UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

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Leslie’s, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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2022

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS AND

PROXY STATEMENT

 

 

 

    LETTER FROM THE CHIEF EXECUTIVE OFFICER

 

Dear Fellow Shareholders,

On behalf of the Board of Directors, it is our pleasure to invite you to attend the 2022 Annual Meeting of Shareholders of Leslie’s, Inc. The meeting will be held in a virtual format on Thursday, March 17, 2022, beginning at 9:00 a.m. (Mountain Standard Time). The meeting will be conducted via a live audiocast at www.virtualshareholdermeeting.com/LESL2022.

The following pages contain the formal Notice of Annual Meeting of Shareholders and Proxy Statement, which describe the specific business to be considered and voted upon at the Annual Meeting. The meeting will include a report on Leslie’s activities for the fiscal year ended October 2, 2021, and there will be an opportunity for comments and questions from shareholders.

Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. After reviewing the Proxy Statement, we ask you to vote as described in the Proxy Statement as soon as possible.

On behalf of our Board of Directors, we would like to thank you for your continued interest and investment in Leslie’s.

 

 

Yours Sincerely,
		Chief Executive Officer 2005 East Indian School Road Phoenix, Arizona 85016 January 31, 2022

 

Proxy Statement and Annual Meeting Report 2022

 

Notice of Annual Meeting of Shareholders

 

				DATE AND TIME Thursday, March 17, 2022 9:00 a.m. Mountain Standard Time				WHO CAN VOTE Shareholders of record as of 5:00 p.m. Eastern Time on January 18, 2022 will be entitled to notice of, and to vote at, the Annual Meeting, or any adjournment thereof.
				LOCATION Online via live audiocast on www.virtualshareholdermeeting.com/LESL2022

VOTING ITEMS

 

Proposals				Board Vote Recommendation		For Further Details
1.		Election of 3 Class I directors, as named in this proxy statement		“FOR” each director nominee listed in Proposal 1		Page 16
2.		Ratification of appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2022		“FOR”		Page 23
3.		Non-binding, advisory vote to approve named executive officer compensation		“FOR”		Page 25
4.		Non-binding, advisory vote for the frequency of future non-binding, advisory votes to approve named executive officer compensation		“ONE YEAR”		Page 38

Shareholders will also transact any other business that may be properly presented at the Annual Meeting. This proxy statement is first being made available to our shareholders on or about January 31, 2022.

In light of the ongoing public health concerns related to the novel coronavirus (“COVID-19”) pandemic, we are holding the Annual Meeting in a virtual-only format this year. To attend the Annual Meeting online, vote, submit questions or view the list of registered shareholders during the meeting, shareholders of record will need to go to the meeting website listed above and log in using their 16-digit control number included on their proxy card. Beneficial owners should review these proxy materials and their voting instruction form for how to vote in advance of and how to participate in the Annual Meeting.

In the event of a technical malfunction or other situation that the meeting chair determines may affect the ability of the Annual Meeting to satisfy the requirements for a meeting of shareholders to be held by means of remote communication under the Delaware General Corporation Law, or that otherwise makes it advisable to adjourn the Annual Meeting, the chair or secretary of the Annual Meeting will convene the meeting at 9:30 a.m. Mountain Standard Time on the date specified above and at the Company’s address specified below solely for the purpose of adjourning the meeting to reconvene at a date, time and physical or virtual location announced by the meeting chair. Under either of the foregoing circumstances, we will post information regarding the announcement on the Company’s Investor Relations page at https://ir.lesliespool.com/.

We encourage you to review these proxy materials and vote your shares before the Annual Meeting.

By Order of the Board of Directors,

 

Brad Gazaway

Chief Legal Officer and Corporate Secretary

2005 East Indian School Road

Phoenix, Arizona 85016

January 31, 2022

HOW TO VOTE

 

INTERNET www.proxyvote.com		TELEPHONE 1-800-690-6903		MAIL Mark, sign, date and promptly mail the enclosed proxy card in the postage-paid envelope
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 17, 2022   The notice, Proxy Statement, and 2021 Annual Report on Form 10-K are available at www.proxyvote.com.

 

Proxy Statement and Annual Meeting Report 2022

TABLE OF CONTENTS

 

Table of Contents

 

 

Proxy Statement and Annual Meeting Report 2022			i

TABLE OF CONTENTS

 

FORWARD-LOOKING STATEMENTS AND WEBSITE REFERENCES     This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current facts, including statements regarding our environmental and other sustainability plans and goals, made in this document are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons. Risks and uncertainties that could cause our actual results to differ significantly from management’s expectations are described in our 2021 Annual Report on Form 10-K. Forward-looking and other statements in this document may also address our corporate responsibility and sustainability progress, plans, and goals, and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in the Company’s filings with the SEC. In addition, historical, current, and forward-looking environmental and social-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this document.

 

ii    Leslie’s, Inc.

 

Proxy Statement Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.

 

DATE AND TIME   March 17, 2022 at 9:00 a.m. Mountain Standard Time		LOCATION   Online at www.virtualshareholdermeeting.com/LESL2022		RECORD DATE   January 18, 2022

 

Voting Matters				Board’s Vote Recommendations		For Further Information
PROPOSAL 1		Election of 3 Class I directors, as named in this proxy statement		“FOR” each director nominee listed in Proposal 1		Page 16
PROPOSAL 2		Ratification of appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2022		“FOR”		Page 23
PROPOSAL 3		Non-binding, advisory vote to approve named executive officer compensation		“FOR”		Page 25
PROPOSAL 4		Non-binding, advisory vote for the frequency of future non-binding, advisory votes to approve named executive officer compensation		“ONE YEAR”		Page 38

COMPANY OVERVIEW AND BUSINESS STRATEGY

We are the largest and most trusted direct-to-consumer brand in the $11 billion United States pool and spa care industry, serving both residential and professional consumers. Founded in 1963, we are the only direct-to-consumer pool and spa care brand with national scale, operating an integrated marketing and distribution ecosystem powered by a physical network of 952 branded locations and a robust digital platform. We have a market-leading share of approximately 15% of residential aftermarket product spend as of 2021, which represents an increase of approximately 1,000 basis points since 2010. Our physical network is larger than the sum of our twenty largest competitors, and our digital sales are estimated to be greater than five times as large as that of our largest digital competitor. We offer an extensive assortment of professional-grade products, the majority of which are exclusive to Leslie’s, Inc. (“Company” or “Leslie’s”), as well as certified installation and repair services, all of which are essential to the ongoing maintenance of pools and spas. Our dedicated team of associates, pool and spa care experts, and experienced service technicians are passionate about empowering our consumers with the knowledge, products, and solutions necessary to confidently maintain and enjoy their pools and spas. Over the last five fiscal years, we have spent more than $90 million in foundational investments across new technologies and capabilities focused on transforming our consumer experience and advancing our industry leadership. The unprecedented scale of our integrated marketing and distribution ecosystem, which is powered by our direct-to-consumer network, uniquely enables us to efficiently reach and service every pool and spa in the continental United States.

We operate primarily in the pool and spa aftermarket industry which is one of the most fundamentally attractive consumer categories given its scale, predictability, and growth outlook. We have a highly predictable, recurring revenue model, as evidenced by our 58 consecutive years of sales growth. Approximately 80% of our assortment is comprised of non-discretionary products essential to the care of residential and commercial pools and spas. Our assortment includes chemicals, equipment and parts,

 

Proxy Statement and Annual Meeting Report 2022			1

PROXY STATEMENT SUMMARY

 

cleaning and maintenance equipment, and safety, recreational, and fitness-related products. We also offer important essential services, such as equipment installation and repair for residential consumers and professional pool operators. Consumers receive the benefit of extended vendor warranties on products purchased through our locations and on on-site installations or repairs by our certified in-field technicians. We offer complimentary, commercial-grade in-store water testing and analysis via our proprietary AccuBlue^® system, which increases consumer engagement, conversion, basket size, and loyalty, resulting in higher lifetime value. Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the industry. Due to the non-discretionary nature of our products and services, our business has historically delivered strong, uninterrupted growth, and profitability in all market environments, including through the Great Recession and the COVID-19 pandemic.

