UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

LA-Z-BOY INCORPORATED

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Day:   Wednesday, August 20, 2008

 

Time:  11:00 a.m., Eastern Daylight Time

 

 

Monroe, Michigan
July   , 2008

 

To our shareholders:

 

We invite you to attend our 2008 annual meeting of shareholders at the time and place shown above. The purposes of the meeting are to:

 

 

Only shareholders of record at the close of business on June 25, 2008 will be entitled to vote at the meeting. We are mailing this notice and the accompanying proxy statement and proxy card to our shareholders on or about July, 2008. Also enclosed is a copy of our 2008 Annual Report, which contains financial statements for the fiscal year ended April 26, 2008.

 

Whether you plan to attend the meeting in person or not, please date, sign, and return the enclosed proxy card in the accompanying envelope. You may also vote by telephone or on the Internet (see the instructions attached to the proxy card). Even though you vote by one of these methods prior to the meeting, you may still vote your shares in person at the meeting, which will revoke your previous vote.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

 

2008 PROXY STATEMENT OF LA-Z-BOY INCORPORATED

 

General Information about the Annual Meeting and Voting

 

The 2008 Annual meeting of the shareholders of La-Z-Boy Incorporated will be held in the La-Z-Boy auditorium on August 20, 2008 beginning at 11:00 A.M. (local time).This proxy statement is being furnished to the shareholders by the company. La-Z-Boy’s board of directors is soliciting the proxy card enclosed.

 

Meeting Purpose:  At the meeting shareholders will elect four directors for three-year terms expiring in 2011. The board nominated Kurt L. Darrow, James W. Johnston, H. George Levy, and W. Alan McCollough for these seats (see page 3). We are asking shareholders to ratify the selection of our independent registered accounting firm for fiscal year 2009. We are also asking the shareholders to approve amendments to the articles of incorporation and bylaws to reduce the vote required for shareholders to amend the bylaws from 67% to a majority. In addition, we are asking the shareholders to approve amendments to our articles of incorporation to eliminate the provisions which require a 67% vote of the shareholders to approve certain mergers and other transactions. The shareholders will also act on a shareholder proposal to declassify the board if it is properly presented at the meeting. We do not expect any other business, except for routine or procedural matters, will be brought up at the meeting. If any other business is properly brought up at the meeting, the persons named in the enclosed proxy will have authority to vote on it at their discretion.

 

Voting.  Only shareholders of record on June 25, 2008, the record date, will be eligible to vote. There are 51,887,395 shares eligible. A quorum, which is a majority of the outstanding shares, is needed to conduct a meeting. Each share is entitled to one vote for each director and one for each issue; cumulative voting is not available. You may vote your shares by signing and dating each proxy card you receive and returning the cards in the enclosed envelope. The proxies will be voted according to your direction on the proxy card. If you return a signed card without specifying your vote, your shares will be voted:

 

 

By signing and returning your proxy card, your shares will be voted on any other business that properly comes before the meeting as determined by the persons named in the proxy. You can vote your shares at the meeting.

 

Electronic Voting.  We encourage you to vote by telephone or on the Internet. If your shares are held in your name you can vote by telephone or on the Internet by following the instructions on the proxy card. If you are a beneficial holder, where your shares are held in “street name” by your broker, bank or other nominee, you will receive your voting instructions from them, which will include the means to vote by telephone or the Internet.

 

Changing your vote.  If you choose to change your vote you may do so by submitting a new vote by proxy, telephone, Internet or in person at the meeting. A later vote will cancel an earlier vote. For example, if you vote by Internet and later vote by telephone, the telephone vote will count and the Internet vote will be cancelled. If you wish to change your vote by mail you should request a new proxy card from our Secretary (see Principal Executive Office below for the address). The last vote received before the meeting will be the only one counted. You may also change your vote by voting in person at the meeting. Your vote at the meeting will count and cancel your previous vote.

 

Vote Required.  Directors will be elected by plurality vote so that the nominees receiving the four highest numbers of votes will be elected, regardless of the number of votes cast. However, under the new governance policy provisions in effect for this director election, any director failing to receive a majority of the votes cast must offer to resign at the board meeting immediately following the shareholders’ meeting. The board must act on the offer of

resignation at or before its next meeting, which is currently planned for mid-November, and publicly disclose its decision.

 

The proposal to ratify the selection of the independent registered public accounting firm requires a majority of votes cast on the proposal to pass. Abstentions and broker non-votes will have no effect as they are considered as votes not cast. If the audit committee’s selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm does not receive a majority of the votes cast, as a matter of good corporate practice, the audit committee will reconsider its selection.

 

The proposal to amend the articles of incorporation and bylaws to reduce the required vote for shareholder amendments to the bylaws from 67% to a majority requires the approval of 67% of our outstanding common stock. Any shares not voted for any reason, including abstentions or broker non-votes, will therefore have the same effect as “no” votes.

 

The proposal to amend the articles of incorporation to eliminate the 67% vote requirement for certain mergers and other transactions requires the affirmative vote of a majority of our outstanding common stock to pass. Any shares not voted for any reason, including abstentions or broker non-votes, will therefore have the same effect as “no” votes.

 

Pursuant to our existing articles of incorporation and bylaws (before any amendments under consideration at this meeting), the shareholder proposal to amend the bylaws to eliminate the three classes of directors requires the affirmative vote of 67% of the total shares outstanding. Any shares not voted for any reason, including abstentions or broker non-votes, will therefore have the same effect as “no” votes.

