance of the Company’s internal audit function; and (5) undertaking the other matters required by applicable NYSE Rules as well as the rules and regulations of the SEC (the “SEC Rules”). The Audit and Finance Committee also oversees the financial structure, policies and strategies of the Company and its subsidiaries. In discharging these duties, the Audit and Finance Committee oversees a broad range of financial matters, including the Company’s capital expenditures budget, investment policies, stock repurchase programs, dividend payments, cash management and corporate financing matters.

Pursuant to its charter, the Audit and Finance Committee has the authority to engage and compensate such independent counsel and other advisors as the Audit and Finance Committee deems necessary to carry out its duties.

The Board has determined that each member of the Audit and Finance Committee satisfies the applicable independence requirements set forth in the NYSE Rules and under Rule 10A-3 promulgated by the SEC under the Exchange Act. The Board believes each member of the Audit and Finance Committee is qualified to discharge his or her duties on behalf of the Company and its subsidiaries and satisfies the financial literacy requirement of the NYSE Rules. The Board has determined that Stephanie M. Shern, Alan H. Barry and Nancy G. Mistretta each qualify as an “audit committee financial expert” as that term is defined in the applicable SEC Rules. None of the members of the Audit and Finance Committee serves on the audit committee of more than two other public companies.

The Audit and Finance Committee, including its predecessor Audit Committee, met eight times during the 2013 fiscal year. Prior to the merger of the Audit Committee and Finance Committee, the previously existing Finance Committee met four times during the 2013 fiscal year.

The Report of the Audit and Finance Committee begins on page 72.

Compensation and Organization Committee

The Compensation Committee is organized and conducts its business pursuant to a written charter adopted by the Board. A copy of the Compensation Committee charter is posted under the “Corporate Governance” link on the Company’s Internet website located at http://investor.scotts.com. At least annually, in consultation with the Governance and Nominating Committee, the Compensation Committee evaluates its performance, reviews and assesses the adequacy of its charter and recommends to the Board any proposed changes thereto as may be necessary or desirable.

The Compensation Committee has responsibility for determining all elements of executive compensation and benefits for our CEO and other key executives of the Company and its subsidiaries, including the executive officers named in the Summary Compensation Table (the “NEOs”). As part of this process, the Compensation Committee determines the general compensation philosophy applicable to these individuals. In addition, the Compensation Committee advises the Board regarding executive officer organizational issues and succession plans. The Compensation Committee also acts upon all matters concerning, and exercises such authority as is delegated to it under the provisions of, any benefit or retirement plan maintained by the Company, and serves as the committee administering The Scotts Miracle-Gro Company Amended and Restated 1996 Stock Option Plan (the “1996 Stock Option Plan”), The Scotts Miracle-Gro Company Amended and Restated 2003 Stock Option and Incentive Equity Plan (the “2003 Equity Plan”), The Scotts Miracle-Gro Company Long-Term Incentive Plan (the “Long-Term Incentive Plan”), The Scotts Company LLC Amended and Restated Executive Incentive Plan (the “EIP”) and the Discounted Stock Purchase Plan.

Pursuant to its charter, the Compensation Committee has authority to retain special counsel, compensation consultants and other experts or consultants as it deems appropriate to carry out its functions and to approve the fees and other retention terms of any such counsel, consultants or experts. During the 2013 fiscal year, the Compensation Committee engaged an independent consultant from Frederic W. Cook & Co. to advise the Compensation Committee with respect to market practices and competitive trends in the area of executive compensation, as well as ongoing legal and regulatory considerations. The consultant provided guidance to assist the Compensation Committee in determining compensation for the CEO, the other NEOs and other key management employees. Frederic W. Cook & Co. did not provide consulting services directly to management. The role of Frederic W. Cook & Co. is further described in the section captioned “Our Compensation Practices — Role of Outside Consultants” within the Compensation Discussion and Analysis.

The Board has determined that each member of the Compensation Committee satisfies the applicable independence requirements set forth in the NYSE Rules and under Rule 10C-1 promulgated by the SEC under the Exchange Act. The Board also has determined that each member qualifies as an outside director for purposes of § 162(m) of the Internal Revenue Code of 1986, as amended (the “IRC”), and as a non-employee director for purposes of Rule 16b-3 under the Exchange Act.

13

        


The Compensation Committee met nine times during the 2013 fiscal year.

The Compensation Discussion and Analysis begins on page 23. The Compensation Committee Report appears on page 41.

Governance and Nominating Committee

The Governance and Nominating Committee is organized and conducts its business pursuant to a written charter adopted by the Board. A copy of the Governance and Nominating Committee charter is posted under the “Corporate Governance” link on the Company’s Internet website located at http://investor.scotts.com. At least annually, the Governance and Nominating Committee evaluates its performance, reviews and assesses the adequacy of its charter and recommends to the Board any proposed changes thereto as may be necessary or desirable.

The Governance and Nominating Committee recommends nominees for membership on the Board as well as policies regarding the composition of the Board generally. The Governance and Nominating Committee also makes recommendations to the Board regarding committee selection, including committee chairs and rotation practices, the overall effectiveness of the Board and of management (in the areas of Board relations and corporate governance), director compensation and developments in corporate governance practices. The Governance and Nominating Committee is responsible for developing a policy regarding the consideration of candidates recommended by shareholders for election or appointment to the Board and procedures to be followed by shareholders in submitting such recommendations, consistent with any shareholder nomination requirements that may be set forth in the Company’s Code of Regulations and applicable laws, rules and regulations. In considering potential nominees for election or appointment to the Board, the Governance and Nominating Committee conducts its own search for available, qualified nominees and will consider candidates from any reasonable source, including shareholder recommendations. The Governance and Nominating Committee is also responsible for developing and recommending to the Board corporate governance guidelines applicable to the Company and overseeing the evaluation of the Board.

The Board has determined that each member of the Governance and Nominating Committee satisfies the applicable independence requirements set forth in the NYSE Rules.

The Governance and Nominating Committee met thirteen times during the 2013 fiscal year.

Innovation and Technology Committee

The Innovation Committee is organized and conducts its business pursuant to a written charter adopted by the Board. A copy of the Innovation Committee charter is posted under the “Corporate Governance” link on the Company’s Internet website located at http://investor.scotts.com.

The Innovation Committee assists the Board by providing counsel to senior management regarding global science, technology and innovation issues and acts as the Board’s liaison to the Company’s Innovation Advisory Board, a board of experts that assists in carrying out the work of the Innovation Committee.

The Innovation Committee met three times during the 2013 fiscal year.

Strategy and Business Development Committee

The Strategy Committee is organized and conducts its business pursuant to a written charter adopted by the Board. A copy of the Strategy Committee charter is posted under the “Corporate Governance” link on the Company’s Internet website located at http://investor.scotts.com.

The primary purpose of the Strategy Committee is to assist the Board and management in strategic planning. In that regard, the Strategy Committee assists the Board in its oversight of the Company’s strategic planning process; acquisitions, divestitures and other significant corporate transactions; post-acquisition integration and business development opportunities; and the Company’s policies and practices with respect to corporate social responsibility, including stewardship and sustainability.

The Strategy Committee met once during the 2013 fiscal year.


14

        

Compensation and Organization Committee Interlocks and Insider Participation

The Compensation Committee is currently comprised of Nancy G. Mistretta, Stephen L. Johnson and Thomas N. Kelly Jr. With respect to the 2013 fiscal year and from October 1, 2013 through the date of this Proxy Statement, there were no interlocking relationships between any executive officer of the Company and any entity, one of whose executive officers served on the Company’s Compensation Committee or Board, or any other relationship required to be disclosed in this section under applicable SEC Rules.


CORPORATE GOVERNANCE

Corporate Governance Guidelines

In accordance with applicable sections of the NYSE Rules, the Board has adopted Corporate Governance Guidelines to promote the effective functioning of the Board and its committees. The Board, with the assistance of the Governance and Nominating Committee, periodically reviews the Corporate Governance Guidelines to ensure they remain in compliance with all applicable requirements and appropriately address evolving corporate governance issues. The Corporate Governance Guidelines were amended in July 2013 to, among other things, update the description of current Board committees to reflect the merger of the Audit Committee and Finance Committee into a single combined Audit and Finance Committee and the creation of a new Strategy and Business Development Committee, to add a description of the newly created Vice Chairman role, and to add a more detailed description of the Lead Independent Director role.

The Corporate Governance Guidelines are posted under the “Corporate Governance” link on the Company’s Internet website located at http://investor.scotts.com.

Director Independence

In consultation with the Governance and Nominating Committee, the Board has reviewed, considered and discussed the relationships, both direct and indirect, of each current director or nominee for election as a director with the Company and its subsidiaries, including those listed under the section captioned “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” and the compensation and other payments each director and each nominee has, both directly and indirectly, received from or made to the Company and its subsidiaries, in order to determine whether such director or nominee satisfies the applicable independence requirements set forth in the NYSE Rules and the SEC Rules. Based upon the recommendation of the Governance and Nominating Committee and its own review, consideration and discussion, the Board has determined that the following Board members satisfy such independence requirements and are, therefore, “independent” directors:
(1) Alan H. Barry
 
(5)  James F. McCann*
(2)  Adam Hanft
 
(6) Nancy G. Mistretta
(3) Stephen L. Johnson
 
(7) Stephanie M. Shern
(4)  Thomas N. Kelly Jr.
 
(8) John R. Vines
________________________

* Nominee for election as a Class I director

The Board determined that: (a) James Hagedorn is not independent because he is the Company’s CEO, (b) Katherine Hagedorn Littlefield is not independent because she is the sister of James Hagedorn, and (c) Michael E. Porter, Ph.D. is not independent because he has received consulting compensation from the Company that exceeds the threshold limit for determining whether a director can be considered independent. As discussed more fully in the section captioned “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” during the 2013 fiscal year period, we paid Professor Porter $150,000 in exchange for consulting services. We anticipate paying Professor Porter $100,000 during the 2014 fiscal year period in exchange for continued consulting services.

As part of its independence analysis for Lieutenant General (retired) John R. Vines, the Board noted that, as an independent contractor of McChrystal Group, he provided consulting services to the Company during the 2013 fiscal year. General Vines was compensated by McChrystal Group and did not receive direct compensation from the Company. General Vines continues to do contract work for McChrystal Group, but ceased providing consulting services to the Company in December 2012.


15

        

Nominations of Directors

The Board, taking into account the recommendations of the Governance and Nominating Committee, selects nominees to stand for election to the Board. The Governance and Nominating Committee considers candidates for the Board from any reasonable source, including current director, management and shareholder recommendations, and does not evaluate candidates differently based on the source of the recommendation. Pursuant to its written charter, the Governance and Nominating Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating director candidates and to approve the fees and other retention terms of any such consultant or search firm.

Shareholders may recommend director candidates for consideration by the Governance and Nominating Committee by giving written notice of the recommendation to the Corporate Secretary of the Company. The recommendation must include the candidate’s name, age, business address and principal occupation or employment, as well as a description of the candidate’s qualifications, attributes and other skills. A written statement from the candidate consenting to serve as a director, if so elected, must accompany any such recommendation.

The Company’s Corporate Governance Guidelines indicate that, in general, a director should not stand for re-election once he or she has reached the age of 72, but provide the Board with flexibility to nominate a director who is age 72 or older based on individual circumstances.

Communications with the Board

The Board believes it is important for shareholders and other interested persons to have a process pursuant to which they can send communications to the Board and its individual members, including the Lead Independent Director. Accordingly, shareholders and other interested persons who wish to communicate with the Board, the Lead Independent Director, the non-employee directors as a group, the independent directors as a group or any particular director may do so by addressing such correspondence to the name(s) of the specific director(s), to the “Lead Independent Director,” to the “Non-employee Directors” or “Independent Directors” as a group or to the “Board of Directors” as a whole, and sending it in care of the Company to the Company’s principal corporate offices at 14111 Scottslawn Road, Marysville, Ohio 43041. All such correspondence should identify the author as a shareholder or other interested person, explain such person’s interest and clearly indicate to whom the correspondence is directed. Correspondence marked “personal and confidential” will be delivered to the intended recipient(s) without opening. Copies of all correspondence will be circulated to the appropriate director or directors. There is no screening process in respect of communications from shareholders and other interested persons.

Code of Business Conduct and Ethics

In accordance with applicable NYSE Rules and SEC Rules, the Board has adopted The Scotts Miracle-Gro Company Code of Business Conduct and Ethics, which is available under the “Corporate Governance” link on the Company’s Internet website located at http://investor.scotts.com.

All employees of the Company and its subsidiaries, including each NEO, and all directors of the Company are required to comply with the Company’s Code of Business Conduct and Ethics. The Sarbanes-Oxley Act of 2002 and the SEC Rules promulgated thereunder require companies to have procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and to allow for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The procedures for addressing these matters are set forth in the Company’s Code of Business Conduct and Ethics.


16

        

Preferred Stock — “Declawing” Preferred Stock

The Company’s Articles of Incorporation, as amended, authorize the Board to issue up to 195,000 preferred shares (the “Preferred Shares”) and to adopt amendments to the Articles of Incorporation in respect of any unissued Preferred Shares in order to fix or change, among other things, the division of the Preferred Shares into series, the dividend or distribution rights associated with the Preferred Shares, the liquidation rights, preferences and price of the Preferred Shares, and the redemption rights, voting rights, pre-emptive rights and conversion rights associated with the Preferred Shares. Although the Articles of Incorporation do not limit the purposes for which the Preferred Shares may be issued or used, the Board represents that it will not, without prior shareholder approval, issue or use the Preferred Shares for any defensive or anti-takeover purpose, for the purpose of implementing any shareholder rights plan, or with features intended to make any attempted acquisition of the Company more difficult or costly. Within these limits, the Board may issue Preferred Shares for capital raising transactions, acquisitions, joint ventures or other corporate purposes that have the effect of making an acquisition of the Company more difficult or costly.