We have a legacy of leadership and disruptive innovation. Since our founding in 1963, we have been the leading innovator in our category and have provided our consumers with the most advanced pool and spa care available. As we have scaled, we have leveraged our competitive advantages to strategically reinvest in our business and intellectual property to develop new value-added capabilities. We have pioneered complimentary in-store water testing, offered complimentary in-store equipment repair services, introduced the industry’s first loyalty program, implemented the industry’s first scale omni-channel capabilities and developed an expansive platform of owned and exclusive brands. These differentiated capabilities allow us to meet the needs of any pool and spa owner, whether they care for their pool or spa themselves or rely on a professional, whenever, wherever, and however they choose to engage with us.

 

2    Leslie’s, Inc.

     PROXY STATEMENT SUMMARY

 

Environmental, Social, and Governance

We understand corporate responsibility is essential for good governance. It strengthens the accountability of our Board of Directors (“Board”) and management team and supports the long-term interests of our shareholders and stakeholders. Our Board is primarily responsible for overseeing our corporate strategy, which includes the oversight of environmental, social, and governance (“ESG”) matters that impact our business and related risks. In addition to the Board as a whole, our Nominating and Corporate Governance Committee has an ESG sub-committee, which on a quarterly basis reviews and monitors our ESG and sustainability matters and corporate governance trends. At the management level, our Chief Legal Officer directs our ESG strategy and reporting program along with our Director of ESG. Corporate responsibility at Leslie’s is governed from the most senior levels down to all of our employees, because we believe that achieving operational excellence is intrinsically tied to how responsibly we run our business.

Our focus on and commitment to ESG is tied to our belief that achieving and sustaining business excellence goes hand-in-hand with strong corporate leadership and stewardship. To support our ESG efforts, we formed an ESG working group, consisting of internal resources and external advisors, to assess and address ESG factors that are important to our business. Our working group evaluated potential ESG risks and opportunities to best understand the views of our shareholders and leading ESG frameworks, including the Sustainability Accounting Standard Board (“SASB”), the Task Force on Climate-Related Disclosures (“TCFD”), and the United Nations Sustainable Development Goals (“UN SDGs”). As a pool and spa retailer, we focus on ESG issues such as diversity and inclusion (“D&I”), sustainable products, environmental, health and safety management, and community engagement and water safety. We published our inaugural ESG report this past year, which covers our ESG approach and current key ESG-related initiatives and programs. Please refer to the Company’s Investor Relations page at https://ir.lesliespool.com/esg.

Diversity & inclusion

One of our values is to welcome everyone and to create an environment where individuals can proudly work together, do their best, and have fun along the way. In June 2020, we formalized our D&I efforts with the creation of our Diversity and Inclusion Advisory Council (“Dive In”). The Council is comprised of approximately 75 team members who advance strategies, discussions, and execution of our D&I initiatives. Dive In has four working groups focused on: education & training, community & philanthropy, mentorship & scholarships, and recruiting. As part of its overarching initiative, it established a goal to have our workforce, at all levels, mirror the US census population by 2025. As of our 2020 fiscal year end, our senior management team was 14% female and 20% racially and ethnically diverse, while our team members were 32% female and 33% diverse by race and ethnicity. Our Board is currently 33% female and 33% diverse by race and ethnicity.

Sustainable products

As a retailer, we aim to provide a selection of environmentally conscious pool offerings and to educate our customers on ways to reduce water and energy consumption, as well as how to improve water chemistry efficacy. We encourage the adoption of these products by, among other actions, investing in customer education, enhancing in-store eco-friendly product signage, and engaging customers via marketing campaigns. We also work alongside our third-party vendors to increase our sustainable offerings.

Environmental, health, and safety management

From our manufacturing and distribution centers to our drivers and retail locations, safety is one of our top priorities. We have the requisite policies, procedures, and trainings in place to promote responsible actions by our team members and compliance with applicable laws and regulations. These include proper product labeling, chemical storage and handling, and occupational injury prevention. We have designed training programs that are refreshed annually to meet the needs of role-specific hazards encountered both on-site and en route to service our customers’ needs. These trainings are reinforced by monthly safety meetings, which cover a variety of related topics. As a result of our safety programs, our incident rates are low across our divisions.

 

Proxy Statement and Annual Meeting Report 2022			3

PROXY STATEMENT SUMMARY

 

Community engagement and water safety

We strive to align our community giving with the promotion of safe and responsible enjoyment within and around water. In 2020, we partnered with the Aquatic Safety Research Group to develop a tip sheet on safe swimming to bridge knowledge gaps on swimming and water safety, which was important as more people were staying home. We have also taken steps to establish a philanthropy council with a mission to advance four key pillars addressing disaster relief, health and wellness, diversity and inclusion and water safety and community in partnership with nationally recognized organizations.

Our COVID-19 response

The global pandemic created unprecedented challenges for our Company, our employees, and our communities. It is through our resiliency and commitment to our long-term strategy that we have been able to effectively adapt to the changing conditions. Our highest priority was, and continues to be, the safety and well-being of our employees and their families, our customers and our communities. At the outset, we formed a COVID-19 Task-Force to develop and implement strategies, procedures, and policies to address issues arising from the pandemic.

We have been attentive to all state and local regulations to ensure our business continuity. During store closures, we continued to pay regular wages to our full-time employees, and provided a Front-Line Recognition Pay program, which boosted hourly wages by $2 from March 2020 through July 2020. We have continued to focus on the safety of our associates and their families through regular communication and by providing the tools needed to maintain a safe and healthy workplace, including the provision of PPE, displaying appropriate location signage, instructing associates to stay home when sick, and encouraging mask wearing. Effective October 2021, we enacted a vaccination policy requiring certain employees to provide proof of vaccination or receive a religious or medical exemption. The vaccination policy applies to all corporate office, field leadership, distribution center leadership, and outside sales employees. We continue to remain vigilant and continuously review and update our policies and procedures to the evolving situations.

HUMAN CAPITAL MANAGEMENT

As of October 2, 2021, we employed approximately 3,700 employees. Of these employees, approximately 2,650 work in our physical network, approximately 250 work as in-field service technicians, approximately 450 work in corporate, infrastructure, or e-commerce, and approximately 325 work in our distribution centers. We believe that we have good relations with our employees. None of our employees are currently covered under any collective bargaining agreements.

We consider our employees to be the foundation for our growth and success. As such, our future success depends in large part on our ability to attract, train, retain, and motivate qualified personnel. The growth and development of our workforce is an integral part of our success. We place a priority on promoting from within. Over the last three years, approximately 70% of our retail and corporate management openings have been filled by existing employees.

We are also committed to developing and fostering a culture of diversity and inclusion and know that a company’s ultimate success is directly linked to its ability to identify and hire talented individuals from all backgrounds and perspectives.

DIRECTOR NOMINEES

The following provides summary information about each director nominee.

 

Name and Occupation		Age		Other Public Boards		Committee Memberships
						AC		CC		NCGC
Michael R. Egeck     CEO, Leslie’s, Inc.		63		0
Yolanda Daniel       VP Finance, Federal Reserve Bank of Chicago		55		0
Eric Kufel     CEO, West Marine, Inc.		55		0

 

4    Leslie’s, Inc.

PROXY STATEMENT SUMMARY

 

ALL OTHER DIRECTORS

The following provides summary information about all other directors not up for election at the 2022 Annual Meeting.