 

Number of Copies Sent to Household.  Where there are two or more shareholders sharing the same address, and unless you withheld your consent to “householding” or instructed us otherwise, we are only sending your household a single copy of our annual report and proxy statement. While “householding” saves us the expense of mailing duplicate documents to your home, and saves our natural resources, we hope this householding program provides you greater convenience.

 

However, we will promptly provide additional copies of our 2008 annual report or this proxy statement to the other shareholders in your household if you send a written request to: Office of the Secretary, La-Z-Boy Incorporated, 1284 North Telegraph Road, Monroe, Michigan 48162, or you may call us at 734-241-4301 to request additional copies. Copies of the annual report, proxy statement and other reports we file with the SEC are also available on our Web site at www.la-z-boy.com or through the SEC’s Web site at www.sec.gov.

 

You may revoke your consent to householding at any time by contacting Broadridge Financial Solutions, Inc., either by calling toll-free 800-542-1061, or by writing to Broadridge Financial Solutions, Inc., Householding Department, 51 Mercedes Way, Edgewood, New York 11717. If you revoke your consent, you will be removed from the householding program within 30 days of receipt of your revocation, and each shareholder at your address will then begin receiving individual copies of our disclosure documents.

 

Principal Executive Office.  The shareholders’ annual meeting will be held at the company’s principal executive office, 1284 North Telegraph, Monroe, Michigan, 48162. Any communication for the company’s secretary or directors may be directed to the corporate secretary at this address.

 

PROPOSAL NO. 1: ELECTION OF DIRECTORS

 

Our board of directors is divided into three classes, one consisting of four directors and two consisting of three directors each. Directors in each class serve for three-year, staggered terms. The terms of the four directors in one of the classes expire at this year’s annual meeting, so four directors will be elected to that class at the meeting. The four directors elected will serve until our annual meeting of shareholders in 2011 and until their successors are elected and qualified. Adoption of the shareholder proposal to declassify our board would not affect the terms of directors elected at this meeting or previously elected. If the proposal is adopted, however, any vacancies that occur during the year may be filled by the board of directors to serve only until the next annual meeting.

Directors will be elected at the meeting by a plurality of votes cast from among those persons duly nominated, with separate balloting for the four positions. Thus, the nominees who receive the highest through fourth highest numbers of votes will be elected, regardless of the number of votes that for any reason, including abstention, broker non-votes, or withholding of authority, are not cast for the election of those nominees. However, any director who does not receive a majority of the votes cast (abstention, broker non-votes, or withholding of authority will have no effect, as they are considered votes not cast) must tender his resignation at the board meeting immediately following the shareholders’ meeting. The board then must act on the offer of resignation at or before its next meeting, which is currently planned for mid-November, and publicly disclose its decision. Any vacancy created by such resignation may then be filled by the board of directors pursuant to our bylaws.

 

Upon the recommendation of the board’s nominating and corporate governance committee, the board has nominated the current directors whose seats are up for election. In the absence of other instruction, the persons named in the accompanying form of proxy will vote in favor of these nominees. If any nominee becomes unable or unwilling to serve, which we do not expect, the proxy holders will vote for a substitute nominee designated by the board.

 

Information about each nominee for election at the meeting and each director continuing in office is given below. Unless otherwise indicated, the principal occupation of each director or director nominee has been the same for at least five years. All of the nominees have consented to serve if elected.

 

Director Nominees for Terms Expiring in 2011

 

 

 

 

 

 

 

 

 

Continuing Directors with Terms Expiring in 2009

 

 

 

 

 

 

 

Continuing Directors with Terms Expiring in 2010

 

 

 

 

 

 

 

SHARE OWNERSHIP INFORMATION

 

The tables below provide information about beneficial owners of our common shares. Under applicable SEC rules, anyone that has or shares the right to vote any of our common shares or has or shares dispositive power over any of them is a “beneficial owner” of those shares. The settlor of a trust with a right to revoke the trust and regain the shares or a person who can acquire shares by exercising an option or a conversion right may also be considered a beneficial owner under these rules. Consequently, more than one person can be considered the beneficial owner of the same common shares. Unless otherwise indicated below, each owner named in a table has sole voting and sole dispositive power over the shares reported for that person.

 

Security Ownership of Known Over 5% Beneficial Owners
(as of December 31, 2007 except as otherwise indicated)

 

 

 

 

Security Ownership of Current Management
(as of record date for annual meeting)

 

The following table shows the beneficial ownership of our common stock by each director, each executive officer named in the Summary Compensation Table, and all directors and current executive officers as a group as of the record date for the annual meeting.

 

 

 

 

 

 

 

 

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, some over 10% owners of our common shares, and some persons who formerly were directors, executive officers, or over 10% owners, to file reports of ownership and changes in ownership with the SEC and the NYSE and furnish us with a copy of each report filed. Based solely on our review of copies of the reports filed by some of those persons and written representations from others that no reports were required, we believe that during fiscal 2008 all Section 16(a) filing requirements were complied with in a timely fashion, except for the following: A Form 4 reporting the lapse of restrictions triggered by retirement and the payment of the related withholding taxes was filed late by Mr. England due to a failure to timely process the retirement notice with our third party option administrator. A Form 4 was filed late in reporting an open market purchase of shares by Mr. Qubein. One Form 4 was filed late for each of Messrs. Darrow, England, and Sawyer, each reporting one transaction related to the use of shares to pay the withholding taxes which became due upon the lapsing of the restrictions on restricted shares. Form 3’s were recently amended to include derivative securities which were inadvertently omitted from the original Form 3 for Mr. Riccio and Mr. Sawyer which were filed in fiscal years 2003 and 2007, respectively.