17

        

NON-EMPLOYEE DIRECTOR COMPENSATION

Benchmarking Board of Director Compensation

The Board believes that non-employee director compensation should be competitive with similarly situated companies and should encourage high levels of ownership of the Company’s Common Shares. In 2011, the Board engaged an independent consultant from Frederic W. Cook & Co. to conduct a benchmark study of non-employee director compensation (the “2011 Study”), which was used as the basis for determining the non-employee director compensation structure for the 2012 and 2013 calendar years. For purposes of the 2011 Study, Frederic W. Cook & Co. compared each element of non-employee director compensation against the same 24 companies that comprised the peer group used to benchmark NEO compensation at that time (the “Compensation Peer Group”). The Board believes that these 24 consumer products-oriented companies, with annual revenues ranging between $0.9 billion and $8.8 billion, appropriately reflect the size and overall complexity of the Company. For further discussion of the Compensation Peer Group, see section captioned “Our Compensation Practices — Compensation Peer Group” within the Compensation Discussion and Analysis.

The survey information for the 2011 Study was compiled from definitive proxy statement filings for the peer group companies. Based on the 2011 Study, the average compensation for the Company’s non-employee directors in calendar year 2013 were above the 75th percentile when compared to the Compensation Peer Group. The Board believes this level of compensation is competitive and determined that no changes to the overall compensation structure for non-employee directors were necessary for the 2013 calendar year. In 2013, the Board engaged Frederic W. Cook & Co. to update the benchmark study (the “2013 Study”). The 2013 Study will be used for purposes of evaluating non-employee director compensation levels for the 2014 calendar year.

Structure of Non-Employee Director Compensation

The compensation structure for non-employee directors, which is established by the Board on a calendar-year basis, reflects a combination of annual cash retainers and equity-based compensation granted in the form of deferred stock units (“DSUs”), as follows:  
 
Annual Retainers Paid in Cash(1)
Value of
DSUs Granted
 
 
 
Board Membership
$
100,000

$
70,000

Lead Independent Director
$
15,000

$
35,000

Additional Compensation for Committee Chairs:
 

 

• Audit(2)
$

$
25,000

• Compensation
$

$
25,000

• Finance(2)
$

$
25,000

• Governance and Nominating
$

$
25,000

• Innovation
$

$
25,000

• Strategy
$

$
25,000

Additional Compensation for Committee Membership:
 

 

• Audit(2)
$

$
17,500

• Compensation
$

$
12,500

• Finance(2)
$

$
12,500

• Governance and Nominating
$

$
12,500

• Innovation
$

$
12,500

• Strategy
$

$
12,500

________________________

(1)
The annual cash-based retainer is paid in quarterly installments.

(2)
In July 2013, the Board merged the previously existing Audit Committee and Finance Committee into a single combined Audit and Finance Committee.

In addition to the above compensation elements, non-employee directors also receive reimbursement of all reasonable travel and other expenses for attending Board meetings or other Company-related functions.

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Equity-Based Compensation

For the 2013 calendar year, the equity-based compensation for non-employee directors was granted in the form of DSUs. Each whole DSU represents a contingent right to receive one full Common Share.

Dividend Equivalents

Each DSU is granted with a related dividend equivalent, which represents the right to receive additional DSUs in respect of dividends that are declared and paid in cash in respect of the Common Shares underlying the DSUs, during the period beginning on the grant date and ending on the settlement date. Such cash dividends are converted to DSUs based on the fair market value of Common Shares on the date the dividend is paid. Dividends declared and paid in the form of Common Shares are converted to DSUs in proportion to the dividends paid per Common Share.

Vesting and Settlement

DSU grants for non-employee directors are typically approved by the Board at a meeting held on the same date as the annual meeting of shareholders. The grant date is established as the first business day after the Board approves the grant. For the 2013 calendar year, DSUs were granted to the non-employee directors on January 18, 2013. There were additional DSUs granted certain non-employee directors on August 2, 2013 to reflect changes in Board committee assignments and Lead Independent Director role. In general, the DSUs granted to non-employee directors in the 2013 calendar year, including dividend equivalents converted to DSUs, vest on the third anniversary of the grant date, but are subject to earlier vesting or forfeiture, as the case may be, in the event of death, disability or retirement. Subject to the terms of the Long-Term Incentive Plan, whole vested DSUs will be settled in Common Shares and fractional DSUs will be settled in cash as soon as administratively practicable, but in no event later than 90 days following the earliest to occur of: (i) termination; (ii) death; (iii) disability; or (iv) the third anniversary of the grant date. Upon a change in control of the Company, each non-employee director’s outstanding DSUs will vest on the date of the change in control and settle as described above. Until the DSUs are settled, a non-employee director has none of the rights of a shareholder with respect to the Common Shares underlying the DSUs other than with respect to the dividend equivalents.

Deferral of Cash-Based Retainers

For the 2013 calendar year, the non-employee directors had the option to elect, in advance, to receive up to 100% of their quarterly cash retainers in cash or fully-vested DSUs. If DSUs were elected, the non-employee director received the number of DSUs determined by dividing the deferral amount by the closing price of one Common Share on NYSE on the applicable grant date. DSUs granted in connection with deferral elections will be settled on the same terms as described above. For the 2013 calendar year, Mr. Hanft made an election to receive 50% of his quarterly retainers in fully vested DSUs and Mr. Johnson made an election to receive 25% of his quarterly retainers in fully vested DSUs. None of the other non-employee directors elected to defer any portion of their 2013 calendar year cash retainer.

Non-Employee Director Stock Ownership Guidelines

The Board believes that ownership of Common Shares strengthens directors’ commitment to the long-term future of the Company and further aligns their interests with those of the Company’s shareholders. Accordingly, the Board has adopted stock ownership guidelines applicable to all non-employee directors. Under the stock ownership guidelines, each non-employee director is expected to own Common Shares having a value of at least five times the annual cash retainer. For purposes of determining compliance with the stock ownership guidelines, the value of beneficially-owned shares is determined as follows:

100% of the value of Common Shares directly registered to the director and/or held in a brokerage account;

60% of the “in-the-money” portion of any non-qualified stock option (“NSO”) or stock appreciation right (“SAR”), whether vested or unvested; and

60% of the value of unsettled full-value awards (e.g., deferred stock units).

The stock ownership guidelines require each non-employee director to retain 50% of the net shares realized from equity-based awards (after covering any exercise cost and the required tax withholding obligations) until the ownership guideline has been achieved.

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Non-Employee Director Compensation Table

The following table sets forth the compensation awarded to, or earned by, each of the non-employee directors of the Company for the 2013 fiscal year. Mr. Hagedorn, the Company’s Chairman of the Board and CEO did not receive any additional compensation for his services as a director. Accordingly, Mr. Hagedorn’s compensation is reported in the section captioned “EXECUTIVE COMPENSATION” and is not included in the table below.

Non-Employee Director Compensation Table
Name
Fees
Earned or
Paid in
Cash ($)(1)
 
Stock
Awards
($)(7)(8)
 
Option
Awards
($)(9)
 
All Other Compensation
 
Total ($)
Alan H. Barry
100,000

 
112,584

 
 
 
 
212,584

Joseph P. Flannery (former)
25,000

(2)

 
 
19,023

(10)
44,023

Adam Hanft
100,000

 
95,032

 
 
 
 
195,032

Stephen L. Johnson
100,000

 
102,366

 
 
 
 
202,366

William G. Jurgensen (former)
75,000

(3)
100,033

 
 
 
 
175,033

Thomas N. Kelly Jr.
103,750

(4)
122,984

 
 
 
 
226,734

Carl F. Kohrt, Ph.D. (former)
86,250

(5)
130,043

 
 
 
 
216,293

Katherine Hagedorn Littlefield
100,000

 
120,040

 
 
 
 
220,040

Nancy G. Mistretta
100,000

 
128,193

 
 
 
 
228,193

Michael E. Porter, Ph.D.
75,000

 
100,249

 
 
 
 
175,249

Stephanie M. Shern
100,000

 
112,515

 
 
 
 
212,515

John S. Shiely (former)
75,000

(6)
120,040

 
 
 
 
195,040

John R. Vines
16,667

 
39,616

 
 
 
 
56,283

________________________

(1)
Reflects the cash-based retainer earned for services rendered during the 2013 fiscal year, paid at a rate of $25,000 per quarter. With respect to Mr. Hanft, consistent with his election to defer 50% of his cash retainer, the amount reported includes $12,500 in cash fees for each quarter from January 1, 2013 through September 30, 2013 (for a total of $37,500) that were deferred and awarded in the form of fully vested DSUs on each of January 18, 2013, April 1, 2013 and July 1, 2013. With respect to Mr. Johnson, consistent with his election to defer 25% of his cash retainer, the amount reported includes $6,250 in cash fees each quarter from October 1, 2012 through September 30, 2013 (for a total of $25,000) that were deferred and awarded in the form of fully vested DSUs on each of October 1, 2012, January 18, 2013, April 1, 2013 and July 1, 2013.

(2)
Reflects prorated cash-based retainer for services rendered during the 2013 fiscal year through Mr. Flannery’s date of retirement on December 11, 2012.

(3)
Reflects prorated cash-based retainer for services rendered during the 2013 fiscal year through Mr. Jurgensen's date of resignation on June 3, 2013.

(4)
Reflects an additional cash-based retainer of $3,750 for Mr. Kelly’s service as the Company’s Lead Independent Director from July 1, 2013 through September 30, 2013.

(5)
Reflects prorated cash-based retainer for services rendered during the 2013 fiscal year, including an additional cash-based retainer of $11,250 for services as the Company's Lead Independent Director through Dr. Kohrt's date of resignation on May 31, 2013.

(6)
Reflects prorated cash-based retainer for services rendered during the 2013 fiscal year through Mr. Shiely's date of resignation on May 28, 2013.

(7)
Reflects the aggregate grant date fair value of DSUs granted during the 2013 fiscal year. The value of each DSU was determined using the fair market value of the underlying Common Share on January 18, 2013 or August 2, 2013

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respectively, the applicable date of the grant, and was calculated in accordance with the equity compensation accounting provisions of FASB ASC Topic 718, without respect to forfeiture assumptions.

(8)    The aggregate number of Common Shares subject to DSUs (including both vested and unvested DSUs, as well as DSUs granted as a result of converting dividend equivalents) outstanding as of September 30, 2013 was as follows:
Name
Aggregate Number of
Common Shares
Subject to Stock
Awards Outstanding
as of September 30, 2013*
Alan H. Barry
12,144

Joseph P. Flannery (former)

Adam Hanft
11,835

Stephen L. Johnson
8,232

William G. Jurgensen (former)

Thomas N. Kelly Jr.
14,401

Carl F. Kohrt, Ph.D. (former)

Katherine Hagedorn Littlefield
15,048

Nancy G. Mistretta
15,437

Michael E. Porter, Ph.D.
2,258

Stephanie M. Shern
14,526

John S. Shiely (former)

John R. Vines
773

 
*
All fractional Common Shares have been rounded to the nearest whole Common Share.


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(9)
While there were no options granted to non-employee directors during the 2013 fiscal year, the aggregate number of Common Shares subject to option awards outstanding as of September 30, 2013 was as follows:
Name
Aggregate Number of
Common Shares Subject to
Option Awards Outstanding
as of September 30, 2013
Alan H. Barry

Joseph P. Flannery (former)
28,579

Adam Hanft

Stephen L. Johnson

William G. Jurgensen (former)

Thomas N. Kelly Jr.
21,442

Carl F. Kohrt, Ph.D. (former)

Katherine Hagedorn Littlefield
42,859

Nancy G. Mistretta

Michael E. Porter, Ph.D.
19,691

Stephanie M. Shern

John S. Shiely (former)
7,000

John R. Vines


(10)
In connection with Mr. Flannery's retirement from the Board in December 2012 he was awarded a retirement gift that consisted of two flights on Company-owned aircraft for him and his wife. The value reported for his personal usage reflects the Company's direct operating costs of the flights and does not include the cost of ferry legs, i.e., “deadhead flights.”


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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Discussion and Analysis (the “CD&A”) is intended to provide insight to our shareholders regarding our executive compensation philosophy, the structure of our executive compensation programs and the factors that are considered in making compensation decisions for the Named Executive Officers (NEOs).

Executive Summary

The Company believes its compensation practices and the overall level of executive pay are competitive when compared with our Compensation Peer Group and reflect fair pay relative to the financial performance of our company. Proposal Number 2, found on page 66, provides shareholders an opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our NEOs as set forth in this Proxy Statement. At our 2013 Annual Meeting of Shareholders, our shareholders had the opportunity to provide an advisory vote on the compensation paid to our NEOs, a so-called “Say-on-Pay” vote. Over 87% of the votes cast by our shareholders were in favor of our “Say-on-Pay” vote. Accordingly, the Compensation Committee generally believes that such results affirmed shareholder support of our approach to executive compensation and did not believe it was necessary to, and therefore did not make any significant changes to our executive compensation program solely in response to the vote.

Our compensation programs are intended to align our NEOs’ interests with those of our shareholders by rewarding performance that meets or exceeds the goals the Compensation Committee establishes with the objective of increasing shareholder value. Where such goals are met or exceeded, our compensation programs are designed to provide higher payouts to our NEOs and vice versa. Accordingly, based on exceeding the pre-defined performance goals for the 2013 fiscal year, our NEOs achieved incentive payouts that were slightly above target, which made our variable pay considerably higher than the prior two years when we did not achieve our financial goals.