 

Name and Occupation		Age		Other Public Boards		Committee Memberships
						AC		CC		NCGC
Steven L. Ortega     Former CEO, Current Chairman, Leslie’s, Inc.		60		0
Jodeen Kozlak     Founder & CEO, Kozlak Capital Partners		58		3
Marc Magliacano     Managing Partner, L Catterton Global Flagship Fund		47		1
Susan O’Farrell       Former CFO, BlueLinx Holdings, Inc.		58		0
James Ray, Jr.   Former President, STANLEY Engineered Fastening, Stanley Black & Decker, Inc.		58		2
John Strain     Head of e-Commerce and Technology, Gap, Inc.		53		0

 

AC – Audit Committee CC – Compensation Committee NCGC – Nominating and Corporate Governance Committee        Independent     Lead Independent Director		Chair                      Member Audit Committee Financial Expert

 

		BOARD SNAPSHOT

 

 

 

Proxy Statement and Annual Meeting Report 2022			5

PROXY STATEMENT SUMMARY

 

		SKILLS & EXPERIENCE

 

7/9

RETAIL/ MERCHANDISING

9/9

STRATEGIC MANAGEMENT

6/9

SUPPLY CHAIN

Important in understanding our industry, business needs and strategic goals

Important in implementing our goals and aligning on long-term business investments and objectives and our capital allocation

Important to oversee upstream and downstream structure and design of the supply chain, all of which are critical to our strategic goals

3/9

BRAND AND CONSUMER MARKETING

4/9

DIGITAL COMMERCE AND MARKETING

8/9

HUMAN CAPITAL MANAGEMENT

Important as marketing and communications are critical to building and expanding our market share

Important in overseeing the development of our multi-channel strategy

Important to oversee our significant associate base that is growing, so that we place the best investments in our associates

2/9

INFORMATION TECHNOLOGY AND SECURITY

6/9

FINANCE/ ACCOUNTING

9/9

GOVERNANCE/ RISK MANAGEMENT

Important as we assess our technology and cybersecurity needs, along with the needs of our customers, among other reasons to protect our customers’ data

Important to oversee and understand our financial statements, capital structure and internal controls

Supports our objective to have corporate governance and risk management practices that reflect industry best practices

9/9

SENIOR LEADERSHIP

3/9

ESG

9/9

PUBLIC COMPANY EXPERIENCE

Important as leadership experience can provide insight on business operations, growth and culture

Helpful in our work as a values driven organization

Important to oversee the workings of a public company

 

Board Diversity Matrix (as of January 1, 2022)
Total Number of Directors			9
		Female				Male
Part I: Gender Identity
Directors			3				6
Part II: Demographic Background
African American or Black			1				1
Hispanic or Latinx			0				1
White			2				4

 

6    Leslie’s, Inc.

PROXY STATEMENT SUMMARY

 

CORPORATE GOVERNANCE HIGHLIGHTS

 

•

The Board consists of a diverse mix of individuals with distinctive skills and experience

 

•

Separate Chairman, Chief Executive Officer, and Lead Independent Director

 

•

Majority of Board directors are independent directors

 

•

Only independent directors sit on Board committees

 

•

Average director age of 56 years

 

•

Annual Board and committee self-evaluations

 

•

Annual director evaluations

 

•

Directors and other designated officers are subject to stock ownership guidelines

 

•

Consistent outreach with our shareholders related to governance and other matters

 

•

Hedging/pledging prohibited

 

Proxy Statement and Annual Meeting Report 2022			7

 

Corporate Governance

DIRECTOR INDEPENDENCE

Our Board has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information provided by each director, our Board has determined that none of our directors, with the exception of Messrs. Egeck, Kufel, Magliacano and Ortega, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is independent under applicable Nasdaq rules. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”

BOARD LEADERSHIP STRUCTURE

The Board annually reviews its leadership structure to evaluate whether the structure remains appropriate for the Company. The Board selects its Chairman and the Chief Executive Officer (the “CEO”) in a way it considers is in the best interests of the Company. The Board does not have a policy on whether the role of Chairman and CEO should be separate or combined. The Board has determined, however, that wherever and for so long as the Chairman is not an independent director, then there shall also be a lead independent director.

Currently, our Chairman is Steven L. Ortega, and the Lead Independent Director is James Ray, Jr.

LEAD INDEPENDENT DIRECTOR

The Lead Independent Director’s responsibilities include the following:

 

•

presiding at all meetings of the Board at which the chairperson of the Board is not present, including executive sessions of non-employee directors and independent directors;

 

•

approving information sent to the Board and overseeing that the scope, quality, quantity and timeliness of the flow of information between management and the Board is adequate for the Board to effectively and responsibly perform its duties;

 

•

consulting with the chairperson of the Board regarding agendas for all meetings of the Board as well as contributing to and approving them;

 

•

approving Board meeting schedules to provide that there is sufficient time for discussion of all agenda items;

 

•

serving as a liaison between the chairperson of the Board and the independent directors; and

 

•

if requested by major shareholders, being available for consultation and direct communication.

In addition, the Lead Independent Director also has the authority to call meetings of the independent directors.

DIRECTOR NOMINATIONS

In accordance with its charter, the Nominating and Corporate Governance Committee determines the qualifications, qualities, skills, and other expertise required to be a director and recommends to the Board criteria to be considered in selecting nominees for directors. These will inform the committee’s annual evaluation of the experience and characteristics appropriate for Board members and director candidates in light of the Board’s composition, and the skills and expertise needed for effective operation of the Board and its committees. The Board and the Nominating and Corporate Governance Committee also ensures that qualified director candidates with a diversity of gender, ethnicity, tenure, skills and experience are included by the Company or any search firm it engages in each pool of candidates from which Board nominees are chosen.

 

8    Leslie’s, Inc.

CORPORATE GOVERNANCE

 

The Nominating and Corporate Governance Committee reviews the qualifications of director candidates and incumbent directors in light of the criteria approved by Board, and any shareholder recommendations for director are evaluated in the same manner as other candidates considered by the Nominating and Corporate Governance Committee. Shareholders that wish to nominate a director for election to our Board should follow the procedures described under the “Submission of Shareholder Proposals for the 2023 Annual Meeting” heading.

We generally evaluate the following criteria regarding minimum director qualifications for our directors to possess: educational background, gender, ethnic diversity, diversity of professional experience, including whether the person is a current or was a former chief executive officer or chief financial officer of a public company or the head of a division of a prominent international organization, knowledge of our business, integrity, professional reputation, independence, wisdom, and ability to represent the best interests of our shareholders.

The Nominating and Corporate Governance Committee of the Board prepares policies regarding director qualification requirements and the process for identifying and evaluating director candidates for adoption by the Board. The above-mentioned attributes, along with the leadership skills and other experiences of our officers and Board members described above, are expected to provide us with a diverse range of perspectives and judgment necessary to facilitate our goals of shareholder value appreciation through organic and acquisition growth.

BOARD COMMITTEES

Our Board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.

In accordance with our Corporate Governance Guidelines, the independent directors meet in executive session without management present on a regularly scheduled basis.

During the fiscal year ended October 2, 2021, the Board held 7 meetings, and there were 10 meetings of the Audit Committee, 6 meetings of the Compensation Committee and 5 meetings of the Nominating and Corporate Governance Committee. All incumbent directors attended at least 75% of the aggregate of the meetings of the Board and committees on which they served occurring during 2021.

Directors are expected to attend the annual meeting of shareholders absent unusual circumstances. The Company did not hold an annual meeting of shareholders during the fiscal year ended October 2, 2021 because our IPO occurred in October 2020.

 

Proxy Statement and Annual Meeting Report 2022			9

CORPORATE GOVERNANCE

 

AUDIT COMMITTEE
MEMBERS Susan O’Farrell (Chair) Yolanda Daniel John Strain		PRINCIPAL RESPONSIBILITIES:   The primary role of the Audit Committee is to oversee the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements. Management of the Company is responsible for preparing the Company’s financial statements determining that they are complete, accurate, and in accordance with generally accepted accounting principles and establishing and maintaining satisfactory disclosure controls and internal control over financial reporting. The independent public accounting firm is responsible for auditing the Company’s financial.   We have adopted a committee charter that details the principal functions of the Audit Committee, including:   •  selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;   •  helping to ensure the independence and performance of the independent registered public accounting firm;   •  reviewing financial statements and discussing the scope and results of the independent audit and quarterly reviews with the independent registered public accounting firm, and reviewing, with management and the independent registered public accounting firm, our interim and year-end results of operations;   •  preparing the audit committee report that the SEC requires to be included in our annual proxy statement;   •  reviewing the adequacy and effectiveness of our disclosure controls and procedures and overseeing procedures for employees to submit concerns anonymously about accounting, internal control, or audit matters;   •  reviewing our policies on risk assessment and risk management;   •  reviewing related party transactions; and   •  approving or, as required, pre-approving, all audit and all permissible non-audit services and fees, to be performed by the independent registered public accounting firm.   Under the Nasdaq listing rules and applicable SEC rules, we are required to have at least three members of the audit committee, all of whom must be independent. Each member of the Audit Committee is financially literate, and our Board has determined that Ms. O’Farrell and Ms. Daniel both qualify as an “audit committee financial expert” as defined in applicable SEC rules and have accounting or related financial management expertise.   The Audit Committee has established and oversees procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters. The Audit Committee has the authority to retain counsel and other advisers as it determines necessary to fulfill its duties and responsibilities.