 

CORPORATE GOVERNANCE

 

Board of Directors.  The responsibility for overseeing the management of our company rests with the board of directors. In addition to representing the shareholders’ interests, the board also considers the interest of the employees, customers, vendors and communities we impact. To assist in the performance of its duties, the board has adopted a set of guidelines by which it seeks to operate. These guidelines can be found on our Website at http://www.la-z-boy.com/pdf/IR/Governance_Guidelines.pdf. The Guidelines outline, among other governance matters, our policies related to director criteria, independence, qualification, orientation, and assessment of board performance. In addition to the Governance Guidelines you will also find the charter for each of the board’s key committees as well as our Code of Business Conduct, which establishes our expectations for the business behavior of our employees, officers and directors. In addition to providing the Governance Guidelines, Code of Business Conduct and committee charters on the Website, we will provide print copies of these materials, at no cost, to any shareholder who requests a copy from the Corporate Secretary at 1284 N. Telegraph, Monroe, Michigan 48162.

 

The board is chaired by an independent member of the board who is elected at the annual meeting of the directors, which immediately follows the annual shareholders’ meeting. Our bylaws prohibit the chief executive officer from also holding the position of chairman of the board. The Chairman and the chief executive officer confer on the agenda for each meeting of the directors. In addition, any director may suggest items for the agenda or request additional information from management. Annually the board schedules four executive sessions without management present, at the conclusion of regular meetings, but any director may request an executive session at any meeting. The executive sessions are chaired by the chairman of the nominating and governance committee. During the fiscal year ended in April 2008, the board met eight times in full and five in executive session. The directors are expected to attend the annual shareholders’ meeting, and all the directors attended the 2007 meeting. For the fiscal year 2008, each director attended at least 75% of the total of all meetings of the board and committees on which each served. The Chairman also attends ex-officio, each of the committee meetings unless the committee chairman requests otherwise.

Director Compensation.  Non-employee directors receive a combination of cash and equity as compensation for their service. The annual pay package for directors is designed to attract and retain highly qualified professionals to represent our shareholders. We also reimburse our directors for travel, lodging and related expenses they incur on company-related business, including board and committee meetings. The directors are encouraged to visit on their own the company facilities and independently owned retail outlets to improve their understanding of our operations. Directors who also are employees receive no additional compensation for serving on the board. For fiscal 2008, non-employee director compensation consisted of the following:

 

Cash Compensation

 

 

Equity Compensation

 

 

The following table provides details regarding each of the non-employee directors’ compensation for fiscal 2008. The amount of annual cash compensation varied based on committee membership, committee chairmanships and meetings attended. Option awards reflect the accounting fair value at grant.

 

2008 Director Compensation

 

 

 

 

The compensation committee periodically (generally every two years) reviews non-employee director compensation. This year, the committee engaged an independent executive compensation consultant to review market compensation practices among comparably-sized companies. The consultant advised the committee that our director compensation was significantly below median levels for comparably-sized companies (both general industrials and furniture companies), primarily in the area of equity compensation. The consultant also advised that our use of discounted stock options was unusual and that typical market practice is to use full value awards such as restricted stock units. The committee evaluated the consultant’s report in the light of company performance, the cost of making changes the consultant recommended, and the importance of being able to attract well-qualified director candidates. The committee considered this issue particularly important because three of our incumbent directors will not be eligible for reelection after this year due to our mandatory director retirement age. After weighing these considerations, the committee recommended and the full board approved the following changes in non-employee director compensation effective August 1, 2008:

 

 

Independence.  Under our Governance Guidelines, a majority of directors must be independent. In addition, membership on the audit, compensation, and nominating and governance committees is limited to independent directors. The board annually reviews and affirmatively determines the independence of each director. With the exception of Kurt Darrow, our chief executive officer, each of the directors has been determined to be an independent director and lacking any material relationship with the company that would impede the director’s autonomy. In making its determination, the board utilized the following criteria, as reflected in the Governance Guidelines:

 

 

 

 

A majority of our directors must be, and are, independent directors under the NYSE Listed Company rules. Applying these standards and the criteria in our Corporate Governance Guidelines, the board of directors has affirmatively determined that each of the following directors, comprising all of the non-management directors, meets the criteria for “independent” directors set forth in the listing standards of the NYSE and is an “independent” director under those standards and under our Corporate Governance Guidelines: Messrs. Foss, Gabrys, Hehl, Johnston, Lipford, McCollough, Qubein and Thompson, and Dr. Levy. Mr. Lipford is a salaried senior principal in Miller, Canfield, Paddock and Stone, P.L.C., which provided us with legal services in 2008 and has done so for many years. The board determined that Mr. Lipford is independent under the last of the categorical standards listed above because of the nature of his relationship with Miller, Canfield and because Miller, Canfield advised us that the total amount we paid it during the past fiscal year was less than 0.5% of its gross revenues for that period.

 

Majority Vote Standard for Director Elections.  The directors recently amended our Corporate Governance Guidelines to include a majority vote standard for directors in an uncontested election. Should a director not receive a majority of the votes cast in an uncontested election, he or she is required to submit his or her resignation at the annual board meeting immediately following the annual shareholders’ meeting. The other directors must act on the resignation at or before the next regularly scheduled meeting and publicly report the board’s decision. For purposes of this rule, an election is treated as contested when there are more nominees than positions to be filled by election at the meeting.