Coming into the 2013 fiscal year the Compensation Committee completed a retrospective assessment of our compensation programs and practices, as well as a forward looking assessment of the state of the lawn and garden business over the next two to three years. Looking back, the Compensation Committee concluded that the impact of environmental factors, such as weather and commodity cost related influences, combined with the Company’s history of setting overly optimistic performance goals, had contributed to volatility in our variable compensation, that, over time, was having a destabilizing effect on our people. Looking forward, following two consecutive years of delivering financial results below expectations (the 2011 and 2012 fiscal years), the Compensation Committee determined that, given the near-term economic uncertainty and low growth prospects in the lawn and garden business, it should temporarily de-risk the overall compensation structure for the NEOs and other key management employees over the next two-year planning horizon. While the Compensation Committee remains committed to the principles of performance-based pay over the long-run, it concluded that, on a temporary basis, it was in the best interest of the Company and its shareholders to bring more stability to executive compensation to mitigate retention concerns attributed to the belief that the Company had begun to fall behind its peers in terms of actual pay delivered since the 2010 fiscal year. The temporary “de-risking” strategy adopted by the Compensation Committee incorporates the following principles:

Increase focus/weighting on annual base pay and short-term incentives;

Reduce the number of metrics in the annual incentive plan and focus on short-term profitability improvements;

Set realistic performance targets in the short-term plan that reflect the current low growth operating environment and the exposure to weather-related performance volatility; and

Structure long-term awards with a bias to promote retention, while adding a one-year performance goal sufficient to qualify the awards as performance-based for tax purposes.

For the 2013 fiscal year the “de-risking” strategy is primarily reflected in the level of base pay increases awarded to certain NEOs as well as the Compensation Committee’s decision to grant the 2013 long-term awards for the NEOs other than the CEO in the form of performance units (“PUs”) that are structured to promote retention, while providing a one-year performance goal that is sufficient to qualify the awards as “performance-based” for purposes of preserving the Company’s tax deduction under IRC § 162(m). The 2013 long-term awards for the CEO contain an additional performance goal that was intended to put more of his award at risk than that of the other NEOs. See section captioned “Elements of Executive Compensation — Long-Term Equity-Based Incentive Awards” for additional discussion of the performance goals.

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The summary below highlights (i) our belief that executive pay should be linked to shareholder value creation, (ii) the tie between 2013 executive compensation and our financial performance and (iii) key market practices reflected in the design of our compensation programs.

We Believe in Linking Pay to Shareholder Value Creation

Linking executive pay to shareholder value creation is central to the design of our executive compensation programs. The Compensation Committee strives to achieve that linkage over both a short-term and a long-term horizon, and, as reflected through the temporary “de-risking” strategy discussed above, the Compensation Committee exercises its discretion to make adjustments to the design of our programs to ensure that our executives are rewarded fairly, over time, relative to the shareholder value they help create. The design of our compensation programs includes the following measures to ensure that compensation granted to our NEOs is aligned with the interests of our key stakeholders and the key drivers of shareholder value creation:

A significant portion of the total direct compensation opportunity for each of our NEOs is tied directly to short-term financial performance or long-term appreciation of our share price, directly aligning the interests of the NEOs with our shareholders. Approximately 80% of the pay opportunity for our CEO is tied to variable pay opportunities. For our President and Chief Operating Officer, approximately 75% of his pay opportunity is tied to variable pay opportunities and for our other NEOs, variable pay represents approximately 60% of their pay opportunity.

Our annual incentive compensation program is heavily weighted to profitability and return on capital, two key drivers of long-term value creation. The plan also includes a funding trigger (which ensures credit facility compliance) intended to mitigate the potential risk associated with short-term decisions by our NEOs that may not be in the best interest of the Company or its key stakeholders. Failure to meet the funding trigger jeopardizes the eligibility of our NEOs to receive annual incentive awards.

For 2013, 50% of the long-term grant value awarded to our CEO was tied to a performance goal that required at least a 12% increase in our EPS for the 2013 fiscal year, or the portion of the award associated with this goal would have been forfeited.

Executive Compensation Reflects Financial Performance and Fair Target Setting

Consistent with our compensation program design, our compensation program results for the 2013 fiscal year appropriately reflected the financial results that we projected and delivered:

The target performance level for the 2013 fiscal year annual incentive plan was set based on an expectation that the Company would realize flat net sales on a consolidated basis versus the prior year, but would deliver strong bottom line profitability improvements through concentrated SG&A reductions, margin improvements and strategic price increases;

As projected, our adjusted earnings before interest, taxes and amortization (EBITA) on a consolidated basis, which was the primary performance metric under the annual incentive plan for the 2013 fiscal year, increased by 28.7% compared to the 2012 fiscal year, resulting in incentive payouts above target for the NEOs; and

Our shareholders realized a 26.6% increase in share price compared to the end of the 2012 fiscal year and our NEOs achieved an overall incentive payout level approximately 8% above target.

The Compensation Committee believes the level of variable compensation reported for our NEOs in the Summary Compensation Table is fair when considering the overall financial performance achieved by the Company for the 2013 fiscal year.

Compensation Design Reflects Key Market Practices

We are committed to periodically making adjustments to our compensation practices to further align our executive compensation design with our shareholders’ interests and current market practices, including:

Performance-Based Pay: Consistent with our pay-for-performance philosophy, approximately 80% of the annual compensation opportunity for our CEO was delivered in the form of variable pay tied to financial performance. For

24

        

our President and Chief Operating Officer, approximately 75% of his pay opportunity is tied to variable pay opportunities and for our other NEOs, variable pay represents approximately 60% of their pay opportunity.

No Employment Agreements: The Company no longer maintains employment agreements with any of the NEOs. Severance benefits for the CEO are now provided under a new executive severance agreement (see section captioned “Other Executive Compensation Policies, Practices and Guidelines — Recent Developments” for further details). Severance benefits for the NEOs currently employed by the Company, other than the CEO, are provided under an executive severance plan.

Limited Use of Gross-Ups: We limit our use of tax gross-up payments to those relating to relocation-related benefits. During the 2013 fiscal year no tax gross-up payments were made to any of the NEOs.

Limited Executive Perquisites: Beginning in January 2013, the Company has discontinued car allowances and financial planning services for the NEOs and, beginning in January 2014, the monthly commuting allowance paid to our CEO will also be discontinued.

Double-Trigger Change in Control Provisions: Our plans include “double-trigger” change in control provisions, which preclude acceleration of vesting of outstanding cash and equity-based awards upon a change in control if such awards are assumed or substituted. In these instances, our plans preclude acceleration of vesting unless an employee is terminated.

Clawback Provisions: All of our equity-based awards and annual incentive awards contain provisions designed to recoup such awards for violation of non-compete covenants or engaging in conduct that is detrimental to the Company. In addition, the Compensation Committee previously approved the Executive Compensation Recovery Policy, which allows the Company to recover annual incentive award payments and equity award distributions in the event of a required accounting restatement due to material non-compliance with any financial reporting requirement.

Stock Ownership Guidelines; Prohibition on Short-Sales: Our stock ownership guidelines are designed to align the interests of each NEO with the long-term interests of the shareholders by ensuring that a material amount of each NEO’s accumulated wealth is maintained in the form of Common Shares. The ownership guidelines, which are competitive with the levels maintained by our Compensation Peer Group, are: 10 times base salary for the CEO, 5 times base salary for the President and 3 times base salary for all other NEOs. The Company’s Insider Trading Policy provides that no person subject to the policy, which includes all NEOs, among others, may engage in short sales of the Company’s securities.

No Excess Benefit Retirement Plan: Our excess benefit plan was frozen effective December 31, 1997, and the only NEO who was enrolled in this plan prior to this date is our CEO, Mr. Hagedorn.

Independent Consultants: Our Compensation Committee engages an independent consultant to advise with respect to executive compensation levels and practices. The consultant provides no services to management and had no prior relationship with any of our NEOs.

Tally Sheets: Our Compensation Committee uses tally sheets in order to obtain a perspective on the overall level of executive compensation and wealth accumulation, the relationship between short-term and long-term compensation elements, and how each element relates to our compensation philosophy and guiding principles.

Our Compensation Philosophy and Objectives

Objectives: The culture of our Company is based on a strong bias for action aimed at delivering sustainable results. Our compensation programs are structured to promote accountability and a performance-based culture with significant emphasis on variable pay in the form of both short-term and long-term incentives and are designed to achieve the following objectives:

Attracting, retaining and motivating top leadership talent;

Driving performance that generates long-term profitable growth;

Promoting behaviors that reinforce our business strategy and desired culture;

Encouraging teamwork across business units and functional areas; and

25

        


Connecting rewards to shareholder value creation.

Guiding Principles: The Company has adopted guiding principles as a framework for making compensation decisions while preserving the flexibility needed to respond to the competitive market for executive talent. Our guiding principles for compensation are as follows:

Structure total compensation levels within the competitive market range for similar executive roles, which is generally viewed as the pay range between the 25th percentile and the 75th percentile of the Compensation Peer Group (the “Competitive Market Range”);

Place greater emphasis on variable pay versus fixed pay;

Notwithstanding the temporary de-risking strategy discussed above, emphasize pay-for-performance to motivate both short-term and long-term performance for the benefit of shareholders; and

Provide the opportunity for meaningful wealth accumulation over time, tied directly to shareholder value creation.

Setting Pay Levels and Pay Mix: The Compensation Committee exercises its discretion to position individual pay levels and pay mix (how much of the pay opportunity is derived from base salary, target incentive opportunity and long-term value) higher or lower in the Competitive Market Range based on a subjective assessment of the individual facts and circumstances, including:

The relative degree of organizational impact and influence of the role (what we refer to as “role-based pay”);

The competency, experience and skill level of the executive; and

The overall level of personal performance and expected contribution to the success of our business in the future.

Elements of Executive Compensation

To best promote the objectives of our executive compensation program, the Company relies on a mix of five principal short-term and long-term compensation elements. For the 2013 fiscal year, the elements of executive compensation were as follows:

Base salary;

Annual cash incentive compensation;

Long-term equity-based incentive awards;

Executive perquisites and other benefits; and

Retirement plans and deferred compensation benefits.

The Compensation Committee has responsibility for determining all elements of compensation granted to Mr. Hagedorn, our CEO, and other key management employees, including the other NEOs listed in the Summary Compensation Table. For each NEO, the Compensation Committee reviews each element of compensation, as well as the relative mix or weighting of elements, on an annual basis.


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Base Salary (short-term compensation element)

Base salary is the primary fixed element of total compensation and serves as the foundation of the total compensation structure since most of the variable compensation elements are linked directly or indirectly to the base salary level. Base salaries of the NEOs are reviewed on an annual basis and compared against the Competitive Market Range for similar positions based on survey data provided by the Company’s compensation consultants. The Compensation Committee exercises its discretion to position individual base salary levels for the NEOs within the Competitive Market Range based on a subjective assessment of organizational and individual qualities and characteristics, including the strategic importance of the individual’s job function to the Company as well as an NEO’s experience, competency, skill level, overall contribution to the success of our business and potential to make significant contributions to the Company in the future.

Annual Cash Incentive Compensation (short-term compensation element)

The Scotts Company LLC Amended and Restated Executive Incentive Plan (EIP) provides annual cash incentive compensation opportunities based on various performance metrics related to the financial performance of the Company and its business units. For the 2013 fiscal year, the EIP was intended to focus on key value drivers, with emphasis on capital utilization and profitability. The EIP is grounded by the following set of core guiding principles, which are reflective of our compensation philosophy and are intended to support a sustainable plan design:

Accountability — plans are heavily weighted to individual region and business unit performance;

Focus — pick a few things and do them well;

Alignment — plans are aligned with overall business strategy and growth objectives;

Simplicity — plans are easy to understand and communicate; and

Differentiation — plans recognize the unique aspects of regions and business units, as well as individual performance.

EIP Performance Metrics: For the 2013 fiscal year, the incentive awards for all NEOs were based on the following performance measures, each of which is calculated at the consolidated Company level:

Return on Invested Capital (ROIC) — net operating profit after tax divided by average invested capital; and

Adjusted EBITA — earnings before interest, taxes and amortization, adjusted to exclude discontinued operations, impairment, restructuring and other non-cash charges.

Note:
The Compensation Committee believes that the performance metrics should not be influenced by currency fluctuations and, therefore, where applicable, the EIP metrics reflect currency translation based on budgeted exchange rates, which is in contrast to actual exchange rates employed for currency conversions used for accounting principles generally accepted in the United States of America (“U.S. GAAP”) reporting. As a result, there could be a difference between the Company’s reported financial results and the amounts used for purposes of calculating incentive payouts under the EIP.

The Compensation Committee believes that these measures reflect key value drivers of the business and align management with shareholder interests.

As reflected in the table below, the minimum performance goals required to achieve a threshold payout of 50% reflect ROIC and profit growth of approximately 11% versus the prior year actual. The target performance goals required to achieve a payout of 100% reflect ROIC and profit growth of approximately 28% versus the prior year. The maximum performance goals, which reflect ROIC and profit growth of approximately 42% versus the prior year, were set at a stretch performance level that the Compensation Committee believed to be achievable.


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The consolidated Company-level performance goals and actual performance results for the 2013 fiscal year (with dollars in millions) were:
 
Metric
Weighting
 
Payout Level
 
Performance
Results
 
Calculated
Payout %
Metric
50.0%
 
100.0%
 
150.0%
 
225.0%
 
ROIC
25%
 
10.0%
 
11.5%
 
12.3%
 
13.4%
 
11.04%
 
84.7%
Adjusted EBITA
75%
 
$296.8
 
$341.0
 
$364.7
 
$394.6
 
$348.5
 
115.8%
Weighted Payout %
 
108.0%

Funding Trigger: The EIP design includes a funding trigger that is intended to ensure alignment between management and key stakeholders. Specifically, payouts under the EIP are subject to the Company remaining in compliance with the quarterly debt/EBITDA ratio requirement under its credit facility.

Individual Discretionary Component: The EIP also includes a discretionary component to further distinguish individual performance. The Compensation Committee may exercise its discretion to adjust the total weighted incentive award calculated under the EIP for each plan participant based on various business factors, including individual performance. As a result, an individual participant could receive a total incentive payout that differs from the payout that would be calculated based solely on achievement of the performance metrics under this plan.

For the 2013 fiscal year, 80% of the total weighted payout (the non-discretionary portion) for plan participants was determined based directly on achievement of the performance metrics, with the remaining 20% (the discretionary portion) awarded at the discretion of the Compensation Committee based on each NEO’s performance during the fiscal year. For further discussion of the discretionary incentive amounts awarded to the NEOs for the 2013 fiscal year, see the Summary Compensation Table.