 

10    Leslie’s, Inc.

CORPORATE GOVERNANCE

 

COMPENSATION COMMITTEE
MEMBERS John Strain (Chair) Jodeen Kozlak James Ray, Jr.		PRINCIPAL RESPONSIBILITIES:   The primary role of the Compensation Committee is to assist the Board with the oversight of executive compensation.   We have adopted a committee charter that details the principal functions of the Compensation Committee, including:   •  reviewing, approving and determining, or making recommendations to our Board regarding the compensation of our executive officers;   •  overseeing our overall compensation philosophy and compensation policies, plans and benefit programs for service providers, including our executive officers;   •  administering our equity compensation plans; and   •  reviewing, approving, and making recommendations to our Board regarding incentive compensation and equity compensation plans.   The Compensation Committee, whom are all independent directors, may delegate its duties and responsibilities to one or more subcommittees as it determines appropriate.   The Compensation Committee is comprised of three directors, each director meets the Nasdaq independence requirements and all three directors qualify as “non-employee directors” under the Securities Exchange Act of 1934, as amended (“Exchange Act”).   The Compensation Committee has the authority, in its sole discretion, to retain a compensation consultant, legal counsel or other advisers, and are directly responsible for the compensation, retention terms and overseeing the work of any such advisers.   The Compensation Committee engaged Frederic W. Cook & Co., Inc. (“FW Cook”) in April 2021 to serve as the compensation consultant for the Compensation Committee and to provide advice in connection with the design of the Company’s 2022 compensation program for directors and executive officers. FW Cook did not provide any other services to the Company or management, and FW Cook only received fees from the Company for the services it provided to the Compensation Committee. The Compensation Committee evaluated FW Cook’s independence under the applicable Nasdaq and SEC standards and concluded that FW Cook was independent of the Company and that its services raised no conflicts of interest. The Company’s Chief Executive Officer and Chief Financial Officer were invited to participate in discussions regarding the 2022 compensation program and to give their recommendations.

 

Proxy Statement and Annual Meeting Report 2022			11

CORPORATE GOVERNANCE

 

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
MEMBERS Jodeen Kozlak (Chair) Yolanda Daniel James Ray, Jr.		PRINCIPAL RESPONSIBILITIES:   The primary role of the Nominating and Corporate Governance Committee is to assist the Board with oversight of the director nominations process and the Company’s corporate governance.   We have adopted a committee charter, which details the purpose and responsibilities of the Nominating and Corporate Governance Committee, including:   •  identifying, evaluating, and selecting, or making recommendations to our Board regarding, nominees for election to our Board and its committees;   •  evaluating the performance of our Board and of individual directors;   •  considering and making recommendations to our Board regarding the composition of our Board and its committees;   •  reviewing developments in corporate governance practices;   •  evaluating the adequacy of our corporate governance practices and reporting;   •  reviewing the succession planning for our executive officers; and   •  developing and making recommendations to our Board regarding corporate governance guidelines and matters.   The Board has delegated to the Nominating and Corporate Governance Committee oversight of our ESG matters. The Nominating and Corporate Governance Committee has an ESG Sub-Committee which reviews and monitors our ESG sustainability and corporate governance trends, and conducts ESG shareholder outreach.   The Nominating and Corporate Governance Committee may delegate its duties and responsibilities to one or more subcommittees, consisting only of independent directors, as it determines appropriate.   The Nominating and Corporate Governance Committee is comprised of at least three directors and each director meets the Nasdaq independence requirements.   The Nominating and Corporate Governance Committee has the authority to retain counsel and other advisers as it determines necessary to fulfill its duties and responsibilities, including search firms to be used to identify director candidates. The Nominating and Corporate Governance Committee is responsible for setting the compensation and retention terms and overseeing the work of any director search firm, outside legal counsel or any other advisors.

 

12    Leslie’s, Inc.

CORPORATE GOVERNANCE

 

RISK OVERSIGHT

A core responsibility of the Board is to understand the principal risks associated with the Company’s business on an ongoing basis, and oversee the key risk decisions of management, which includes comprehending the appropriate balance between risks and rewards. While the Audit Committee has primary responsibility for risk oversight, both the Audit Committee and the Board are actively involved in risk oversight and both receive reports on our risk management activities from our executive management team on a regular basis. Members of both the Audit Committee and the Board also engage in periodic discussions with members of management as they deem appropriate to review and address the proper management of the Company’s risks. In addition, each committee of the Board considers risks associated with its respective area of responsibility.

 

 

COMMUNICATIONS WITH DIRECTORS

Shareholders may contact the Board by mailing correspondence “c/o Corporate Secretary” to the Company’s principal offices at 2005 East Indian School Road, Phoenix, Arizona 85016. Correspondence will be forwarded to the respective director, except that the Corporate Secretary reserves the right not to forward advertisements or solicitations, customer complaints, obscene or offensive items, communications unrelated to the Company’s affairs, business or governance, or otherwise inappropriate materials.

GOVERNANCE DOCUMENTS

The Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee each operate pursuant to written charters adopted by the Board. These charters, along with the Corporate Governance Guidelines and the Code of Ethics, are available at the Company’s website and in print to any shareholder who requests a copy. To access these documents from the Company’s website, go to ir.lesliespool.com and select “Governance Documents” from the “Governance” drop-down menu. Requests for a printed copy should be addressed to Corporate Secretary, Leslie’s, Inc., 2005 East Indian School Road, Phoenix, Arizona 85016.

 

Proxy Statement and Annual Meeting Report 2022			13

CORPORATE GOVERNANCE

 

POLICIES PROHIBITING HEDGING OR PLEDGING

The Board has adopted a policy prohibiting all executive officers and directors from engaging in any form of hedging transaction involving the securities of the Company. The policy addresses short sales and transactions involving publicly traded options and also prohibits such individuals from holding our securities in margin accounts and from pledging our securities as collateral for loans. We believe that these policies further align our executives’ interests with those of our shareholders.

DIRECTOR COMPENSATION

The following table sets forth the compensation earned by our non-employee directors for service as a member of the Board for the fiscal year ended October 2, 2021. Compensation payable to Mr. Ortega for service as a member of the Board during the fiscal year ended October 2, 2021 is reported in the “Compensation Discussion and Analysis - Summary Compensation Table”:

 

Name		Fees Earned or Paid in Cash ($)(1)				Stock Awards ($)(2)				All Other Compensation ($)				Total ($)
Yolanda Daniel			73,333				125,000				-				198,333
Jodeen Kozlak			72,784				125,000				-				197,784
Eric Kufel(3)			68,049				125,000				263,050				456,099
Matthew Lischick(4)(5)			60,833				125,000				-				185,833
Marc Magliacano(5)			68,750				125,000				-				193,750
Susan O’Farrell			77,917				125,000				-				202,917
James Ray, Jr.(6)			11,209				125,000				-				136,209
John Strain(7)			92,917				125,000				-				217,917

 

(1)	The amounts in this column reflect the cash fees for service on the Board effective with the closing of the Company’s IPO on November 2, 2020. Prior to the IPO, our non-employee directors (other than Mr. Strain) did not receive any cash fees for their service on the Board.