 

Communication with Directors.  The Corporate Secretary reviews and compiles any communications received for the board, board committees or individual non-employee directors. He provides a summary of any lengthy or repetitive communications, and forwards them to the appropriate director or directors. The complete communication is furnished to the appropriate director or directors upon their request. Interested parties wishing to communicate their comments, concerns or questions about La-Z-Boy to the board of directors, the Chairman or the non-employee directors may do so by U.S. mail addressed to the board, the Chairman or the non-employee directors at:

 

Office of the Corporate Secretary
La-Z-Boy Incorporated
1284 North Telegraph Road
Monroe, Michigan 48162

 

Related Party Transactions.  Each year the directors and executive officers complete a questionnaire which requires disclosure of any transactions between the directors or executive officers, including their immediate family members, and La-Z-Boy. Our company’s Code of Business Conduct, which applies to all employees, executive officers and directors, requires avoidance of any situation creating a potential conflict of interest. Where a potential conflict is unavoidable, it must be disclosed to the president, secretary or chairman of the audit committee. The audit committee, which is responsible for reviewing and approving any related party transactions involving directors or executives, reviews any transactions related to directors or executive officers reported, or identified from the questionnaires, and takes appropriate action. We will disclose any waivers of the Code of Business Conduct related to the directors or executive officers on our Website. The employment relationship discussed below began prior to the establishment of these procedures.

 

• England, Inc.  England, Inc. employs both the daughter and son-in-law of Rodney England, our former senior vice president and president non-branded upholstery product, as vice president of store development and vice president of sales, respectively. Their combined salaries and bonuses for fiscal year 2008 totaled $297,752.

 

Independent Audits.  The lead partner of our independent registered public accounting firm is rotated at least every five years. PricewaterhouseCoopers LLP has been selected as the independent registered public accounting firm for fiscal 2009, and it has assigned a new lead partner for fiscal 2009.

 

Board Committees.  In accordance with the independence standards of the NYSE rules and our Corporate Governance Guidelines, only independent directors serve on each of the audit, compensation, and nominating and corporate governance committees. The board of directors reviews and approves each of the committees’ charters. Each committee of the board, and the board itself, has the authority to engage independent consultants and advisors at our expense. At the annual board of directors meeting following the shareholders’ meeting the directors establish the membership for each committee and determine the chairman for each committee. The chairman of the board is not a member of any of the board committees, but he does coordinate the agendas and activities of the committees with each committee chairman and attends the committee meetings. The current membership of each of the key committees is shown in the following table:

 

 

Audit Committee

 

The board of directors established the audit committee to assist in the selection of our independent registered public accounting firm and to assist in the oversight of our financial reporting process, our compliance with legal and regulatory requirements, and the effectiveness of the internal and external audit functions. To assure itself of the auditor’s independence, the audit committee annually requests from the outside auditor a written statement of relationships between the auditor and La-Z-Boy as provided in Independence Standards Board Standard No. 1. The audit committee discusses with the outside auditor any relationships disclosed and their impact on the auditor’s independence, and recommends that the board take appropriate action in response to the report. The audit committee oversees all aspects of dealing with the independent registered public accounting firm, including its appointment, retention and compensation, but does not provide any expert or special assurance about the financial statements or any professional certification of the outside auditor’s work. In addition, the audit committee discusses

the quality and adequacy of internal controls with management and the outside auditor. The board has determined that John H. Foss and Richard M. Gabrys are audit committee financial experts within the meaning of the SEC rules and that all three members are independent and financially literate within the meaning of the NYSE’s Corporate Governance Listing Standards. For further discussion of the audit committee’s activities see the “Audit Committee Report” at page 13.

 

Compensation Committee

 

The compensation committee oversees the compensation programs for our executives and directors. Membership on the committee requires directors to meet standards of independence as promulgated by the SEC (i.e. “non-employee director” as defined in the rules under Section 16 of the Securities Exchange Act of 1934), the Internal Revenue Service (i.e. “outside director” as defined in the regulations under Section 162(m) of the Internal Revenue Code) and the NYSE listing standards. The compensation committee regularly reviews the compensation package for executives with the intent of providing a total compensation package that is competitive with market-median levels when we perform as expected. The committee reviews the compensation of our chief executive officer, chief financial officer and the executive officers named in the Summary Compensation Table (referred to as the named executive officers). The committee also evaluates the performance of our chief executive officer and reviews with the chief executive officer the performance of the other named executive officers. In performing its duties the committee utilizes an independent outside compensation consultant (Towers Perrin) and has access to our human resources and legal personnel and senior management. The compensation committee annually produces a report on executive compensation for inclusion in the proxy statement, see page 24. The charter of the compensation committee will be provided to any shareholder upon request and can be found on our Website at http://www.la-z-boy.com/pdf/IR/Compensation_Charter.pdf. In previous years, a subcommittee of the compensation committee was responsible for the equity-based compensation plans. In fiscal 2008, the subcommittee met jointly with the compensation committee three times before the subcommittee was eliminated. The compensation committee charter was amended to eliminate the need for the subcommittee, and equity-based compensation is now the responsibility of the compensation committee. The compensation committee met seven times in total during fiscal 2008.