Tax Deductibility: The Compensation Committee oversees the operation of the EIP, including approval of the plan design, performance objectives and payout targets for each fiscal year, and attempts to qualify the underlying payouts as performance-based compensation for purposes of IRC § 162(m) in order to maximize the tax deductibility of such compensation for the Company.

Long-Term Equity-Based Incentive Awards (long-term compensation element)

Long-term incentive compensation is an integral part of total compensation for Company executives and directly ties rewards to performance that is intended to create and enhance shareholder value. The Compensation Committee targets the grant value (equity award value) of long-term equity-based incentive awards within the Competitive Market Range. Consistent with the Company’s performance-based pay philosophy, the Compensation Committee exercises its discretion to position the targeted grant value of individual equity-based incentive awards within the Competitive Market Range based on factors such as the overall performance level of the individual, the overall contribution of the individual to the success of the business, years of service and the potential of the individual to make significant contributions to the Company in the future.

As part of a review of the effectiveness of our executive compensation programs over the past few years, the Compensation Committee concluded, in hindsight, that the target setting practices associated with the performance-based long-term awards granted to the NEOs over the past several years did not reasonably account for the weather related volatility over a rolling three-year performance period. As a result, the PUs granted to the NEOs in the 2011 fiscal year, which were based on a cumulative EPS goal for the three-year performance period which ended on September 30, 2013, were completely forfeited (representing a permanent loss of 30% of the grant date value of 2011 long-term awards). Over the same three-year time horizon, our shareholders realized a total shareholder return of approximately 15%, resulting in misalignment in the linkage between shareholder value creation and executive pay. A similar situation exists with respect to the PUs granted during the 2012 fiscal year, which are tied to an average ROIC goal over the three-year performance period ending September 30, 2014. Despite a strong recovery in our financial performance during the 2013 fiscal year, the impact of a temporary reduction in the Company’s ROIC during the 2012 fiscal year is likely to result in the forfeiture of at least 50% of the PUs granted to our NEOs in 2012.

As discussed in the Executive Summary of this CD&A, while the Compensation Committee remains committed to the principles of performance-based pay over the long-run, it concluded that, on a temporary basis, it was in the best interest of the Company and its shareholders to bring more stability to executive compensation to mitigate retention concerns attributed to the belief that the Company had begun to fall behind its peers in terms of actual pay delivered since the 2010 fiscal year. Consistent with this temporary “de-risking” strategy, the 2013 long-term awards granted to the NEOs other than the CEO are in

28

        

the form of PUs, which are structured to promote retention, while providing a one-year performance goal which is sufficient to qualify the awards as “performance-based” for purposes of preserving the Company’s tax deduction under IRC § 162(m). The 2013 PUs awarded to the CEO contain an additional performance goal that was intended to put more of his award at risk than that of the other NEOs.

All PUs granted to the NEOs in the 2013 fiscal year are subject to three-year, time-based cliff vesting, with a provision for accelerated vesting in the event of retirement, death or disability, provided the Company achieves the pre-defined performance criteria for the 2013 fiscal year performance period, as follows: For the CEO, 50% of the PUs awarded were subject to the achievement of a $2.25 EPS (an increase of approximately 12% versus the prior year) and the remaining 50% were subject to the achievement of a $1.00 EPS. For the NEOs other than the CEO, 100% of the PUs awarded were subject to the achievement of a $1.00 EPS. For purposes of determining whether the performance goal has been achieved, the Compensation Committee defined the EPS goal as diluted EPS as reported in the Company’s year-end audited financial statements (excluding the negative impact of any nonrecurring items, discontinued operations, or cumulative effects of accounting changes) for the 2013 fiscal year.

Although the respective EPS goals were achieved for the 2013 fiscal year performance period, failure to achieve the levels of EPS specified above would have resulted in forfeiture of the PUs, even if the serviced-based vesting requirements are satisfied in the future. Since the PUs are intended to qualify as performance-based compensation for purposes of IRC § 162(m), the full value of these awards at the time of vesting will be deductible. Information regarding our equity grant practices, including the determination of exercise price, can be found in the section captioned “Other Executive Compensation Policies, Practices and Guidelines — Practices Regarding Equity-Based Awards” below.

Executive Perquisites and Other Benefits (short-term compensation element)

The Company maintains traditional health and welfare benefit plans and the Retirement Savings Plan, a qualified 401(k) plan, which are generally offered to all employees (subject to basic plan eligibility requirements) and are consistent with the types of benefits offered by other similar corporations. In addition to these traditional benefits, the Company historically offered certain executive level perquisites to key executives, including all NEOs, including comprehensive annual physical examinations, a car allowance of $1,000 per month and Company-paid financial planning services. The Compensation Committee believed these perquisites were no longer reflective of the competitive market practices of corporations in the Compensation Peer Group, and made a decision to discontinue cash-based perquisites such as car allowances and financial planning services effective January 1, 2013 (although Company-paid annual physical examinations have been retained). With the exception of the CEO, all NEOs who previously received these cash-based perquisites received a one-time adjustment of $10,000 to their annual base salary.

For safety and security reasons, the Board previously approved CEO/COO Travel Guidelines (the “Travel Guidelines”) which provide that Mr. Hagedorn may use either personal aircraft or Company aircraft for commuting purposes. In recognition of his prior Company-paid commuting benefit and to offset the annual costs associated with his compliance with the Travel Guidelines, Mr. Hagedorn received a compensatory monthly commuting allowance of $20,000 during the 2013 fiscal year (although this perquisite will be discontinued in January 2014).

Mr. Hagedorn is also entitled to limited personal use of Company aircraft at his own expense. Specifically, Mr. Hagedorn has an option to purchase up to 100 flight hours per year for personal use at the Company’s incremental direct operating cost per flight hour, so there is no incremental cost to the Company associated with providing this perquisite other than the partial loss of a tax deduction of certain aircraft-related costs as a result of any personal use of Company aircraft. Since Company aircraft are used primarily for business travel, the determination of the direct operating cost per flight hour excludes the fixed costs that do not change based on usage, such as pilots’ salaries, the purchase cost of Company aircraft and the cost of maintenance not related to personal trips. As an additional perquisite, Mr. Hagedorn has access to the services of the Company’s aviation mechanics and pilots in circumstances involving commuting flights on personal aircraft. Since the Company’s aviation mechanics and pilots are paid on a salary basis, there is no incremental cost to the Company for providing this perquisite. To the extent Mr. Hagedorn utilizes the Company’s aviation mechanics and pilots in connection with non-commuting flights on his personal aircraft, he reimburses the Company for a pro rata portion of their salaries and fringe benefit costs. For further discussion, see section captioned “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.”


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Retirement Plans and Deferred Compensation Benefits (long-term compensation element)

Executive Retirement Plan

The Scotts Company LLC Executive Retirement Plan (the “ERP”) is a non-qualified deferred compensation plan that provides executives the opportunity to: (1) defer compensation with respect to salary and amounts received in lieu of salary and (2) defer compensation with respect to any Performance Award (as defined in the ERP). During the 2013 fiscal year, the ERP consisted of the following four parts:

Compensation Deferral, which allows continued deferral of up to 75% of salary and amounts received in lieu of salary;

Performance Award Deferral, which allows the deferral of up to 100% of any cash incentive compensation earned under the EIP;

Retention Awards, which reflect the Company’s contribution to the ERP in respect of the retention awards described below; and

Crediting of Company Matching Contributions on qualifying deferrals.

The Company Matching Contributions to the ERP were based on the same contribution formulae as those used for the RSP. Specifically, the Company matched participant contributions at a rate of 150% for the first 4% of eligible earnings contributed to the ERP and 50% for the next 2% of eligible earnings contributed to the ERP. Company Matching Contributions to the ERP are not funded until the first quarter of the subsequent calendar year.

All accounts under the ERP are bookkeeping accounts and do not represent claims against specific assets of the Company. Each participant may select one or more investment funds, including a Company stock fund, against which to benchmark such participant’s ERP accounts. The investment options under the ERP are substantially consistent with the investment options permitted under the RSP. Accordingly, there were no above-market or preferential earnings on investments associated with the ERP for any of the NEOs for the 2013 fiscal year.

Other Retirement and Deferred Compensation Plans

The Scotts Company LLC Excess Benefit Plan for Non Grandfathered Associates (the “Excess Pension Plan”) is an unfunded plan that provides benefits that cannot be provided under The Scotts Company LLC Associates’ Pension Plan (the “Associates’ Pension Plan”) due to specified statutory limits. The Associates’ Pension Plan and related Excess Pension Plan were frozen effective December 31, 1997 and, therefore, no additional benefits have accrued after that date under either plan. However, continued service taken into account for vesting purposes under the Associates’ Pension Plan is recognized with respect to the entitlement to, and the calculation of, subsidized early retirement benefits under the Excess Pension Plan. Based on his tenure, Mr. Hagedorn is the only NEO who participates in the Excess Pension Plan. For further details regarding the Excess Pension Plan, see section captioned “EXECUTIVE COMPENSATION TABLES — Pension Benefits Table.”


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Executive Retention Awards (non-recurring compensation element)

In the fiscal year ended September 30, 2008, the Company was facing a number of challenging circumstances, including rising commodity costs and a sharp decline in the market value of its Common Shares. As a result, the majority of the Company’s outstanding NSOs decreased significantly in value. In response to these circumstances, the Company commenced a strategy to retain key executive talent. In furtherance of this strategy, the Compensation Committee authorized grants of discretionary retention awards to Mr. Brockman, Mr. Evans, Mr. Sanders and Ms. Stump on November 4, 2008, each of which had a grant date value of $1.0 million, in the form of deferred compensation under the ERP. Each of the retention award recipients had the right to elect an investment fund, including a Company stock fund, against which the retention award is benchmarked, and each recipient elected the Company stock fund. The retention awards were subject to cliff vesting on November 4, 2011, and each recipient became fully vested in the retention award on that date. Per the terms of the retention award agreement, the Company distributed one-fourth of the vested retention award account balance on November 4, 2011, one-third of the remaining account balance on November 5, 2012 and distributed the final remaining account balance on November 4, 2013. Since the retention awards are benchmarked against the Company stock fund, distributions are made in whole Common Shares, plus cash for any fractional share. Although now fully vested, each retention award remains subject to forfeiture, or repayment, if the retention award recipient is terminated for Cause at any time or if such individual engages in certain actions prohibited by the retention award agreement within 180 days before or 730 days after the individual’s employment is terminated for any reason.

The value of the retention awards for Mr. Brockman, Mr. Evans, Mr. Sanders and Ms. Stump, which became fully vested on November 4, 2011, less the value of the retention award account balance which was distributed on November 4, 2011, and November 5, 2012 are reflected in the table captioned “Non-Qualified Deferred Compensation for 2013 Fiscal Year.”

In May 2013, the Compensation Committee approved a special retention award for Thomas R. Coleman (the “Coleman Retention Award”), who served as the Company’s interim Principal Financial Officer from February 8, 2013 until the appointment of Lawrence A. Hilsheimer as the Company’s Chief Financial Officer on April 1, 2013. The Compensation Committee believes it is in the best interest of the Company to retain Mr. Coleman, who has served the Company in various financial leadership roles since 1999, and is a valued and trusted advisor.

The Coleman Retention Award consists of two components: a one-time $200,000 pre-paid cash bonus and a special RSU award. The pre-paid cash bonus is subject to 100% repayment in the event Mr. Coleman should voluntarily terminate his employment or the Company should involuntarily terminate his employment for Cause, prior to April 1, 2015. The special RSU award, which consisted of 9,333 RSUs granted on May 8, 2013, is subject to the following special vesting conditions: 50% of the shares vest on September 30, 2015, 25% of the shares vest on September 30, 2016 and the remaining 25% of the shares vest on September 30, 2017. The award is subject to accelerated vesting in the event of death, disability or involuntary termination by the Company, without Cause.

Our Compensation Practices

Determining Executive Officer Compensation

The Compensation Committee has responsibility for evaluating the CEO’s performance and determining all elements of compensation for our CEO and other key executives. In determining the CEO’s compensation, the Compensation Committee considers:

The specific performance of the CEO;

The performance of the Company against pre-determined performance goals; and

The competitive level of the CEO’s compensation when compared to similar positions based on the relevant market data.

The Compensation Committee is also responsible for administering or overseeing all equity-based incentive plans. Under the terms of these plans, the Compensation Committee has sole discretion and authority to determine the size and type of all equity-based awards, as well as the period of vesting and all other key terms and conditions of the awards.

With respect to the annual incentive compensation plans, the Compensation Committee has responsibility for approving the overall plan design as well as the performance metrics, performance goals and payout levels.


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Role of Outside Consultants

During the 2013 fiscal year, the Compensation Committee engaged an independent consultant from Frederic W. Cook & Co. to advise the Compensation Committee with respect to best practices and competitive trends in the area of executive compensation, as well as ongoing regulatory considerations. The consultant provided guidance to assist the Compensation Committee in determining compensation for the CEO, the other NEOs and other key management employees. Frederic W. Cook & Co. did not provide any consulting services directly to management.

During the 2013 fiscal year, the Company engaged consultants from Towers Watson and Aon Hewitt. These firms worked directly with management to advise the Company on best practices and competitive trends, as well as ongoing regulatory considerations with respect to executive compensation. Neither firm provided consulting services directly to the Compensation Committee.