(2)

The amounts in this column reflect the aggregate grant date fair value of each RSU granted during the fiscal year, computed in accordance with Accounting Standards Codification 718. The valuation assumptions used in determining such amounts are described in Note 16 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021. The grant date for the RSUs for all independent directors was November 2, 2020, with the exception of Mr. Ray which was August 13, 2021.

(3)

All Other Compensation includes (i) a lump-sum cash payment in the amount of $250,000 related to a succession agreement with the Company that became effective upon completion of our IPO and (ii) health insurance premiums as Mr. Kufel is eligible to participate in the health plans generally available to our executives (provided that he pays the same portion of the premiums and related deductibles and copays as required to be paid by our actively employed executives) until he obtains other employment.

(4)	Mr. Lischick resigned from the Board effective October 25, 2021.

(5)	The cash compensation payable to Mr. Lischick and Mr. Magliacano is paid directly to L Catterton and the equity compensation is held by each of them for the benefit of Bubbles Investor (as defined below).

(6)	Mr. Ray joined the Board effective August 13, 2021 and received a prorated portion of the annual director cash compensation.

(7)

Prior to our IPO, Mr. Strain received an annual cash retainer of $125,000 for his service on the board of managers of our then indirect parent entity and the boards of certain of our then indirect parent entity subsidiaries, including the Company. This compensation arrangement was terminated upon completion of our IPO, and a pro-rated portion is included in Fees Earned or Paid in Cash for the approximate 1-month period.

 

14    Leslie’s, Inc.

CORPORATE GOVERNANCE

 

Our non-employee directors are eligible to receive cash compensation for their service on our Board in the form of annual cash retainers. Our non-employee directors receive the following annual cash retainers for their service on our Board.

 

Position		Retainer ($)
Non-Executive Chairman			125,000
Board Member (other than the Non-Executive Chairman)			65,000
Audit Committee:
Chairperson			20,000
Committee Member			10,000
Compensation Committee:
Chairperson			15,000
Committee Member			10,000
Nominating and Corporate Governance Committee:
Chairperson			10,000
Committee Member			5,000

Effective October 25, 2021, the Board approved a lead independent director retainer of $25,000.

Equity Compensation. Upon initial election and re-election of our Board, our non-employee directors receive an award of restricted stock units, with the number of shares determined by dividing $125,000 by the closing price of our common stock on the date of the grant. All restricted stock units granted to our non-employee directors’ vests on the one year anniversary date from the grant date. Effective November 2, 2021, in the case of a grant made in connection with a director’s initial election to our Board, such dollar amount is pro-rated based on the number of days remaining in the 365-day period following the last annual meeting.

Expense Reimbursement. Our directors will be reimbursed for travel, food, lodging and other expenses directly related to their activities as directors. Our directors are also entitled to the protection provided by the indemnification provisions in our bylaws. Our Board may revise the compensation arrangements for our directors from time to time.

Share Ownership. Our Board believes that, in order to more closely align the interests of our non-employee directors with the long-term interests of the Company’s shareholders, all non-employee directors should maintain a minimum level of equity interests in the Company’s common stock. Such stock ownership guidelines are based on the value of common stock owned as a multiple of the non-employee director’s retainer. For a non-employee director, the stock ownership multiple is 5x their retainer. The guidelines will be reviewed annually and revised as appropriate to keep pace with competitive and good governance practices. For purposes of determining stock ownership levels, the following forms of equity interests in the Company are included: common stock of the Company; Company restricted stock or restricted stock units granted under the Company’s 2020 Omnibus Incentive Plan (or any predecessor or successor plan) which are to be settled in shares of common stock, except to the extent such restricted stock or restricted stock units are subject to vesting conditions other than conditions based solely on the passage of time and continued service. Under the guidelines, non-employee directors are required to hold 50% of the net shares resulting from stock option exercises or vesting of other stock-based awards until they reach the applicable level. In the case of time-vested restricted stock or restricted stock units in the categories above which are not yet fully vested, only a portion representing the net after-tax holdings at vesting will count as stock owned. For purposes of calculating these estimated net holdings, the tax withholding rate assumed to apply at vesting shall equal 40%. As of the Record Date, all non-employee directors were in compliance with the guidelines.

 

Proxy Statement and Annual Meeting Report 2022			15

 

Proposal 1: Election of Directors

Our Fifth Amended and Restated Certificate of Incorporation (the “Certificate”) specifies that the Board consists of three classes of directors serving staggered three-year terms. There are three Class I directors whose term of office expires at the 2022 Annual Meeting of Shareholders (the “Annual Meeting”). Based on the recommendation of the Nominating and Corporate Governance Committee, the Board nominated three Class I directors for election at the Annual Meeting to hold office until the 2025 annual meeting of our shareholders or until their successors have been elected and qualified, or his or her earlier death, resignation, retirement, disqualification or removal.

Each of the nominees has consented to serve as a director, if elected, and all of the nominees are currently directors. We have no reason to believe that any of the nominees will be unavailable or, if elected, will decline to serve. If any nominee becomes unable or unwilling to stand for election as a director, proxies will be voted for any substitute as designated by the Board, or alternatively, the Board may reduce the size of the Board.

 

		Our Board recommends a vote “FOR” the election of each nominee.

 

16    Leslie’s, Inc.

PROPOSAL 1: ELECTION OF DIRECTORS

 

DIRECTOR NOMINEES

For each of the three director nominees standing for election, as well as the six other directors with terms expiring at future annual meetings, the following describes certain biographical information and the specific experience, qualifications, attributes or skills that qualify them to serve as our directors and, as applicable, the Board committees on which they serve.

NOMINEES FOR ELECTION TO A THREE-YEAR TERM EXPIRING AT THE 2025 ANNUAL MEETING OF SHAREHOLDERS

 

 

Proxy Statement and Annual Meeting Report 2022			17

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

18    Leslie’s, Inc.

PROPOSAL 1: ELECTION OF DIRECTORS

 

DIRECTORS CONTINUING IN OFFICE UNTIL THE 2023 ANNUAL MEETING OF SHAREHOLDERS

 

 

Proxy Statement and Annual Meeting Report 2022			19

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

20    Leslie’s, Inc.

PROPOSAL 1: ELECTION OF DIRECTORS

 

DIRECTORS CONTINUING IN OFFICE UNTIL THE 2024 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

Proxy Statement and Annual Meeting Report 2022			21

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

22    Leslie’s, Inc.

 

Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm

Ernst & Young LLP (“E&Y”) has served as the Company’s independent registered public accounting firm since 2000. Representatives of E&Y are expected to be present at the Annual Meeting online and will have an opportunity to make a statement if they wish and be available to respond to appropriate questions from shareholders.

We are asking shareholders to ratify the Audit Committee’s selection of E&Y as our independent registered public accounting firm for the fiscal year ending October 1, 2022. While such ratification is not required, the Board is submitting the selection of E&Y to our shareholders for ratification as a matter of good corporate practice. If shareholders do not ratify the selection of E&Y as our independent registered public accounting firm for the fiscal year ending October 1, 2022, our Audit Committee may reconsider the selection of E&Y as our independent registered public accounting firm. Even if the selection is ratified, the Audit Committee may, in its discretion, select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

 

		Our Board recommends a vote “FOR” the ratification of the selection by the Audit Committee of E&Y as our independent registered public accounting firm.

FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The following is a summary of fees paid or to be paid to E&Y for services rendered over the prior two fiscal years. All such services were pre-approved by our Audit Committee in accordance with the “Pre-Approval Policy” described below.

 

		For the Year Ended October 2, 2021				For the Year Ended October 3, 2020
Audit Fees(1)		$	1,359,000			$	1,835,000
Tax Fees			-				-
All Other Fees(2)			2,000				-
Total		$	1,361,000			$	1,835,000

 

(1)

Audit fees consist of fees associated with (i) the audits of our consolidated financial statements, (ii) reviews of our interim quarterly consolidated financial statements and (iii) assistance with SEC filings including consents and related services in connection with the Company’s initial public offering and subsequent offerings.

(2)	All other fees consist of license fees for Ernest & Young’s accounting research software.