 

Compensation Committee Interlocks and Insider Participation.  Messrs. Gabrys, Levy, McCollough, Qubein, and Thompson served throughout fiscal 2008 as members of the compensation committee and of the compensation subcommittee, until the subcommittee was eliminated in August 2007. Mr. Lipford was the only other director, other than the current members, to serve on the compensation committee at any time during fiscal 2008. No other directors served on the compensation subcommittee during fiscal 2008.

 

Nominating and Corporate Governance Committee

 

The nominating and corporate governance committee considers and makes recommendations on general corporate governance issues including the size, structure, and composition of the board and its committees, as well as the board’s practices, policies, and procedures. The nominating and corporate governance committee also identifies, evaluates, and recommends to the board candidates for its slate of director nominees for election by shareholders or appointment to fill vacancies on the board. In addition to considering prospective candidates identified by the committee’s own members or referred to it by other board members, management, or outside sources, the nominating and corporate governance committee will consider candidates recommended by shareholders. (For information on how to propose a candidate to the nominating and corporate governance committee and on the requirements for a shareholder’s own nomination of a director, see Next Annual Meeting — Shareholder Proposals for the 2009 Annual Meeting on page 36.) The committee evaluates the proposed candidates based on their resumes and through references and personal interviews. The committee considers, among other factors, the candidate’s experience in the context of the board’s current, and future, needs; leadership qualities, high ethical standards and integrity, diversity, exercise of mature judgment, independence and time commitments. The nominating and corporate governance committee is composed of independent directors who met six times during fiscal 2008.

 

AUDIT COMMITTEE REPORT

 

The audit committee assists the board in fulfilling its responsibility for the general oversight of the integrity of the company’s financial reporting process, its internal controls and procedures, and the company’s compliance with legal and regulatory requirements. The audit committee monitors and oversees these processes by carrying out the responsibilities set forth in its charter, a copy of which is available on the company’s Web site at www.la-z-boy.com. The selection and management of the relationship with the independent registered public accounting firm, including retaining, establishing the fees and, if appropriate, terminating the relationship, is solely the responsibility of the audit committee. Further, the committee has the authority to obtain advice and assistance from outside legal, accounting and other advisors as the committee deems appropriate. The cost for such advice and assistance is borne by the company.

 

The audit committee members are not acting in the capacity of the company’s professional accountants or auditors, and its functions are not intended to replace or duplicate the activities of management or the independent registered public accounting firm. Management is directly responsible for the company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the company’s consolidated financial statements and internal control over financial reporting in accordance with the auditing standards of the Public Company Accounting Oversight Board.

 

During fiscal 2008, the audit committee met eight times, and at all but one of its meetings, it met with the senior members of the company’s financial management team and the independent registered public accounting firm. The audit committee met regularly in executive session without management, and at certain of its meetings the audit committee met in private session with the company’s independent registered public accounting firm. It also met separately with the company’s chief executive officer, chief financial officer, head of internal audit and other members of senior management. At these separate private sessions the audit committee discussed, among other issues, financial management, evaluations of the company’s internal control over financial reporting, the company’s accounting principles, and regulatory compliance. The audit committee, in its oversight role, has reviewed and discussed the company’s fiscal 2008 audited financial statements and its internal controls over financial reporting with management.

 

The audit committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The audit committee has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed the firm’s independence, including the fees earned for non-audit services, with PricewaterhouseCoopers LLP.

 

Based on the review and discussions referred to above, the audit committee recommended to the board of directors, and the board of directors has approved, that the audited financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended April 26, 2008 for filing with the Securities and Exchange Commission.

 

The Audit Committee

 

John H. Foss, Chairman

Richard M. Gabrys

David K. Hehl

 

Audit Fees

 

For professional services rendered to us for fiscal years 2008 and 2007, PricewaterhouseCoopers LLP has billed us as follows:

 

 

Audit fees represent fees for audit work performed on our annual financial statements, our internal controls over financial reporting, management’s assessment of our internal controls over financial reporting (for 2007 only), and reviews of the quarterly financial statements included in our quarterly reports on Forms 10-Q, as well as audit services that are normally provided in connection with our statutory and regulatory filings.

 

Audit-related fees relate to audits of our employee benefit plans.

 

Tax fees include fees for domestic and foreign tax compliance and advisory services.

 

All other fees represent accounting research software subscription fees.

 

The audit committee’s current policy requires pre-approval of all audit and non-audit services provided by the independent auditors before the engagement of the independent auditors to perform them. A limited amount of tax services have been pre-approved. Services, including tax services not covered by the general pre-approval, require specific pre-approval by the committee.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

In this section, we summarize our compensation program for the chief executive officer, chief financial officer, and the other executive officers named in the Summary Compensation Table. (We refer to them collectively as “named executive officers.”) In this discussion and analysis of our executive compensation program, we explain our objectives and describe each pay element and the role it plays. You should review this section with the pay disclosure tables that begin with the Summary Compensation Table on page 25.

 

Executive Summary

 

Presented below is a summary of our 2008 business highlights, which provides context for our 2008 pay actions, and our 2008 executive compensation program.

 

2008 Business Highlights — A Year of Transformation

 

Our company, like the furniture sector as a whole, experienced a challenging environment in fiscal year 2008. Customer demand for furniture products slowed compared to recent years, due in part to the slowing economy and associated weakness in retail and housing sectors. As a result, all of our business segments experienced a decline in sales and profitability during 2008.