Compensation Peer Group

For the purpose of enabling the Company to benchmark our compensation practices, as well as the total compensation packages of the CEO and other key executives, the Company uses a customized Compensation Peer Group, developed in cooperation with Frederic W. Cook & Co. The Compensation Committee believes that the companies chosen for the Compensation Peer Group (listed below) reflect the types of highly regarded consumer products-oriented companies with which the Company typically competes to attract and retain executive talent.
ACCO Brands Corporation
American Greetings Corporation
Blyth, Inc.
Central Garden & Pet Company
Church & Dwight Co., Inc.
The Clorox Company
Elizabeth Arden, Inc.
Energizer Holdings, Inc.
FMC Corporation
The Hershey Company
Jarden Corporation
The Estée Lauder Companies Inc.
Masco Corporation
McCormick & Company, Incorporated
Newell Rubbermaid Inc.
Nu Skin Enterprises, Inc.
Revlon
The J. M. Smucker Company
Spectrum Brands Holdings, Inc.
The Toro Company
Tupperware Brands Corporation

The Compensation Committee believes this Compensation Peer Group reflects the pay practices of the broader consumer products industry and is reflective of the size and complexity of the Company. In general, the Compensation Peer Group reflects companies that range between $0.9 billion and $8.8 billion of annual revenues, with a median annual revenue slightly above the Company’s revenue for the 2013 fiscal year. In conjunction with Frederic W. Cook & Co., the Compensation Committee regularly evaluates the composition of the peer group based upon the Company business profile and recently made a determination to make changes to the existing peer group for the fiscal year ending September 30, 2014 (“2014 fiscal year”) as follows: Blyth, Inc. and The Estee Lauder Companies Inc. will be removed based on becoming too small and too large respectively. Acco Brands Corporation, The Hershey Company and McCormick & Company, Incorporated will be removed since they are not direct competitors. In an effort to add more peer companies that have seasonal sales affected by weather and operate in similar lines of business, Briggs & Stratton Corporation and Rollins, Inc. will be added.

Use of Tally Sheets

On a periodic basis, management prepares and furnishes to the Compensation Committee a comprehensive statement, known as a “Tally Sheet,” reflecting the value of each element of compensation for the current fiscal year as well as executive perquisites and other benefits provided to the NEOs. The Tally Sheets provide perspective to the Compensation Committee on the overall level of executive compensation and wealth accumulation, as well as the relationship between short-term and long-term compensation elements and how each element relates to our compensation philosophy and guiding principles. The Tally Sheets are instructive for the Compensation Committee when compensation decisions are being evaluated, particularly as it relates to compensation decisions made in connection with promotions, special retention issues and separations from the Company.


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Role of Management in Compensation Decisions

The CEO is responsible for establishing performance objectives and conducting annual performance reviews for all of the other NEOs. The Compensation Committee is responsible for establishing performance objectives for the CEO and completing an annual assessment of his performance. The Compensation Committee believes that the performance evaluation and goal-setting process is critical to the overall compensation-setting process because the personal performance level of each NEO is one of the most heavily weighted factors considered by the Compensation Committee when making compensation decisions.

In conjunction with the Company’s outside consultants from Towers Watson and Aon Hewitt, management conducts annual market surveys of the base salary levels, short-term incentives and long-term incentives for the CEO and each of the other NEOs. The benchmark compensation data provided by Towers Watson and Aon Hewitt reflects approximately 450 general industry companies, representing a wide range of annual revenue, who voluntarily participate in the surveys and are not selected by the Company. To account for the wide range of companies included in the surveys, the data is statistically adjusted by the Company’s compensation consultants to more closely reflect the relative size of the Company based on revenue. The goal in conducting these surveys is to help ensure that executive compensation levels remain competitive with the benchmark compensation data, which facilitates our ability to retain and motivate key executive talent.

Based on their assessment of the competitive market trends and the individual performance level of each NEO, the CEO and the Executive Vice President, Global Human Resources make specific recommendations to the Compensation Committee with respect to each element of executive compensation for each of the other NEOs.

Setting Compensation Levels for CEO

Consistent with our performance-oriented pay philosophy, the compensation structure for the CEO is designed to deliver approximately 20% of the annual compensation opportunity in the form of fixed pay (i.e., base salary) and the remaining 80% in the form of variable pay (i.e., annual incentive compensation and long-term equity-based compensation). Once a year, the Compensation Committee completes an evaluation of the CEO’s performance with respect to the Company’s goals and objectives and makes its report to the Board. Based on this assessment, the Compensation Committee set the CEO’s annual compensation for the 2013 fiscal year, including base salary, annual incentive compensation, long-term equity-based compensation and perquisites and other benefits. When evaluating Mr. Hagedorn’s total level of compensation for the 2013 fiscal year, the Compensation Committee considered information including:

Mr. Hagedorn’s personal performance against pre-established goals and objectives;

The Company’s performance and relative shareholder return;

The compensation of CEOs at comparable companies, as reflected in the benchmark compensation data; and

The Compensation Committee’s commitment to temporarily reduce the risk profile associated with the compensation structure of our NEOs, including our CEO.

Guiding Principles

While the Compensation Committee made a determination to hold Mr. Hagedorn’s total direct compensation level (salary, annual cash-based incentive compensation and long-term equity-based compensation), based on target levels of performance, flat versus the prior year, a decision was made to shift a portion of his compensation opportunity from long-term equity-based compensation to short-term cash-based compensation in the form of a higher base salary and target incentive opportunity. The decision to change the overall mix of Mr. Hagedorn’s pay was consistent with the temporary “de-risking” strategy discussed in the Executive Summary section of this CD&A, as well as the desire to reduce the number of shares required to deliver his long-term compensation. Specifically, Mr. Hagedorn’s base salary was increased by $100,000, his target incentive opportunity was increased by $110,000 and the grant date value of his long-term compensation was reduced by approximately $200,000 during the 2013 fiscal year.

Base Salary

Consistent with the guiding principles discussed above, during the 2013 fiscal year Mr. Hagedorn’s annual base salary increased from $1.0 million to $1.1 million. After the increase, Mr. Hagedorn’s base salary is at the high end of the Competitive Market Range for his role.


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Short-Term Cash-Based Incentive Compensation

For purposes of his participation in the EIP, Mr. Hagedorn’s target incentive opportunity was equal to 110% of his base salary for the 2013 fiscal year (same as prior year). Mr. Hagedorn’s target incentive opportunity, expressed as a percentage of base salary, was at the median of the Competitive Market Range for his role. A description of the specific performance goals and the payout levels associated with each performance measure is included in the section captioned “Elements of Executive Compensation — Annual Cash Incentive Compensation.

Equity-Based Compensation

For the 2013 fiscal year, the Compensation Committee set the grant value for Mr. Hagedorn’s equity-based compensation to approximately $3.6 million, representing 61% of his total direct compensation based on target levels of performance. The grant value, which was down approximately $200,000 from the prior year, reflects a slight shift in the mix of Mr. Hagedorn’s pay from equity-based to cash-based compensation as discussed above. After considering the reduction in the value of his long-term award, which is reflective of the overall competitive market for similar roles, his long-term compensation is positioned between the median and the high end of the Competitive Market Range.

One hundred percent of the value of long-term equity-based compensation awarded to Mr. Hagedorn in the 2013 fiscal year was performance-based, granted in the form of PUs. Mr. Hagedorn’s equity-based awards are subject to three-year, time-based cliff vesting, with a provision for accelerated vesting in the event of retirement, death or disability, provided the Company achieves the pre-defined performance criteria for the 2013 fiscal year performance period, as follows: 50% of the PUs awarded were subject to the achievement of a $2.25 EPS (an increase of approximately 12% versus the prior year) and the remaining 50% were subject to the achievement of a $1.00 EPS, which was consistent with the performance goal established for the PUs granted to the other NEOs during the 2013 fiscal year. Although the respective EPS goals were achieved for the 2013 fiscal year performance period, failure to achieve the minimum level of EPS specified above would have resulted in forfeiture of the PUs, even if the serviced-based vesting requirements are satisfied in the future. The performance goals are explained more fully in the section captioned “Elements of Executive Compensation — Long-Term Equity-Based Incentive Awards.” The use of a performance-based equity awards is intended to increase the portion of Mr. Hagedorn’s total compensation opportunity that is directly tied to the performance of the Company, is reflective of competitive practice and further aligns Mr. Hagedorn’s interests with the long-term interests of the Company’s shareholders.

Total Direct Compensation

Mr. Hagedorn’s total direct compensation of $5.9 million, based on target levels of performance, was slightly below the median of the Competitive Market Range for his role.

Setting Compensation Levels for Mr. Hilsheimer

Effective April 1, 2013, Lawrence A. Hilsheimer was appointed to serve as Executive Vice President and Chief Financial Officer of the Company, replacing Mr. Evans who resigned as the Company’s Chief Financial Officer effective as of February 8, 2013. In approving the terms of Mr. Hilsheimer’s compensation package, the Compensation Committee considered several factors, including the Competitive Market Range for his role and his overall level of compensation at his prior employer.

Guiding Principles

At the time Mr. Hilsheimer was being recruited he was already established as an experienced chief financial officer, with strong ties to the local business community. In developing a compensation package to attract Mr. Hilsheimer to the Company, the Compensation Committee also considered the compensation level that he enjoyed at his prior employer. Based on this assessment, the Compensation Committee determined to position Mr. Hilsheimer’s total compensation package at a level that is slightly above the high end of the Competitive Market Range for his role as reflected by our Compensation Peer Group, but consistent with the overall compensation level at his prior employer. Mr. Hilsheimer’s hiring package also included several one-time pay elements, such as a cash-based signing bonus of $500,000 and a special sign-on equity grant (described in more detail below) that were designed to keep Mr. Hilsheimer whole relative to the opportunity for similar compensation elements that he forfeited from his prior employer upon accepting an offer to join the Company. The elements of Mr. Hilsheimer’s compensation package are explained in more detail below.


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Base Salary

Mr. Hilsheimer was hired at an annual base salary of $650,000, which is above the high end of the Competitive Market Range for his role, but the salary was reflective of the pay level that he received at his prior employer.

Short-Term Cash-Based Incentive Compensation

For purposes of the EIP, the target incentive opportunity for Mr. Hilsheimer was established at 70% of base salary for the 2013 fiscal year, which approximates the median of the Competitive Market Range for his role. A description of the specific performance goals and the payout levels associated with each performance measure is included above in the section captioned “Elements of Executive Compensation — Annual Cash Incentive Compensation.

Equity-Based Compensation

As discussed above, Mr. Hilsheimer received a special sign-on equity grant (the “Hilsheimer Sign-On Grant”) in connection with the commencement of his employment. The grant consisted of a special RSU award, valued at $1.4 million, subject to the following special vesting provisions: 25% of the shares will vest on the first anniversary of the grant, 25% of the shares will vest on the second anniversary of the grant and the remaining 50% of the shares will vest on the third anniversary of the grant. The award is subject to accelerated vesting in the event of death or involuntary termination by the Company, without Cause. The value of the sign-on grant positions his long-term compensation above the high end of the Competitive Market Range for his role when compared to his peers reflected in the Compensation Peer Group.

Total Direct Compensation

Mr. Hilsheimer’s total direct compensation, based upon target levels of performance, was above the high end of the Competitive Market Range for his role and evidences the overall compensation level that the Compensation Committee deemed appropriate considering all the circumstances, including what was needed to recruit Mr. Hilsheimer from his prior employer.

Setting Compensation Levels for Other NEOs

The Compensation Committee strives to deliver a competitive level of total compensation to each of the NEOs by evaluating and balancing the following objectives:

The strategic importance of the position within our executive ranks;

The overall performance level of the individual and the potential to make significant contributions to the Company in the future;

A comparison of industry compensation practices, including companies within our Compensation Peer Group;

Internal pay equity; and

Our executive compensation structure and philosophy.

Consistent with our performance-oriented pay philosophy, the compensation structure for Mr. Sanders was designed to deliver approximately 25% of the annual compensation opportunity in the form of fixed pay (i.e., base salary) and the remaining 75% in the form of variable pay (i.e., annual incentive compensation and long-term equity-based compensation). With respect to the other NEOs, the compensation structure is designed to deliver approximately 40% of the annual compensation opportunity in the form of fixed pay and the remaining 60% in the form of variable pay. The Compensation Committee believes that this pay mix is generally in line with the pay mix for similar positions within our Compensation Peer Group.

Based on their assessment of the individual performance of each NEO, the CEO and the Executive Vice President, Global Human Resources submit compensation recommendations to the Compensation Committee for each NEO. These recommendations address all elements of compensation, including base salary, annual incentive compensation, long-term equity-based compensation and perquisites and other benefits. In evaluating these compensation recommendations, the Compensation Committee considers information such as the Company’s financial performance as well as the compensation of similarly situated executive officers as determined by the Competitive Market Range for each role.

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Guiding Principles

In addition to considering the “de-risking” strategy discussed above, the Compensation Committee concluded that our compensation approach should better distinguish those roles (“role-based pay”) that have a higher degree of organizational impact and influence. Consistent with this role-based approach, the Compensation Committee decided that the overall pay levels for each of the NEOs listed below, should be set at a level that is at, or above, the high end of the Competitive Market Range, to better reflect the perceived impact that each of these individuals brings to our Company. As a result, the base salary increases received by each of the NEOs during the 2013 fiscal year, which also included a one-time adjustment for the buy-out of certain cash perquisites, were considerably higher than the Compensation Committee would otherwise have awarded based solely on the personal performance of each NEO.

Base Salary

During the 2013 fiscal year, the Compensation Committee increased the base salary levels of the NEOs listed below, as follows:

Mr. Sanders received an increase from $600,000 to $710,000 (including the one-time adjustment for the buy-out of certain cash perquisites). After the increase, his base salary is at the high end of the Competitive Market Range for his role.

Mr. Lyski received an increase from $450,000 to $510,000 (including the one-time adjustment for the buy-out of certain cash perquisites). After the increase, his base salary is above the high end of the Competitive Market Range for his role.

Ms. Stump received an increase from $400,000 to $440,000 (including the one-time adjustment for the buy-out of certain cash perquisites). After the increase, her base salary is above the high end of the Competitive Market Range for her role.

Mr. Coleman, who served as the Company’s interim Principal Financial Officer from February 8, 2013 to April 1, 2013, received an increase from $309,000 to $385,000 (including the one-time adjustment for the buy-out of certain cash perquisites). After the increase, his base salary is above the high end of the Competitive Market Range for his role.

Prior to leaving the Company in July 2013, Mr. Brockman received an increase from $420,000 to $460,000 (including the one-time adjustment for the buy-out of certain cash perquisites). After the increase, his base salary was slightly above the median of the Competitive Market Range for his role.