PRE-APPROVAL POLICY

The Audit Committee has adopted policies and procedures with respect to the pre-approval of all audit and permitted non-audit services by the Company’s independent registered public accounting firm. The Audit Committee undertakes a review of such policies at least quarterly, and if necessary, modifies such pre-approval procedures and policies. The Audit Committee may delegate its pre-approval responsibilities to one or more subcommittees as the Audit Committee may deem appropriate, provided that any pre-approval of services by such subcommittees pursuant to this delegated authority must be presented to the full Audit Committee at its next scheduled meeting.

 

Proxy Statement and Annual Meeting Report 2022			23

PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

AUDIT COMMITTEE REPORT^*

The Audit Committee has reviewed and discussed our audited financial statements with management, and has discussed with our independent registered public accounting firm the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) and SEC. Additionally, the Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm, as required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. Based upon such review and discussion, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the last fiscal year for filing with the SEC.

Submitted by:

Audit Committee of the Board of Directors

Susan O’Farrell (Chair)

Yolanda Daniel

John Strain

 

 

*

The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.

 

24    Leslie’s, Inc.

 

Proposal 3: Non-Binding, Advisory Vote to Approve Named Executive Officer Compensation

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our shareholders to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers, as disclosed pursuant to the SEC’s compensation disclosure rules (commonly referred to as a “say-on-pay” vote).

As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation program is designed to provide an attractive, flexible and market-based compensation program tied to company and individual performance and aligned with the interests of our shareholders. Please read the “Compensation Discussion and Analysis” section for additional details about our executive compensation program, including information about the compensation of our named executive officers.

We are asking shareholders to vote “For” the following resolution:

“RESOLVED, that the shareholders approve, on a non-binding, advisory basis, the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion disclosed in this Proxy Statement.”

This resolution will not be binding on our Board or the Compensation Committee. However, our Board and the Compensation Committee will review and consider the results of this Proposal 3 when making future compensation decisions for our named executive officers. If shareholders approve the “1 Year” option as the frequency of future say-on-pay votes under Proposal 4, we expect that we will conduct our next say-on-pay vote at the 2023 annual meeting of shareholders.

 

		Our Board recommends a vote “FOR” the approval, on a non-binding, advisory basis, of the compensation of our named executive officers.

 

Proxy Statement and Annual Meeting Report 2022			25

 

Information about Our Executive Officers

 

Name		Age		Title
Steven L. Ortega		60		Chairman and Former Chief Executive Officer
Michael R. Egeck		63		Chief Executive Officer
Steven M. Weddell		47		Executive Vice President and Chief Financial Officer
Paula F. Baker		54		Chief Revenue Officer

Steve L. Ortega and Michael R. Egeck’s biographical information can be found with the other director biographies in the Director Nominees section.

 

 

26    Leslie’s, Inc.

 

Compensation Discussion and Analysis

In this Compensation Discussion and Analysis (“CD&A”) we provide an overview and analysis of our compensation program and policies, the material compensation decisions we have made under those programs and policies for fiscal year 2021 with respect to our named executive officers (“NEOs”), and the material factors that we considered in making those decisions.

EXECUTIVE COMPENSATION PHILOSOPHY

We believe our compensation philosophy and design are well aligned with the interest of our shareholders, as well as our performance culture, growth strategy, and desire to attract and retain high-quality executives. Our executive compensation philosophy is to provide an attractive, flexible and market-based compensation program tied to company and individual performance and aligned with the interests of our shareholders. In establishing compensation levels and designing the elements of our executive compensation program, we aim to set overall compensation levels that are both internally equitable and commensurate with the companies with which we compete for talent. The principal objectives of our executive compensation program are to attract and retain highly talented executives to serve in leadership positions and advance our long-term growth strategy. We motivate such executives to succeed by providing compensation that is based on both short- and long-term performance and align the interests of our officers with those of our shareholders by delivering a substantial portion of the officers’ compensation through incentives that drive long-term enterprise value creation. We regularly review our executive compensation program with the goal of motivating our executive team to achieve our strategic goals and aligning their interests with those of our shareholders.

The following features of our compensation program are designed to align the interests of our executive team with those of our shareholders and with market best practice:

 

What We Do		What We Don’t Do
✓ Grant compensation that is primarily at-risk and variable		û  Allow hedging or pledging of Company stock
✓ Subject short-term incentive compensation to measurable and rigorous goals		û  Reprice stock options
✓ Use an independent compensation consultant		û  Provide excessive perquisites
✓ Cap incentive payments		û  Provide supplemental executive retirement plans
✓ Structure compensation to avoid excessive risk taking		û  Pay tax gross-ups on a change in control
✓ Provide competitive compensation that is compared against an industry peer group		û  Provide “single trigger” change in control payments
✓ Have rigorous stock ownership guidelines		û  Provide excessive severance benefits
✓ Have a robust recoupment policy

PROCESS FOR SETTING EXECUTIVE COMPENSATION

Generally, our Compensation Committee reviews and, as appropriate, modifies compensation arrangements for executive officers during the first quarter of each fiscal year (with equity grants generally made during the first quarter or early in the second quarter). The CEO reviews the performance and compensation of our executive officers and makes recommendations as to their compensation to the Compensation Committee. In making its decisions regarding executive compensation, the Compensation Committee meets outside the presence of executive officers when making final decisions about each executive officer. The CEO is periodically present during portions of these deliberations that relate to the compensation for other executives, but does not participate in discussions regarding his own pay.

 

Proxy Statement and Annual Meeting Report 2022			27

COMPENSATION DISCUSSION AND ANALYSIS

 

During fiscal year 2021, we engaged FW Cook as a third-party consultant to provide services including review and analysis of our executive compensation levels and practices, executive officer and non-employee director equity ownership guidelines, peer group compensation, and long-term incentive plan design and equity grant practices. As part of this review process, the Board and the Compensation Committee applied its values, philosophy and understanding of market trends and practices, while considering the compensation levels needed to ensure that our executive compensation program remains competitive and aligned with the interests of our shareholders.

PEER GROUP

To assist the Compensation Committee in its review of executive compensation for fiscal year 2022, the Compensation Committee developed, with FW Cook, a peer group of similarly-situated companies to use for compensation comparison purposes. The peer group used to inform compensation decisions for fiscal year 2022 was comprised of:

 

Boot Barn Holdings, Inc.		Johnson Outdoors Inc.		Terminix Global Holdings, Inc.
Callaway Golf Company		MarineMax, Inc.		The Container Store Group, Inc.
Crocs, Inc.		Monro, Inc.		Trex Company, Inc.
Floor & Décor Holdings, Inc.		National Vision Holdings, Inc.		YETI Holdings, Inc.
Haverty Furniture Companies, Inc.		Ollie’s Bargain Outlet Holdings, Inc.

ELEMENTS OF COMPENSATION

The compensation of our NEOs generally consists of base salary, annual cash bonus opportunities, long-term incentive compensation in the form of equity awards and other benefits, each as described below.

Base salary

Base salary is a fixed element within a total compensation package intended to attract and retain the talent necessary to successfully manage our business and execute our business strategies. Base salaries for our NEOs are established based on the scope of their responsibilities, taking into account relevant experience, internal pay equity, tenure, and other factors deemed relevant. Base salaries for our NEOs in fiscal year 2021 and 2020 were as follows:

 

Name		FY2020				FY2021				% Increase
Steven L. Ortega			1,000,000				N/A				N/A
Michael R. Egeck			1,000,000				1,025,000				3%
Steven M. Weddell			450,000				570,000				27%
Paula F. Baker			300,000				400,000				33%

The base salary of our NEOs were established in their respective employment agreements and these salary levels were negotiated with each executive and set at levels intended to be market competitive. In connection with and effective upon the Company’s IPO, in October 2020, the employment agreements with Messrs. Egeck and Weddell were amended and restated as described in more detail below. Ms. Baker’s base salary increased in fiscal year 2021 due to her transition from Chief Performance Officer to serving as the Company’s Chief Revenue Officer. In addition, during fiscal year 2021, Mr. Ortega, transitioned to a non-employee director role. In connection with this change, Mr. Ortega’s base salary was terminated as provided for in his succession agreement described in more detail below.