 

In response to the challenging business environment and to transform our business model, we embarked in 2008 on several initiatives designed to improve our financial results. The key actions the company took in fiscal 2008 include:

 

 

 

2008 Executive Compensation Program Highlights

 

Our compensation philosophy is to provide executives with competitive pay packages so we can attract, motivate, and retain highly qualified people and create value for our shareholders. To do this, we provide packages that include base salaries and incentive award opportunities, both annual and long-term opportunities, which executives can earn based on performance. We also provide our executives and other employees with retirement and other benefits.

 

The 2008 incentive plans focused our executive team on sales, earnings, and cash flow, all critical components to creating shareholder value. The named executive officers’ 2008 pay levels reflect our 2008 business results. In 2008, the company met some of the targets we set for purposes of compensation but performed below other targets. The total compensation we paid the named executive officers for 2008 was below target levels and below market medians. In January 2008, to provide an incentive to management, we amended performance-based share awards that we issued in July 2007 and provided shorter performance periods and different subordinate goals.

 

The compensation committee believes the named executive officers’ 2008 pay levels were commensurate with the company’s performance, and thus appropriate.

 

Executive Compensation Program Approach

 

We Design Our Pay Program to Attract, Motivate and Retain Highly-Qualified Executives

 

We design the executive pay program to reflect the following principles:

 

 

We Provide Market Competitive Pay for Achieving Targeted Results

 

We want base salary, target annual and long-term incentive award opportunities by element and in total to be at market median levels, on average, if the company performs at target levels. If the company performs better than target, our executives can earn pay above the market median. If the company does not achieve targeted performance results, pay levels will be below market median levels. We believe positioning pay at market median levels provides an appropriate balance of aligning executives’ interests to shareholders and attracting and retaining highly-qualified executives.

 

Our Compensation Program Emphasizes Performance-Based Pay

 

All named executive officers participate in the same compensation program and are subject to the same pay policies. In order to motivate and reward executives for maximizing shareholder value, the majority of each executive’s target compensation is performance-based. The performance-based portion varies based on company

performance, and the executive is at risk of not earning a payout if the company does not perform well. The pay level and at-risk portion increases as an executive assumes greater levels of responsibility and impact to the company. For example, the chief executive officer’s pay level and at-risk pay portion are higher than other officers due to his greater level of responsibility, including setting overall strategy and leading the company.

 

The mix by element of the named executive officers’ 2008 target total direct compensation (salary, target annual and long-term incentive award opportunities) is presented below. The majority of the officers’ 2008 target compensation was at-risk (annual and long-term incentive compensation).

 

 

We Benchmark Named Executive Officer Pay to Comparably Sized Furniture Companies

 

Annually we review current total direct compensation (salary, annual and long-term incentive awards) among a peer group of furniture companies similar in size to La-Z-Boy. The peer group considered in setting fiscal 2008 pay levels was comprised of the following eight companies: Bassett Furniture, Ethan Allen, Flexsteel, Furniture Brands, Herman Miller, Hooker Furniture, Stanley Furniture and Steelcase.

 

In addition, we review target total direct compensation (salary, target annual and long-term incentive award opportunities) among comparably sized general industry companies. The general industry data, which are presented by the outside consultant, are based on several national published compensation surveys conducted by Mercer, Watson Wyatt and Towers Perrin. The surveys include several hundred companies of comparable size representing a cross section of industries, including manufacturing and services.

 

Periodically, we review the market practices for executive retirement benefits, deferred compensation plans, and change in control agreements.

 

Our Pay-Setting Process Also Considers Other Factors

 

We assign all executives to pay grades based on the duties and responsibilities of their positions. In addition, we consider market median pay data, executive and company performance, our business needs, cost, and internal relationships in setting pay levels. For each pay grade, we establish a salary range and the target annual and long-term incentive award opportunities based on market median pay levels. Typically, we make only minor changes in target pay year-to-year for a given pay grade.

 

Base salaries and target incentive award opportunities for individual executives, and how that pay compares to market levels, depend on an executive’s competencies, skills, experience, and performance. In setting the named executive officers’ pay levels, the committee reviews pay of the chief executive officer and other named officers as a team. What we actually pay may be more or less than what we established as target pay, depending on how the company and the individual executive perform.

 

In setting compensation, the committee reviewed pay tally sheets for each of the named executive officers. The pay tally sheets show dollar amounts for each element of pay, total pay, and accumulated pay. In addition, the pay tally sheets include what we estimate we would pay if the executive voluntarily resigned or the company experienced a change in control. We used the pay tally sheets as reference. We do not use prior compensation or accumulated pay to set pay levels for the upcoming year.

 

Our Compensation Committee Administers the Executive Compensation Program

 

Each year, the committee reviews and approves the overall design of our executive pay programs and all pay elements for the named executive officers. Three senior executives (chief executive officer, chief financial officer, and vice president human resources) provide input on program design and information on the company’s and the furniture industry’s performance.

Those three senior executives advise the committee on the goals for our incentive plans, how they fit with our overall business strategy, and the appropriate weight to give each goal. The executives provide the committee with context regarding our products, lines of business, management team, business risk, financial results, and shareholder returns. In performing its duties, the committee also receives input from legal counsel. Management is responsible for implementing the executive pay program that the committee approves.

 

The chief executive officer assists the committee as it makes its decisions on pay for the other named executive officers, giving the committee his evaluation of the other officers. The committee uses that information when it decides how much to pay the other named executive officers. The other named executive officers do not play a role in determining their own compensation.