Prior to leaving the Company in February 2013, Mr. Evans received an increase from $540,000 to $610,000 (including the one-time adjustment for the buy-out of certain cash perquisites). After the increase, his base salary was at the high end of the Competitive Market Range for his role.

Short-Term Cash-Based Incentive Compensation

For purposes of the EIP, the target incentive opportunity for Mr. Sanders was equal to 80% of base salary for the 2013 fiscal year, which approximates the 50th percentile of the Competitive Market Range for his role. The target incentive for Mr. Evans, which was increased from 60% to 70% of base salary, and the target incentive for the other NEOs was equal to 55% of base salary for the 2013 fiscal year (with the exception of Mr. Coleman whose target incentive was equal to 50% of base salary), and was within the Competitive Market Range for their respective roles. A description of the specific performance goals and the payout levels associated with each performance measure is included above in the section captioned “Elements of Executive Compensation — Annual Cash Incentive Compensation.


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Equity-Based Compensation

The Company supports a compensation philosophy of strongly linking rewards to shareholder value creation and to motivating long-term performance. For the 2013 fiscal year, the target value of the equity-based compensation for each of the NEOs (determined based on a Black-Scholes valuation for NSOs and the grant date share price for any full-value awards) as a percentage of base salary was as follows: Mr. Sanders (254%), Mr. Evans (197%), Mr. Brockman (125%), Mr. Coleman (97%), Ms. Stump (91%) and Mr. Lyski (88%). The specific equity-based award granted to each NEO was determined based on the Competitive Market Range for their respective roles, as well as a subjective assessment of their overall performance level and expected contributions to the business. The grant value of the equity-based compensation awarded to Mr. Sanders for the 2013 fiscal year is above the high end of the Competitive Market Range for his role, and the grant value of the equity-based compensation awarded to the other NEOs for the 2013 fiscal year is generally between the median and the high end of the Competitive Market Range for their respective roles. The Compensation Committee believes the grant values are reflective of competitive practice and recognize the personal performance of each of the NEOs.

With the exception of the Hilsheimer Sign-On Grant (described above) and the Coleman Retention Award (described above), and consistent with the “de-risking” strategy discussed above, the long-term awards granted to each of the NEOs during the 2013 fiscal year were granted in the form of PUs that were structured to promote retention, while providing a one-year performance goal sufficient to qualify the awards as “performance-based” for purposes of preserving the Company’s tax deduction under IRC § 162(m). The PUs are subject to three-year, time-based cliff vesting, with a provision for accelerated vesting in the event of retirement, death or disability, provided the Company achieves the pre-defined performance criteria of $1.00 EPS for the 2013 fiscal year performance period. Although the pre-defined EPS goal was achieved for the 2013 fiscal year performance period, failure to achieve the minimum level of EPS specified would have resulted in forfeiture of the PUs, even if the serviced-based vesting requirements are satisfied in the future. The performance goals are explained more fully in the section captioned “Elements of Executive Compensation — Long-Term Equity-Based Incentive Awards.” The PUs awarded to each of the NEOs remain subject to the three-year cliff vesting requirement, which is intended to promote their retention.

Total Direct Compensation

The total direct compensation, based on target levels of performance, for each of the NEOs, other than the CEO, is above the high end of the Competitive Market Range for each of Mr. Sanders, Mr. Lyski and Mr. Evans. The total direct compensation, based on target levels of compensation, is between the median and the high end of the Competitive Market Range for Ms. Stump and Mr. Brockman. The total direct compensation, based on target levels of performance, for Mr. Coleman approximates the median of the Competitive Market Range for his role. The Compensation Committee believes the overall levels of pay appropriately recognizes the personal performance and unique skill sets of each of the NEOs.

Other Executive Compensation Policies, Practices and Guidelines

Practices Regarding Equity-Based Awards

In general, all employees are eligible to receive grants of equity-based awards; however, the Compensation Committee typically limits participation to the CEO, the NEOs and other key management employees. The decision to grant equity-based awards to certain key management employees reflects competitive market practice and serves to reward those individuals for their past and anticipated future positive impact on our business results.

The Company typically grants equity-based awards at the Compensation Committee meeting in January, with the effective date of the grant established as the day following the annual meeting of shareholders. Other than this practice, the Company does not have any program, plan or practice to coordinate the timing of annual equity-based awards to our executive officers with the release of material, non-public information.

The exercise price for each NSO is equal to the closing price of one Common Share on NYSE on the grant date. If the grant date is not a trading day on NYSE, the exercise price is equal to the closing price on the next succeeding trading day.


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Stock Ownership Guidelines

The Compensation Committee has established stock ownership guidelines for each of the NEOs. The purpose of these guidelines is to align the interests of each NEO with the long-term interests of the shareholders by ensuring that a material amount of each NEO’s accumulated wealth is maintained in the form of Common Shares. The minimum target levels of stock ownership are as follows:
CEO
10 times base salary
President
5 times base salary
Other NEOs
3 times base salary

The Compensation Committee believes that these stock ownership guidelines reflect the practices of our Compensation Peer Group, and are even more stringent for our CEO. For purposes of determining compliance with the stock ownership guidelines, the value of beneficially-owned shares is determined as follows:

100% of the value of Common Shares directly registered to the NEO and/or held in a brokerage account;

100% of the value of shares or stock-settled units held in retirement plans such as the RSP, the Discounted Stock Purchase Plan or the ERP;

60% of the “in-the-money” portion of an NSO or SAR, whether vested or unvested; and

60% of the value of unsettled full-value awards (e.g., RSUs, PUs, etc.).

The stock ownership guidelines require each NEO to retain 50% of the net shares realized from equity-based awards (after covering any exercise cost and the required tax withholding obligations) until the applicable ownership guideline has been achieved. The Company’s Insider Trading Policy provides that no person subject to the policy, which includes all NEOs, among others, may engage in short sales of the Company’s securities.

Recoupment/Clawback Policies

To protect the interests of the Company and its shareholders, subject to applicable law, all equity-based awards and all amounts paid under the EIP contain recoupment provisions (known as clawback provisions) designed to enable the Company to recoup amounts earned or received under such awards or the EIP based on subsequent events, such as violation of non-compete covenants or engaging in conduct that is deemed to be detrimental to the Company (as outlined in the underlying plan and/or award agreement).

Consistent with the terms of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Compensation Committee approved an Executive Compensation Recovery Policy (the “Recovery Policy”) on September 22, 2010, which is intended to supplement the existing recoupment provisions contained within the equity award agreements and the EIP. The Recovery Policy allows the Company to recover incentive award payments and equity award distributions made to covered executives in the event of a required accounting restatement due to material non-compliance with any financial reporting requirement under U.S. securities laws. The Recovery Policy provides for the mandatory recovery of incentive amounts in excess of what would have been paid under the restated financial statements.

The Recovery Policy is applicable to all current and former incentive-eligible executive officers, within a qualifying three-year look-back period, and applies to all incentive awards paid or distributed in 2010 or thereafter, except to the extent required by regulations to be issued by the SEC.


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Guidelines with Respect to Tax Deductibility and Accounting Treatment

The Company’s ability to deduct certain elements of compensation paid to each of its Chief Executive Officer and the three other most highly compensated executive officers (other than its Chief Financial Officer) is generally limited to $1.0 million annually under IRC § 162(m). Non-deductibility is generally limited to amounts that do not meet certain requirements to be classified as “performance-based” compensation. To ensure the maximum tax deduction allowable, the Company attempts to structure its cash-based incentive program and its long-term incentive program to qualify as performance-based compensation under IRC § 162(m). For the 2013 fiscal year, Mr. Hagedorn had non-performance-based compensation in excess of $1.0 million, attributed to his base salary level and the value of his commuting allowance and other cash perquisites. Mr. Sanders also received non-performance-based compensation in excess of $1.0 million, attributed to his base salary and the distribution from the 2008 Retention Award on November 5, 2012.

The Company accounts for equity-based compensation, including option awards and stock awards, in accordance with U.S. GAAP. Prior to making decisions to grant equity-based awards, the Compensation Committee reviews pro forma expense estimates for the awards as well as an analysis of the potential dilutive effect such awards could have on existing shareholders. Where appropriate, the proposed level of the equity-based awards may be adjusted to balance these objectives.

Decisions regarding the design, structure and operation of the Company’s incentive plans, including the EIP and the equity-based incentive plans, contemplate an appropriate balance between the underlying objectives of each plan and the resulting accounting and tax implications to the Company. While we view preserving the tax deductibility of executive compensation as an important objective, there are instances where the Compensation Committee has approved design elements that may not be fully tax-deductible, but are accepted as trade-offs that support the achievement of other compensation objectives.

Risk Assessment in Compensation Programs

Consistent with SEC disclosure requirements, management has assessed the Company’s compensation programs and has concluded that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. In reaching its conclusion, the Company has based its assessment on an evaluation of the compensation plans and arrangements that represent material sources of variable pay. In particular:

Annual cash incentive compensation plans — The Company’s annual incentive compensation program incorporates a funding trigger designed to mitigate the potential risk associated with plan participants making short-term decisions that may not be in the best interest of the Company or its key stakeholders; and

Equity-based compensation plans — Notwithstanding the temporary “de-risking” strategy discussed in this CD&A, the Company generally utilizes a mix of NSOs and full-value equity awards, which helps ensure that management maintains a responsible level of sensitivity to the impact of decision making on share price. Since the equity-based awards are generally subject to either three-year, time-based cliff vesting or performance-based vesting criteria, the Company believes the risks of focusing on short-term share price increases rather than long-term value creation are mitigated.

Based on the foregoing, we believe that our compensation policies and practices do not create inappropriate or unintended significant risk to the Company as a whole and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.


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Recent Developments

On December 11, 2013, The Scotts Company LLC (“Scotts LLC”) entered into an Executive Severance Agreement (the “Hagedorn Severance Agreement”) with Mr. Hagedorn, which replaces and supersedes the employment agreement with Mr. Hagedorn which was dated May 19, 1995 and amended effective October 1, 2008.

The Compensation Committee believed the terms of Mr. Hagedorn’s former employment agreement had become outdated and no longer reflected competitive market practice, nor provided the Company with the types of non-compete protections or release protections that are fairly common in current executive agreements. However, it also recognized that Mr. Hagedorn had enjoyed the benefits of favorable severance provisions and certain other favorable contract provisions that he would be asked to forego under the new Hagedorn Severance Agreement.

In negotiating the terms of the Hagedorn Severance Agreement, the Compensation Committee sought, and Mr. Hagedorn was agreeable, to strike a reasonable balance between maintaining Mr. Hagedorn’s legacy benefits and recognizing his unique position as the Chief Executive Officer, while modernizing the form of agreement to better protect the interests of the Company and to be more consistent with the treatment of the other NEOs. Accordingly, the Hagedorn Severance Agreement preserves the severance benefits that were provided under the former employment agreement. Specifically, in the event Mr. Hagedorn’s employment is terminated involuntarily without Cause, or he resigns with Good Reason, as such terms are defined in the Hagedorn Severance Agreement, he would be entitled to a lump sum payment equal to three times the sum of his annual base salary and the highest annual bonus award paid in respect of the three years prior to his termination. He would also be entitled to a lump sum payment equivalent to the monthly premiums he would incur if he continued coverage under the Company’s medical, disability and life insurance plans for a period of three years following his termination. However, unlike Mr. Hagedorn’s former employment agreement, the Hagedorn Severance Agreement requires that Mr. Hagedorn execute and not revoke the applicable release agreement in order to receive any severance payments.

The Hagedorn Severance Agreement incorporates restrictive covenants in the form of a new Employee Confidentiality, Noncompetition, Nonsolicitation Agreement, which is substantially similar to the agreements with the other NEOs and is broader in scope and applicability than the non-compete covenant incorporated into Mr. Hagedorn’s former employment agreement. As additional consideration for expanding the conditions under which these restrictive covenants will be enforceable, the Hagedorn Severance Agreement provides for non-compete payments totaling $3.6 million, payable in $100,000 monthly installments over the three-year restrictive period. These payments are subject to repayment in the event of a breach of certain restrictive covenants and are only payable in the event of a qualifying termination under the terms of the Hagedorn Severance Agreement (provided Mr. Hagedorn executes and does not revoke the applicable release agreement).

As additional negotiated consideration for entering into the Hagedorn Severance Agreement and forgoing certain benefits and favorable contract provisions provided under his legacy employment agreement, the Compensation Committee granted Mr. Hagedorn a one-time RSU grant valued at $1.8 million with a grant date of December 11, 2013. The award is subject to three-year cliff vesting, which can only be accelerated in the event Mr. Hagedorn is involuntarily terminated without Cause or if he resigns with Good Reason. The award is otherwise subject to the standard terms and conditions of other RSU awards granted under the Long-Term Incentive Plan. The vested RSUs, if any, will be settled as soon as possible following the third anniversary of the grant date.

In connection with the negotiation of the Hagedorn Severance Agreement, the Compensation Committee also evaluated Mr. Hagedorn’s overall compensation structure, relative to his peers as reflected in the Compensation Peer Group and approved certain changes to his compensation, effective January 1, 2014. While his base salary will remain at $1.1 million and his target incentive opportunity will remain at 110% of his base salary, the Company will begin making monthly deferred compensation contributions of $83,333 to Mr. Hagedorn’s account in the ERP. The monthly contributions to the ERP are fully vested and are subject to the terms of the ERP. Also effective January 1, 2014, Mr. Hagedorn’s monthly commuting allowance of $20,000 will be discontinued, further evidencing the Company’s movement away from cash-based perquisites as previously discussed. The Compensation Committee believes that Mr. Hagedorn’s total compensation remains within the Competitive Market Range after considering the impact of the planned changes.

For additional information regarding the benefits provided by the Hagedorn Severance Agreement, see section captioned “SEVERANCE AND CHANGE IN CONTROL (CIC) ARRANGEMENTS — Hagedorn Severance Agreement.”