Annual cash bonus opportunities

The target performance-based cash bonus opportunity for each of the NEOs is expressed as a percentage of his or her base salary and can be earned by meeting certain predetermined corporate performance objectives. Fiscal year 2021 annual cash bonuses for Mr. Egeck, Mr. Weddell and Ms. Baker were targeted at 100%, 100% and 50% of their base salaries, respectively. The target percentages are the same as they were for fiscal year 2020. Mr. Ortega was not eligible to receive an annual cash bonus for fiscal year 2021 due to his transition to a non-employee role.

 

28    Leslie’s, Inc.

COMPENSATION DISCUSSION AND ANALYSIS

 

The Board set corporate performance objectives based on the achievement of an annual Adjusted EBITDA target, which the Board believed to best align the interest of the NEOs and our shareholders. Adjusted EBITDA of $195.0 million must be met to earn a target bonus payout. In order to achieve a maximum payout (150% of the target payout), Adjusted EBITDA must exceed $204.8 million. Based on actual fiscal year 2021 Adjusted EBITDA performance of $270.6 million, the annual cash bonus earned by each named executive officer for fiscal year 2021 (other than Mr. Ortega) was equal to 150% of his or her target amount, as reflected in the “Grants of Plan-Based Awards Table” below. These amounts were paid out in December 2021.

One-time IPO bonuses

Pursuant to Messrs. Egeck’s and Weddell’s amended and restated employment agreements that were effective upon the consummation of the IPO, each executive was entitled to receive a one-time IPO bonus of $550,000, which bonus was paid during fiscal year 2021.

Long term equity incentives

Our equity-based incentive awards are designed to align our interests and the interests of our shareholders with those of our employees, including our NEOs.

Prior to the IPO, none of our NEOs held any direct equity interests in our Company. Certain of our employees, including each of our NEOs, were granted long-term equity incentive awards, in the form of equity interests of our then parent company, designed to incentivize them to remain in our service and drive performance. These long-term equity incentive awards were granted to our NEOs in the form of profits interest units (collectively, the “incentive units”), which were intended to be treated as “profits interests” for U.S. federal income tax purposes. The incentive units allowed our NEOs to share in distributions made by our then parent company in certain circumstances. The specific sizes of the incentive unit grants made to our NEOs were determined in light of the NEOs’ position and level of responsibilities with us and our then parent company’s overall management equity compensation philosophy.

The unvested portion of the long-term incentive units were cancelled in connection with the consummation of our IPO and converted into awards of restricted stock units as described below in more detail.

Restricted stock units and stock options

In connection with the IPO, during fiscal year 2021, we granted stock options under our 2020 Omnibus Incentive Plan, including to our NEOs and certain of our directors, to provide additional retention and performance incentives to these individuals. As noted above, restricted stock units granted in fiscal 2021 were issued in connection with the conversion of outstanding pre-IPO incentive units; these were considered converted and not newly issued, and, consistent with SEC rules, no value with respect to these converted awards are included in the Summary Compensation Table and Grants of Plan-Based Awards in Fiscal Year 2021 below.

Restricted stock units

With respect to our NEOs, certain of these restricted stock units will vest based on time only, in accordance with the relevant vesting schedules of the predecessor forfeited unvested incentive units, and some of these restricted stock units were eligible to vest based on performance. The restricted stock units issued in respect of the unvested performance-vesting incentive units held by each of Messrs. Ortega and Egeck vested in May 2021 based on the achievement of volume weighted average price (“VWAP”) targets established by our Compensation Committee for each such NEO, with such VWAP measured over rolling 20-day trading periods, with the first such rolling 20-day trading period commencing on the six-month anniversary of the consummation of the IPO. See “Option Exercises and Stock Vested Table in Fiscal Year 2021” below for vesting related to Messrs. Ortega, Egeck, Weddell, and Ms. Baker.

 

Name		Restricted Stock Units
Steven L. Ortega			582,632
Michael R. Egeck			2,535,064
Steven M. Weddell			234,587
Paula F. Baker			282,022

 

Proxy Statement and Annual Meeting Report 2022			29

COMPENSATION DISCUSSION AND ANALYSIS

 

Stock options

With respect to our NEOs, time-vesting stock options will vest over a four-year period following the consummation of our IPO, and the performance-vesting stock options will vest 50% on the Company’s achievement of the net income target for fiscal year 2021 and 50% on the Company’s achievement of the net income target for fiscal year 2022. Our NEOs received the following stock options exercisable at a price of $17.00 per share in connection with the consummation of the IPO. For each NEO, 2/3 of the granted stock options are subject to time-vesting only and 1/3 of the granted stock options are subject to performance-vesting only. In December 2021, the Compensation Committee determined that the Company’s net income for fiscal year 2021 was $126.6 million. This exceeded the net income target of $86.8 million, accordingly all performance-vesting options subject to the Company’s fiscal year 2021 performance became earned in fiscal year 2022.

 

Name		Stock Options(1)
Steven L. Ortega			147,060
Michael R. Egeck			1,176,472
Steven M. Weddell			735,295
Paula F. Baker			117,648

 

(1)

Although the performance-vesting options were approved in fiscal year 2021, the fiscal year 2022 net income target was not established until after the end of fiscal year 2021. Therefore, the portion of the awards attributable to the fiscal year 2022 net income target was not considered granted for accounting purposes until fiscal year 2022 and is not included in the option award values disclosed in the Summary Compensation Table and Grants of Plan-Based Awards table below.

Other benefits

We currently provide broad-based welfare benefits to our NEOs that are available to all of our employees, including health, dental, life, vision and disability insurance.

In addition, we maintain, and certain of the NEOs participate in, a 401(k) plan that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis and under which we are permitted to make discretionary employer contributions. Employees’ pre-tax contributions are allocated to their respective individual accounts and are then invested in selected investment alternatives according to their directions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code. We currently match participant contributions to the 401(k) plan up to 4% of eligible earnings, up to IRS limits.

We do not maintain any defined benefit pension plans or non-qualified deferred compensation plans.

Post-employment compensation arrangements

The NEOs (other than Mr. Ortega) are entitled to certain severance benefits, the terms of which are described below under “—Potential Payments upon Termination or Change in Control.” The severance benefits are an essential element of the overall executive compensation package, and assist the Company in recruiting and retaining talented individuals and aligning the executive’s interests with the best interests of the shareholders.

OTHER MATTERS

Risk assessment

Our Board does not believe that our executive and non-executive compensation programs encourage excessive or unnecessary risk taking, and any risk inherent in our compensation programs is unlikely to have a material adverse effect on us.

Say-on-pay

Our executive compensation has not historically been the subject of an advisory vote of shareholders. As a public company, to the extent applicable, our Compensation Committee will consider the results of advisory votes and the views expressed by our shareholders.

 

30    Leslie’s, Inc.

COMPENSATION DISCUSSION AND ANALYSIS

 

Clawback/Forfeiture

Our Board has adopted a clawback policy which provides for the recoupment of certain cash or equity-based compensation in the event the Company is required to restate its financial statements due to the Company’s material noncompliance with any financial reporting requirements under the securities laws. The Board may require reimbursement or forfeiture of all or a portion of the incentive compensation received by any current or former executive officer (including NEOs) or other designated officer (as covered by the policy).