 

Towers Perrin, an international human resources consulting firm, assists the committee as an outside executive compensation consultant. When the committee requests, Towers Perrin conducts officer pay level benchmarking, provides input on pay program design, and presents recommendations consistent with our pay philosophy. During 2008, Towers Perrin provided information about market practices and executive pay levels that we considered in developing our executive pay program.

 

Executive Compensation Program Design

 

We Provide a Comprehensive, Market-Based Executive Compensation Package

 

We believe that we can best achieve our objectives for our executive pay program through a package of several elements. Some of the elements vary based on the company’s performance, and some provide no benefit unless the company achieves specific results.

 

 

We summarize below the mechanics of these pay elements.

 

Base Salary

 

Base Salaries Are the Foundation of the Competitive Pay Program

 

In setting base salaries for our executive team, we consider market levels, our structure, internal pay relationships and the total cost. Considering these factors, the named executive officers’ salaries are set, on average, to be within competitive market median practices. Executives are eligible for annual merit salary increases

based on individual performance, comparison to market levels and the total salary budget. Executives are also eligible for salary adjustments if they are promoted or their job responsibilities change.

 

Analysis — No Salary Adjustments in 2008

 

In June 2007, the committee reviewed salary levels for each of our named executive officers. As a result of the challenging environment, we did not increase salaries for the named executive officers during fiscal 2008. As of the end of fiscal 2008, the named executive officers’ salaries were, on average, at 91% of competitive market median practices. The salaries for the chief executive officer, chief financial officer, and senior vice president and president of non-branded upholstered product are currently below market median levels.

 

Management Incentive Plan

 

Annual Incentive Awards Reward Achievement of Financial and Individual Goals

 

The named executive officers and the rest of the management team participate in the Management Incentive Plan (MIP), which provides cash awards for achieving specified goals. Target awards, specified as a percentage of base salary, vary by pay grade. Employees have the opportunity to earn awards up to 200% of their target awards based on financial and individual performance.

 

We base 80% of the award opportunity on how well the company achieves profit and sales goals. We base the remaining 20% of the award opportunity on how well the executive achieves individual performance goals. We set the individual goals based on operational and strategic needs of our business plan.

 

 

The committee assessed the results for fiscal 2008 and, for purposes of determining whether the goals had been achieved, made adjustments to remove restructuring costs, gains and losses on sales of real estate, and other appropriate items. The committee has discretion, in extraordinary circumstances, to modify incentive awards for financial goals, either up or down, for the named executive officers. The committee did not apply this discretion in 2008.

 

The independent members of the board of directors assess the chief executive officer’s performance each year. This formal assessment includes an evaluation of critical areas, including customer relations, human capital, shareholder value, operating results and strategic goals.

 

For the other named executive officers, the chief executive officer assesses their individual performance through a formal evaluation of specific goals set at the start of the year. In 2008, the individual evaluation assessed performance in the following key areas, which were approximately equally weighted:

 

 

Analysis — 2008 MIP Awards Were Below Target Reflecting Our Financial Performance

 

Our 2008 company financial performance results were below target levels, reflecting the challenging operating environment (discussed above). As such, the named executive officers’ annual incentive awards for financial results (80% of total award opportunity) were below target levels and thus below market median levels.

We believe that if we disclosed the specific financial targets associated with our annual incentive plan, we would give our competitors insight into our operations and cost structure that would harm La-Z-Boy in the marketplace. As a result, we are not disclosing our specific financial targets.

 

The target financial performance goals are set to be challenging but achievable. Over the prior five years (fiscal years 2003 to 2007), payouts under the MIP for overall company financial performance have averaged about 45% of target.

 

Award payouts for individual performance, based on an assessment of individual performance, were commensurate with our financial results. These awards were also below target levels.

 

Presented below are our named executive officers’ 2008 target and actual MIP awards, expressed as a percentage of base salary.

 

 

The actual incentive award payouts for our named executives are presented in the “2008 Summary Compensation Table” on page 25 as part of the column, “Non-Equity Incentive Plan Compensation.”

 

Long-term Equity Award Plan

 

Long-term Incentive Awards Align Our Executives to the Long Term Interests of Our Shareholders

 

Our 2004 Long-term Equity Award Plan motivates and rewards executives for creating shareholder value as reflected in the future market price of La-Z-Boy’s common stock. For fiscal 2008, we granted three types of stock-based awards in order to focus on financial results and stock price performance, as well as facilitate longer-term retention. The value our employees receive varies based on the price of our common stock. In addition, for performance-based stock awards, we pay out shares only if the company achieves specified financial goals. We believe these award types and grant mix best achieve our objectives for the plan.

We summarize below each award type and the weighting for our named executive officers.

 

 

We establish award levels for each eligible pay grade after considering market median practices and the total cost to the company. The committee grants annual equity-based awards on the second Wednesday in July. Our chief executive officer has discretion during the year to approve limited grants of restricted stock to recruit executives and reward promoted employees other than the named executive officers.

 

Accounting and Tax Implications

 

The committee considers the accounting and tax impact when it sets the type and amount of equity awards. We determine the accounting cost of the stock-based awards as of the date of grant and generally accrue the expense over the vesting period. The ultimate expense for performance-based stock awards is based on the number of shares earned.

 

We design our stock options and performance-based stock awards to be tax deductible by the company. When executives exercise options or receive performance-based shares, they are taxed at ordinary income rates. At that time, we receive a tax deduction. We may not be able to deduct restricted stock awards for federal income tax purposes. For more discussion of the tax treatment, see Deductibility of Compensation on page 23.