40

        

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors (and the Board of Directors approved) that the Compensation Discussion and Analysis be included in this Proxy Statement.


Submitted by the Compensation Committee of the Board of Directors of the Company:

Nancy G. Mistretta, Chair
Stephen L. Johnson
Thomas N. Kelly Jr.


41

        

EXECUTIVE COMPENSATION TABLES

The Company’s NEOs for the 2013 fiscal year are as follows:

James Hagedorn, the Company’s Chief Executive Officer and Chairman of the Board;

Lawrence A. Hilsheimer, the Company’s Executive Vice President and Chief Financial Officer;

Barry W. Sanders, the Company’s President and Chief Operating Officer;

James R. Lyski, the Company’s Executive Vice President and Chief Marketing Officer;

Denise S. Stump, the Company’s Executive Vice President, Global Human Resources; and

Thomas R. Coleman, who served as the Company’s interim Principal Financial Officer between February 8, 2013 and April 1, 2013 and continues to serve as the Company’s Senior Vice President, Global Finance Operations.

In addition, two former executive officers are disclosed as NEOs: (1) Vincent C. Brockman, who served as Executive Vice President, General Counsel, Corporate Secretary and Chief Ethics and Compliance Officer and would have been among the most highly compensated executive officers but was not serving as an executive officer as of the end of the 2013 fiscal year; and (2) David C. Evans, who served as the Company’s Chief Financial Officer and Executive Vice President, Strategy and Business Development until February 8, 2013.

Summary Compensation Table

The following table summarizes the total compensation paid to, awarded to or earned by each of the NEOs for the fiscal years shown. For Mr. Hilsheimer, Mr. Lyski and Mr. Coleman, the table includes information for the 2013 fiscal year only, as that is the only year during the applicable three-year period that each qualified as a named executive officer.

The amounts shown include all forms of compensation provided to the NEOs, including amounts that may have been deferred. Since the table includes equity-based compensation costs and changes in the actuarial present value of the NEOs’ accumulated pension benefits, the total compensation amounts may be greater than the compensation that was actually paid to the NEOs during each of the fiscal years.


42

        

Summary Compensation Table
Name and Principal
 Position
 
Year
 
Salary
($)(1)
 
Bonus
($)
 
Stock
Awards
($)(6)
 
Option
Awards
($)(7)
 
Non-Equity
Incentive Plan
Compensation
($)
 
Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings
($)(10)
 
All Other
Compensation
($)(13)
 
Total
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
James Hagedorn Chief Executive Officer and Chairman of the Board
 
2013
 
1,075,000

 
255,420

(2)
3,610,027

 

 
1,021,680

(8)

(11)
316,511

 
6,278,638

 
2012
 
1,000,000

 
220,000

(3)
2,546,045

 
1,314,588

 

(9)
73,323

(11)
330,458

 
5,484,414

 
2011
 
1,000,000

 

 
1,169,098

 
1,656,842

 

(9)
20,827

(11)
362,893

 
4,209,660

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lawrence A. Hilsheimer Executive Vice President and Chief Financial Officer
 
2013
 
325,000

 
591,000

(4)
1,400,022

 

 
393,120

(8)

 
18,889

 
2,728,031

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barry W. Sanders President and Chief Operating Officer
 
2013
 
682,500

 
140,000

(2)
1,800,012

 

 
471,744

(8)

  
56,108

 
3,150,364

 
2012
 
600,000

 
96,000

(3)
1,005,054

 
518,926

 

(9)

 
1,057,205

 
3,277,185

 
2011
 
589,583

 

 
460,397

 
652,610

 

(9)

  
67,392

 
1,769,982

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
James R. Lyski Executive Vice President and Chief Marketing Officer
 
2013
 
495,000

 
54,000

(2)
764,714

 

 
235,224

(8)

 
37,325

 
1,586,263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denise S. Stump Executive Vice President, Global Human Resources
 
2013
 
430,000

 
65,000

(2)
400,043

 

 
204,336

(8)

  
34,972

 
1,134,351

 
2012
 
383,750

 
42,212

(3)
254,647

 
131,468

 

(9)

  
1,038,098

 
1,850,175

 
2011
 
335,000

 

 
129,325

 
184,250

 

(9)

 
51,195

 
699,770

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thomas R. Coleman Senior Vice President, Global Finance Operations
 
2013
 
366,000

 
251,386

(5)
822,271

 

 
158,112

(8)

 
27,966

 
1,625,735

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vincent C. Brockman
Former Executive Vice President, General Counsel, Corporate Secretary and Chief Ethics and Compliance Officer
 
2013
 
348,333

 
41,382

(2)
575,011

 

 
165,528

(8)

  
663,185

 
1,793,439

 
2012
 
415,000

 
57,062

(3)
368,555

 
190,279

 

(9)

  
1,035,642

 
2,066,538

 
2011
 
400,000

 

 
155,190

 
218,005

 

(9)

 
45,780

 
818,975

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
David C. Evans Former Chief Financial Officer and Executive Vice President, Strategy and Business Development
 
2013
 
239,087

 

 
1,200,038

 

 

 

(12)
34,318

 
1,473,443

 
2012
 
536,250

 
64,350

(3)
636,547

 
328,647

 

(9)
8,674

(12)
1,053,866

 
2,628,334

 
2011
 
512,500

 

 
274,169

 
391,003

 

(9)
2,333

(12)
61,206

 
1,241,211

________________________ 

(1)
Reflects the amount of base salary received by each NEO for the applicable fiscal years. Due to the timing of pay changes and employment dates the amount reported may be less than the base salary rate as of the end of each fiscal year.

(2)
Reflects the “discretionary” portion of the EIP payout, based on an assessment of their individual performance for the 2013 fiscal year.

(3)
Reflects the discretionary bonuses awarded to the NEOs for the 2012 fiscal year.

(4)
Reflects the “discretionary” portion of the EIP payout, based on an assessment of individual performance for the 2013 fiscal year. Also reflects a one-time cash-based signing bonus of $500,000 in connection with the commencement of Mr. Hilsheimer’s employment. For further details see section captioned “Our Compensation Practices — Setting Compensation Levels for Mr. Hilsheimer” within the CD&A.

43

        


(5)
Reflects the “discretionary” portion of the EIP payout, based on an assessment of individual performance for the 2013 fiscal year. Also reflects a pre-paid cash bonus of $200,000 pursuant to the terms of a special retention award (the Coleman Retention Award) granted on May 8, 2013. For further details see section captioned “Elements of Executive Compensation — Executive Retention Awards” in the CD&A.

(6)
Reflects the aggregate grant date value of RSUs and PUs granted in the 2013, 2012 and 2011 fiscal years (assuming the underlying performance criteria will be satisfied). The value of the RSUs and PUs is determined using the fair market value of the underlying Common Shares on the date of the grant, computed in accordance with the equity compensation accounting provisions of FASB ASC Topic 718. Pursuant to applicable SEC Rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.

(7)
Reflects the aggregate grant date value of NSOs granted to each NEO. The value of the NSO awards is determined using a binomial option valuation on the date of the grant, computed in accordance with the equity compensation accounting provisions of FASB ASC Topic 718. Pursuant to applicable SEC Rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Assumptions used in the calculation of the amounts shown are included in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the 2013, 2012 and 2011 fiscal years, as applicable.

(8)
Reflects the “non-discretionary” portion of the 2013 fiscal year EIP payout for each NEO. This amounts represents 80% of the total weighted payout calculated based on the performance results under the EIP.

(9)
No incentive payouts were made under the EIP for the 2012 and the 2011 fiscal years since the Company failed to achieve the minimum performance targets.

(10)
Participant account balances in the ERP, a non-qualified deferred compensation plan, are credited to one or more benchmarked funds that are substantially consistent with the investment options available under the RSP. Accordingly, there are no above-market or preferential earnings on amounts deferred under the ERP.

(11)
For Mr. Hagedorn, the actuarial present value of the accumulated benefit under both the Associates’ Pension Plan and the Excess Pension Plan decreased by $37,199 with respect to the 2013 fiscal year (however based on applicable SEC guidance, amounts reported in this table cannot be negative), increased by $73,323 with respect to the 2012 fiscal year and increased by $20,827 with respect to the 2011 fiscal year. Both plans were frozen as of December 31, 1997; therefore, no service credits have been earned since that date by Mr. Hagedorn.

(12)
For Mr. Evans, the actuarial present value of the accumulated benefit under the Associates’ Pension Plan decreased by $5,016 with respect to the 2013 fiscal year (however based on applicable SEC guidance, amounts reported in this table cannot be negative), increased by $8,674 with respect to the 2012 fiscal year and increased by $2,333 with respect to the 2011 fiscal year. The Associates’ Pension Plan was frozen as of December 31, 1997; therefore, no service credits have been earned since that date by Mr. Evans.

(13)
Please see the table below captioned “All Other Compensation” for information regarding the components of the All Other Compensation column.





44

        

All Other Compensation Table

The following table shows the detail for the column captioned “All Other Compensation” of the Summary Compensation Table:

All Other Compensation 
Name
Year
 
Auto
Perquisites
($)(1)
 
Defined
Contribution
Plans ($)(2)
 
Deferred
Compensation
Plans ($)(3)
 
Executive Retention Awards ($)(4)
 
Other ($)

 
Total ($)
James Hagedorn
2013
 
3,000

 
17,850

 
52,500

 

 
243,161

(5)
316,511

 
2012
 
12,000

 
17,500

 
52,850

 

 
248,108

(6)
330,458

 
2011
 
12,000

 
17,150

 
86,097

 

 
247,646

(7)
362,893

Lawrence A. Hilsheimer
2013
 

 
17,850

 

 

 
1,039

(8)
18,889

Barry W. Sanders
2013
 
3,000

 
20,754

 
31,220

 

 
1,134

(9)
56,108

 
2012
 
12,000

 
17,650

 
23,075

 
1,000,000

 
4,480

(10)
1,057,205

 
2011
 
12,000

 
12,750

 
28,962

 

 
13,680

(11)
67,392

James R. Lyski
2013
 
3,000

 
17,850

 
15,980

 

 
495

(12)
37,325

Denise S. Stump
2013
 
3,000

 
17,850

 
13,455

 

 
667

(13)
34,972

 
2012
 
12,000

 
19,017

 
6,300

 
1,000,000

 
781

(14)
1,038,098

 
2011
 
12,000

 
15,633

 
19,250

 

 
4,312

(15)
51,195

Thomas R. Coleman
2013
 
2,500

 
17,649

 
7,029

 

 
788

(16)
27,966

Vincent C. Brockman
2013
 
3,000

 
22,800

 

 

 
637,385

(17)
663,185

 
2012
 
12,000

 
18,827

 

 
1,000,000

 
4,815

(18)
1,035,642

 
2011
 
12,000

 
11,313

 
14,369

 

 
8,098

(19)
45,780

David C. Evans
2013
 
3,000

 
7,417

 
22,874

 

 
1,027

(20)
34,318

 
2012
 
12,000

 
17,569

 
19,600

 
1,000,000

 
4,697

(21)
1,053,866

 
2011
 
12,000

 
16,956

 
26,513

 

 
5,737

(22)
61,206

________________________

(1)
Reflects the monthly automobile allowance provided to each NEO.

(2)
Reflects Company Matching Contributions made under the RSP. The RSP provides eligible associates, including the NEOs, the opportunity to contribute up to 75% of eligible earnings on a before-tax and/or after-tax basis through payroll deductions up to the specified statutory limits under the IRC. The Company matches participant contributions at a rate of 150% for the first 4% of eligible earnings contributed and 50% for the next 2% of eligible earnings contributed (within the specified statutory limitations). The matching contributions, and any earnings on them, are immediately 100% vested.

To ensure that the total Company Matching Contribution is based on a participant’s total deferrals during the year and total eligible compensation for the year, the RSP includes a “true-up” matching contribution. The “true-up” matching contributions to the RSP for a particular calendar year are not funded until the first quarter of the subsequent calendar year. As a result, amounts reflected in this column do not include the following estimated “true-up” matching contributions with respect to NEO contributions that were made to the RSP between January 1, 2013 and September 30, 2013: Mr. Hagedorn, $0; Mr. Hilsheimer, $0; Mr. Sanders, $1,346; Mr. Lyski, $0; Ms. Stump, $0; Mr. Coleman, $7,496; Mr. Brockman, $0 and Mr. Evans, $0.

(3)
Reflects Company contributions into the ERP, a non-qualified deferred compensation plan. Company Matching Contributions to the ERP for a particular calendar year are not allocated until the first quarter of the subsequent calendar year. As a result, amounts reflected in this column do not include the following estimated Company Matching Contributions with respect to NEO contributions that were made to the ERP between January 1, 2013 and September 30, 2013: Mr. Hagedorn, $39,935; Mr. Hilsheimer, $0; Mr. Sanders, $19,444; Mr. Lyski, $8,960; Ms. Stump, $5,250; Mr. Coleman, $2,381; Mr. Brockman, $0 and Mr. Evans, $0. Additional details with respect to non-qualified deferred compensation provided for under the ERP are shown in the table captioned “Non-Qualified Deferred Compensation for 2013 Fiscal Year” and the accompanying narrative.


45

        

(4)
Reflects the $1.0 million Company contribution made to the ERP in respect of a retention award granted on November 4, 2008, which vested during the 2012 fiscal year. As contemplated by applicable SEC Rules, since the retention awards were subject to a three-year vesting period, the Company’s contribution to the ERP in respect of each retention award was not included in the Summary Compensation Table or the table captioned “All Other Compensation” until the year in which the retention award was earned (i.e., when the award vests). Any changes in the value of the retention award account, as well as any distributions of the vested account balance, have been disclosed in the Non-Qualified Deferred Compensation Tables for each of the 2009 through 2012 fiscal years.

(5)
Mr. Hagedorn realized additional compensation for the 2013 fiscal year of $2,666 as a result of purchasing Common Shares at a 10% discount through his participation in the Discounted Stock Purchase Plan and a Wellness Incentive of $495. Amount also reflects the compensatory commuting allowance of $240,000 that was provided to Mr. Hagedorn during the 2013 fiscal year.