Share ownership guidelines

Our Board believes that, in order to more closely align the interests of our NEOs and other designated officers with the long-term interests of the Company’s shareholders, all NEOs and other designated officers should maintain a minimum level of equity interests in the Company’s common stock. Such stock ownership guidelines are based on the value of common stock owned as a multiple of base salary. The guidelines will be reviewed annually and revised as appropriate to keep pace with competitive and good governance practices. The multiples are set based upon each officer’s position, as set forth below:

 

Position		Stock Ownership Multiple
Chief Executive Officer			6x base salary
Chief Financial Officer & Chief Operating Officer (if any)			3x base salary
Other Designated Officers			2x base salary

For purposes of determining stock ownership levels, the following forms of equity interests in the Company are included: common stock of the Company; Company restricted stock units granted under the Company’s 2020 Omnibus Incentive Plan (or any predecessor or successor plan) which are to be settled in shares of common stock, except to the extent such restricted stock or restricted stock units are subject to vesting conditions other than conditions based solely on the passage of time and continued service; and common stock of the Company held for the individuals account in the 401(k) Plan. Unearned performance-based restricted stock units, and shares underlying unexercised stock options (whether vested or unvested, whether time- or performance-based and whether in-the-money or not) do not count as stock owned for purposes of the guidelines. Under the guidelines, NEOs and other designated officers are required to hold 50% of the net shares resulting from stock option exercises or vesting of other stock-based awards until they reach the applicable level. In the case of time-vested restricted stock units in the categories above which are not yet fully vested, only a portion representing the net after-tax holdings at vesting will count as stock owned. For purposes of calculating these estimated net holdings, the tax withholding rate assumed to apply at vesting shall equal 40%.

As of the Record Date, all NEOs were in compliance with the guidelines.

Prohibition on hedging or pledging

Prior to the IPO, our executive officers and directors were not subject to a policy prohibiting them from engaging in hedging or pledging transactions. In connection with the IPO, the Board adopted a policy prohibiting all executive officers and directors from engaging in any form of hedging transaction involving the securities of the Company. The policy addresses short sales and transactions involving publicly traded options and also prohibits such individuals from holding our securities in margin accounts and from pledging our securities as collateral for loans. We believe that these policies further align our executives’ interests with those of our shareholders.

Tax deductibility

In connection with its determination of the various elements of compensation for our executive officers, the Compensation Committee has taken into account the impact of Section 162(m) of the Internal Revenue Code on the deductibility of compensation for federal income tax purposes. Section 162(m) limits the deductibility of compensation paid to covered employees to $1 million annually. Notwithstanding Section 162(m), the Compensation Committee has the discretion to design and implement elements of executive compensation that may not be fully deductible for income tax purposes.

 

Proxy Statement and Annual Meeting Report 2022			31

COMPENSATION DISCUSSION AND ANALYSIS

 

COMPENSATION COMMITTEE REPORT^*

Our Compensation Committee oversees our compensation program on behalf of our Board of Directors. In fulfilling its oversight responsibilities, our Compensation Committee reviewed and discussed with management the “Compensation Discussion and Analysis” included in this proxy statement. In reliance on the review and discussion referred to above, our Compensation Committee recommended to our Board of Directors that the “Compensation Discussion and Analysis” be included in our proxy statement.

Submitted by:

Compensation Committee of the Board of Directors

John Strain (Chair)

Jodeen Kozlak

James Ray, Jr.

  

 

*

The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.

 

32    Leslie’s, Inc.

COMPENSATION DISCUSSION AND ANALYSIS

 

SUMMARY COMPENSATION TABLE

The following table presents information regarding the compensation of our NEOs for services rendered during the fiscal years 2021 and 2020.

 

Name and Principal Position		Year				Salary ($)				Bonus ($)				Stock Options ($)				Non-Equity Incentive Plan Compensation ($)				All Other Compensation ($)(1)				Total ($)
Steven L. Ortega(2)			2021				82,387				-				600,495	(3)			-				3,306,470				3,989,352
Former Chief Executive Officer     and current Chairman			2020				1,000,000				-				-				700,000				71,664				1,771,664
Michael R. Egeck			2021				1,023,077	(4)			550,000	(5)			4,803,926	(3)			1,534,512				-				7,911,515
Chief Executive Officer			2020				654,987	(4)			-				7,179,102	(6)			1,460,916				95,100				9,390,105
Steven M. Weddell			2021				560,769	(7)			550,000	(5)			3,002,451	(3)			840,165				5,700				4,959,085
Executive Vice President and     Chief Financial Officer			2020				450,000				-				-				900,000				39,694				1,389,694 -
Paula F. Baker(8)			2021				400,000				-				480,396	(3)			300,000				5,700				1,186,096
Chief Revenue Officer			2020				327,224				75,000	(9)			633,750	(6)			327,224				127,342				1,490,540

 

(1)	The amounts in this column are detailed in the table immediately below.

(2)

Mr. Ortega served as our Chief Executive Officer from October 1, 2019 to February 3, 2020 and served as our Executive Chairman from October 1, 2019 to October 28, 2020. Since October 29, 2020, he has served as our non-executive Chairman of the Board. Accordingly, his compensation as reported in this table represents his compensation for both roles in each respective period.

(3)

Represents the aggregate fair value of the stock options that were granted to each of our NEOs during fiscal year 2021. As noted above, these figures do not include the fair value attributable to the fiscal year 2022 portion of the performance-vesting options awards, which were not deemed granted for accounting purposes until fiscal 2022. See “Grants of Plan-Based Awards in Fiscal Year 2021” below for more detail.

(4)	Mr. Egeck joined us in February 2020 as Chief Executive Officer. Mr. Egeck received a prorated base salary of $654,987 for fiscal year 2020. Mr. Egeck also received a prorated base salary of $1,023,077 due to the increase in his base salary from $1,000,000 to $1,025,000 during fiscal year 2021.

(5)	Pursuant to Messrs. Egeck and Weddell’s amended and restated employment agreements, each executive received a one-time cash bonus of $550,000 during fiscal year 2021 in connection with the Company’s IPO.

(6)

During fiscal year 2020, Mr. Egeck and Ms. Baker received an award of profits interest units in our then parent company, and the amount reflects the aggregate grant date fair value of these profits interest units. The unvested profits interest units upon IPO were then converted into restricted stock units.

(7)	Mr. Weddell received a prorated base salary of $560,769 as result of entering into an amended and restated employment agreement which increased this base salary from $450,000 to $570,000 during fiscal year 2021.

(8)	Ms. Baker joined us in November 2019 as our Chief Performance Officer and transitioned to the role of Chief Revenue Officer in March 2020. Ms. Baker received a prorated base salary of $327,224 for fiscal year 2020.

(9)	Ms. Baker received a sign-on bonus of $75,000 in connection with commencement of her employment for fiscal year 2020.

 

Name		Year				Company Contribution to 401(K) Plan ($)(a)				Personal Use of Company Plane ($)(b)				Gross-Up on Company Plane Use ($)(b)				Relocation Services ($)(c)				Cash Allowance ($)(d)				Gross-Up on Cash Allowance ($)(e)				Reimbursement of Legal Expenses ($)(f)				Succession Agreement ($)(g)				Fees Earned or Paid in Cash for Board Services(h)				Total ($)
Steven L. Ortega			2021				-				12,180				10,330				-				32,673				25,516				-				2,986,187				239,584				3,306,470
			2020				5,600				8,990	(i)			1,662	(i)			-				31,114				24,298	(i)			-				-				-				71,664
Michael R. Egeck			2021				-				-				-				-				-				-				-				-				-				-
			2020				-				39,730	(i)			9,725	(i)			-				25,000				19,524	(i)			1,121				-				-				95,100
Steven M. Weddell			2021				5,700				-				-				-				-				-				-				-				-				5,700
			2020				5,600				-				-				-				19,144	(i)			14,950	(i)			-				-				-				39,694
Paula F. Baker			2021				5,700				-				-				-				--				-				-				-				-				5,700
			2020				-				-				-				127,342				-				-				-				-				-				127,342

 

(a)	The amounts in this column represent the Company’s matching 401(k) plan contributions.

(b)

The amounts in the “Personal Use of Company Plane” column represent the aggregate incremental cost to us for personal use of Company-owned aircraft in accordance with the terms of the Company’s corporate aircraft policy. During fiscal year 2020, Messrs. Ortega, Egeck and Weddell were permitted personal use of the Company-owned aircraft and were entitled to gross-ups on related imputed income up to, respectively, 20, 20 and 10 hours of actual flight time per year, respectively, which estimated gross-ups are reflected in the “Gross-Up on Company Plane Use” column. The Company-owned aircraft was sold in October 2020.

(c)	The amount in this column represents the aggregate amount of relocation benefits paid by the Company to Ms. Baker for fiscal year 2020.

 

Proxy Statement and Annual Meeting Report 2022			33