During the 2013 fiscal year, certain members of Mr. Hagedorn’s family were passengers on business-related flights on Company aircraft. There was no incremental cost to the Company associated with this perquisite. Accordingly, there was no reportable perquisite amount. Additionally, Mr. Hagedorn has access to the services of the Company’s aviation mechanics and pilots in circumstances involving commuting flights on personal aircraft. Since the Company’s aviation mechanics and pilots are paid on a salary basis, there is no incremental cost to the Company for providing this perquisite. Accordingly, there was no reportable perquisite amount.

(6)
Mr. Hagedorn realized additional compensation for the 2012 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $2,667 as a result of purchasing Common Shares at a 10% discount through his participation in the Discounted Stock Purchase Plan. Mr. Hagedorn also received $1,441 in interest related to a deferred dividend payment that vested on October 8, 2011. Amount also reflects the compensatory commuting allowance of $240,000 that was provided to Mr. Hagedorn during the 2012 fiscal year.

During the 2012 fiscal year, certain members of Mr. Hagedorn’s family were passengers on business-related flights on Company aircraft. There was no incremental cost to the Company associated with this perquisite. Accordingly, there was no reportable perquisite amount.

(7)
Mr. Hagedorn realized additional compensation for the 2011 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $2,667 as a result of purchasing Common Shares at a 10% discount through his participation in the Discounted Stock Purchase Plan. Mr. Hagedorn also received $979 in interest related to a deferred dividend payment that vested on November 8, 2010. Amount also reflects the compensatory commuting allowance of $240,000 that was provided to Mr. Hagedorn during the 2011 fiscal year.

During the 2011 fiscal year, certain members of Mr. Hagedorn’s family were passengers on business-related flights on Company aircraft. There was no incremental cost to the Company associated with this perquisite. Accordingly, there was no reportable perquisite amount.

(8)
Mr. Hilsheimer realized additional compensation for the 2013 fiscal year of $889 as a result of purchasing Common Shares at a 10% discount through his participation in the Discount Stock Purchase Plan and a Wellness Incentive of $150.

(9)
Mr. Sanders realized additional compensation for the 2013 fiscal year of $333 as a result of purchasing Common Shares at a 10% discount through his participation in the Discounted Stock Purchase Plan, a Wellness Incentive of $270 and $531 associated with the value of a company-paid physical examination.

(10)
Mr. Sanders realized additional compensation for the 2012 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $333 as a result of purchasing Common Shares at a 10% discount through his participation in the Discounted Stock Purchase Plan. Mr. Sanders also received $147 in interest related to a deferred dividend payment that vested on October 8, 2011.

(11)
Mr. Sanders realized additional compensation for the 2011 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $333 as a result of purchasing Common Shares at a 10% discount through his participation in the Discounted Stock Purchase Plan. Mr. Sanders also received $148 in interest related to a deferred dividend payment that vested on November 7, 2010.


46

        

The amount shown also includes $9,199 representing the cost of Mr. Sanders’ personal use of Company aircraft related to a family emergency. The value reported for his personal usage does not include the cost of ferry legs, i.e., “deadhead flights” ($6,100). The aggregate incremental cost reported does not include the minimal incremental tax cost to the Company associated with the partial loss of a tax deduction of aircraft-related costs as a result of Mr. Sanders’ personal use of Company aircraft. During the 2011 fiscal year, certain members of Mr. Sanders’ family were passengers on a business-related flight on Company aircraft. There was no incremental cost to the Company associated with this perquisite. Accordingly, there was no reportable perquisite amount.

(12)
Mr. Lyski realized additional compensation for the 2013 fiscal year of $495 related to a Wellness Incentive. During the 2013 fiscal year, certain members of Mr. Lyski’s family were passengers on business-related flights on Company aircraft. There was no incremental cost to the Company associated with this perquisite. Accordingly, there was no reportable perquisite amount.

(13)
Ms. Stump realized additional compensation for the 2013 fiscal year of $667 as a result of purchasing Common Shares at a discount through her participation in the Discounted Stock Purchase Plan.

(14)
Ms. Stump realized additional compensation for the 2012 fiscal year of $668 as a result of purchasing Common Shares at a 10% discount through her participation in the Discounted Stock Purchase Plan. Ms. Stump also received $113 in interest related to a deferred dividend payment that vested on October 8, 2011.

(15)
Ms. Stump realized additional compensation for the 2011 fiscal year of $3,500 associated with the value of Company-paid financial planning services and $667 as a result of purchasing Common Shares at a 10% discount through her participation in the Discounted Stock Purchase Plan. Ms. Stump also received $145 in interest related to a deferred dividend payment that vested on November 7, 2010.

(16)
Mr. Coleman realized additional compensation for the 2013 fiscal year of $270 related to a Wellness Incentive and $518 associated with the value of a Company-paid physical examination.

(17)
Mr. Brockman realized additional compensation for the 2013 fiscal year of $385 related to a Wellness Incentive. He also realized the following additional compensation pursuant to the Separation Agreement and Release of All Claims between Mr. Brockman and Scotts LLC (the “Brockman Separation Agreement”), executed on July 10, 2013: a lump sum payment of $24,000 in lieu of Company-paid outplacement services; a lump sum payment of $178,000 in respect of transition services provided to the Company between July 10, 2013 and September 30, 2013; a lump sum payment of $425,000 for purposes of facilitating his relocation back to Florida; and $10,000 of imputed income in connection with personal legal fees paid by the Company on Mr. Brockman’s behalf. For additional information regarding the Brockman Separation Agreement, see section captioned “SEVERANCE AND CHANGE IN CONTROL (CIC) ARRANGEMENTS — Brockman Separation Agreement.”

During the 2013 fiscal year, certain members of Mr. Brockman’s family were passengers on business-related flights on Company aircraft. There was no incremental cost to the Company associated with this perquisite. Accordingly, there was no reportable perquisite amount.

(18)
Mr. Brockman realized additional compensation for the 2012 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $725 associated with the value of a Company-paid physical examination. Mr. Brockman also received $90 in interest related to a deferred dividend payment that vested on October 8, 2011.

(19)
Mr. Brockman realized additional compensation for the 2011 fiscal year of $8,000 in lieu of receiving Company-paid financial planning services for each of the 2011 and 2010 calendar years. Mr. Brockman also received $98 in interest related to a deferred dividend payment that vested on November 7, 2010.

(20)
Mr. Evans realized additional compensation for the 2013 fiscal year of $90 related to a Wellness Incentive and $937 associated with the value of a Company-paid physical examination.

(21)
Mr. Evans realized additional compensation for the 2012 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $561 associated with the value of a Company-paid physical examination. Mr. Evans also received $136 in interest related to a deferred dividend payment that vested on October 8, 2011.


47

        

(22)
Mr. Evans realized additional compensation for the 2011 fiscal year of $4,000 in lieu of receiving Company-paid financial planning services and $1,560 associated with the value of a Company-paid physical examination. Mr. Evans also received $177 in interest related to a deferred dividend payment that vested on November 7, 2010.

Grants of Plan-Based Awards Table

The following table sets forth information concerning equity-based awards made during the 2013 fiscal year as well as the range of potential payouts under the EIP, a non-equity incentive plan, with respect to performance goals for the 2013 fiscal year.

Grants of Plan-Based Awards for 2013 Fiscal Year
Name
Grant Date
 
Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards(1)
 
Estimated Future
Payouts Under Equity
Incentive Plan
Awards(2)
 
All Other
Stock
Awards:
Number  of Shares of Stock or Units
(#)
 
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
 
Grant
Date Fair
Value of
Stock and
Option
Awards ($)(7)
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(shares)
 
Target (shares)
 
Maximum
(shares)
 
James Hagedorn
1/18/2013
 
 
 
 
 
 
 

 
80,116

 

 

 

 
3,610,027

 
 
591,250

 
1,182,500

 
2,660,625

 
 
 
 
 
 
 
 
 
 
 
 
Lawrence A. Hilsheimer
4/1/2013
 
 
 
 
 
 
 
 
 

 
 
 
32,665

(3)

 
1,400,022

 
 
227,500

 
455,000

 
1,023,750

 
 
 
 
 
 
 
 
 
 
 
 
Barry W. Sanders
1/18/2013
 
 
 
 
 
 
 

 
39,947

 

 

 

 
1,800,012

 
 
 
273,000

 
546,000

 
1,228,500

 
 
 
 
 
 
 
 
 
 
 
 
James R. Lyski
10/24/2012
 
 
 
 
 
 
 

 

 

 
7,500

(4)

 
314,700

1/18/2013
 
 
 
 
 
 
 

 
9,987

 

 

 

 
450,014

 
 
136,125

 
272,250

 
612,563

 
 
 
 
 
 
 
 
 
 

 
 
Denise S. Stump
1/18/2013
 
 
 
 
 
 
 

 
8,878

 

 

 

 
400,043

 
 
118,250

 
236,500

 
532,125

 
 
 
 
 
 
 
 
 
 
 
 
Thomas R. Coleman
1/18/2013
 
 
 
 
 
 
 

 

 

 
8,323

(5)

 
375,034

5/8/2013
 
 
 
 
 
 
 

 

 

 
9,333

(6)

 
447,237

 
 
91,500

 
183,000

 
411,750

 
 
 
 
 
 
 
 
 
 
 
 
Vincent C. Brockman
1/18/2013
 
 
 
 
 
 
 

 
12,761

 

 

 

 
575,011

 
 
123,750

 
247,500

 
556,875

 
 
 
 
 
 
 
 
 
 
 
 
David C. Evans
1/18/2013
 
 
 
 
 
 
 

 
26,632

 

 

 

 
1,200,038

 
 
177,750

 
355,500

 
799,875

 
 
 
 
 
 
 
 
 
 
 
 
________________________

(1)
These amounts are the estimated potential threshold (minimum), target and maximum incentive award payouts that each NEO was eligible to receive based on performance goals set pursuant to the EIP for the 2013 fiscal year. A detailed description of the performance goals and potential incentive award payouts under the EIP is provided in the section captioned “Elements of Executive Compensation — Annual Cash Incentive Compensation” within the CD&A.

(2)
Reflects the number of PUs awarded under the Long-Term Incentive Plan to each of Mr. Hagedorn, Mr. Sanders, Mr. Lyski, Ms. Stump, Mr. Brockman and Mr. Evans. In general, the PUs, as well as the cash-based dividend equivalents associated therewith, vest on the third anniversary of the grant date, subject to the achievement of the pre-defined performance goals. No shares would have been earned had the Company not achieved the pre-defined performance goals. A detailed description of the performance goals and potential shares to be paid out is provided in the section captioned “Elements of Executive Compensation — Long-Term Equity-Based Incentive Awards” within the CD&A.

The PUs are subject to earlier vesting in the event of retirement, death or disability of the NEO or a change in control of the Company in certain circumstances, but otherwise will be forfeited in the event of termination prior to the third anniversary of the grant. As of September 30, 2013, both Mr. Hagedorn and Ms. Stump were retirement eligible and therefore qualify for accelerated vesting should they retire prior to the normal vesting date, provided the minimum performance criteria has been met. No other NEOs are retirement eligible.


48

        

Subject to the terms of the Long-Term Incentive Plan, whole vested PUs will be settled in Common Shares and fractional PUs will be settled in cash as soon as administratively practicable, but in no event later than 90 days following the earliest to occur of: (i) termination; (ii) death; (iii) disability; or (iv) the third anniversary of the grant date. Until the PUs are settled, the NEO has none of the rights of a shareholder with respect to the Common Shares underlying the PUs other than with respect to the dividend equivalents.

(3)
Reflects 32,665 RSUs granted on April 1, 2013 (the Hilsheimer Sign-On Grant) in connection with the commencement of Mr. Hilsheimer's employment. A detailed description of the Hilsheimer Sign-On Grant is provided in the section captioned “Our Compensation Practices — Setting Compensation Levels for Mr. Hilsheimer” within the CD&A.

(4)
Reflects a special one-time retention grant of 7,500 RSUs on October 24, 2012, subject to a three-year cliff vesting requirement. Vested RSUs will be settled as soon as administratively practicable, but in no event later than 90 days following the earliest to occur of: (i) termination; (ii) death; (iii) disability; or (iv) the third anniversary of the grant date. Until the RSUs are settled, the NEO has none of the rights of a shareholder with respect to the Common Shares underlying the RSUs other than with respect to the dividend equivalents.

(5)
Reflects 8,323 RSUs granted on January 18, 2013, subject to a three-year cliff vesting requirement.

(6)
Reflects 9,333 RSUs granted on May 8, 2013 in connection with the Coleman Retention Award. A detailed description of the Coleman Retention Award is provided in the section captioned Elements of Executive Compensation — Executive Retention Awards” within the CD&A.

(7)
Reflects the grant date fair value for the PU grants (assuming the underlying performance criteria will be satisfied) and RSU grants identified in this table, computed in accordance with FASB ASC Topic 718.


49

        

Outstanding Equity Awards Table

The following table provides information regarding outstanding equity-based awards as of September 30, 2013.

Outstanding Equity Awards at 2013 Fiscal Year-End
 
 
 
 
Option Awards
 
Stock Awards
 
Name
 
Grant
Date
 
Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable (#)(1)
 
Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
(#)(1)
 
Option
Exercise
Price ($)(2)
 
Option
Expiration
Date
 
Number of
Shares or
Units That
Have Not
Vested (#)
 
Market
Value of
Shares or
Units
That Have
Not
Vested ($)(9)
 
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares or
Units That
Have Not
Vested
(#)
 
Equity
Incentive
Plan
Awards:
Market or
Payout
Value Of
Unearned
Shares or
Units
That Have
Not
Vested
($)(9)
 
James Hagedorn
 
11/19/2003
 
214,120

*

 
24.45

 
11/18/2013
 
 
 
 
 
 
 
 
 
 
 
12/1/2004
 
196,553

 

 
29.01

 
12/1/2014
 
 
 
 
 
 
 
 
 
 
 
10/12/2005
 
182,067