 

Changes to 2008 and 2009 Performance-Based Stock Awards to Improve Alignment

 

In the second quarter of fiscal 2008, the compensation committee requested its outside consultant to conduct a market analysis of the company’s long-term incentive plan. The committee and the board of directors reviewed the consultant’s analysis and the status of outstanding performance-based stock awards. Key findings regarding outstanding awards included:

 

 

The committee and the board of directors reviewed the structure of the long-term incentive plan as it related to the following objectives for the program:

 

 

The committee and board determined that the current long-term incentive plan and outstanding award opportunities were not effectively achieving these objectives. Therefore, we made the following changes to the performance-based stock awards under the long-term incentive plan:

 

1. Amended the outstanding fiscal 2008 performance-based stock awards.  On January 7, 2008, the compensation committee recommended to the board of directors, and on January 8, 2008, the board approved, amendments to the fiscal 2008 awards. These amendments were intended to provide management with realistic incentives tied to critical near-term goals related to the transformation of our business.

 

 

 

Outstanding awards previously issued for the fiscal years 2007-2009 period and the fiscal years 2006-2008 period were not amended and were not expected to be earned.

 

Refer to the “2008 Grants of Plan-Based Awards” table on page 26, which shows the fair value of the fiscal 2008 stock-based grants as of the grant date.

 

2. Redesigning the performance-based stock awards for fiscal 2009.  The committee and the board redesigned the performance-based stock awards to provide executives a strong incentive for:

 

 

On June 13, 2008, the compensation committee amended our 2004 Long-term Equity Award Plan to provide the committee discretion to allocate awards to named executive officers among options, restricted stock, and performance-based stock. On July 9, 2008, we expect to grant awards to the named executive officers consisting of restricted stock (equal to 25% of the total opportunity) and performance-based stock (equal to 75% of the total opportunity). The grants will not include stock options. The performance-based stock will be earned based on our performance in fiscal year 2009 and will be paid only to the named executive officers who are still with us at the end of fiscal year 2011 (except for provisions made for death, disability, and retirement).

 

Analysis — Awards Earned During 2008 Are Commensurate with Results

 

Through the amended 2008 performance-based stock awards, we provided executives the opportunity to earn shares based on the company’s EPS and cash flow during the second half of fiscal 2008, provided the executives remain with us through the end of fiscal 2010. The company exceeded the targets we set for those awards, and our named executive officers and other executives earned the maximum shares available from this opportunity.

 

We believe that if we disclosed the specific financial targets associated with our performance-based stock awards, we would give our competitors insight into our operations and cost structure that would harm La-Z-Boy in the marketplace. As a result, we are not disclosing our specific financial targets.

 

The target financial performance goals are set to be challenging but achievable. We made no payouts for the grants we made that ended in each of the four years prior to fiscal 2008 (three-year periods ended fiscal 2004 to 2007).

 

Payouts for Grants Made Prior to Fiscal 2008

 

All of our named executive officers realized value in fiscal 2008 for restricted stock grants made prior to 2008. The restriction period lapsed on a portion of grants made in fiscal 2005. In addition, upon Mr. England’s retirement in February 2008 the restrictions lapsed on the restricted stocks granted in fiscal years 2006 and 2007 as well as for the remaining restricted stock from fiscal 2005. The pre-tax amounts realized are shown in the 2008 Option Exercises and Stock Vested Table (on page 29).

 

Due to the company’s financial performance, no shares were earned for the 2006 to 2008 performance-based stock awards (granted in August 2005). There were no stock option exercises during the year.

 

Other Executive Compensation Program Design Elements

 

Our Officers Are Required to Maintain a Minimum Level of Stock Ownership

 

In June 2005, we set minimum stock ownership guidelines for senior executives, including the named executive officers. The ownership guidelines for named executive officers vary from about 38,000 to 144,000 shares, depending on the executives’ responsibilities. We set the ownership levels to represent about two year’s salary for the other officers and four times annual salary for our chief executive officer. Once an executive becomes subject to the guideline, the executive has five years to comply.

In determining compliance with the guidelines, we include shares owned directly, shares held in a family trust or qualified retirement program, service-based restricted stock, and contingently earned (but unvested) performance-based stock awards. We treat such shares as “Held” in the following table. The committee annually monitors compliance with the guidelines. As of April 26, 2008, Mr. Darrow and Mr. Kincaid were already in compliance with their guidelines. Two officers, who began in their positions during 2007 (Mr. Riccio and Mr. Sawyer), are not currently in compliance. Both Mr. Riccio and Mr. Sawyer have until 2012 to reach the required ownership level.

 

Stock Ownership Table

 

 

Retirement Benefits for Executives Are the Same as Other Corporate Salaried Employees

 

Our named executive officers are eligible to participate in the same retirement benefit programs we offer to salaried employees at the corporate level. We currently offer a 401(k) plan with company-provided match. In addition, we have a retirement contribution and profit sharing plan into which we make a contribution for each participant equal to 2% of the participant’s salary and bonus, with the potential of greater contributions based on the company’s annual profitability. For fiscal year 2008, we made a total contribution of 2% for each participant. Contributions for the named executive officers may instead be made into the Deferred Compensation Plan as described below.

 

Executives May Defer the Receipt of Base Salary and Annual Incentives Earned

 

The 2005 Executive Deferred Compensation Plan allows executives to defer the receipt of earned pay. Prior to the start of fiscal 2008, participants could elect to defer up to 100% of their salary and MIP award for the year.

 

In addition, we contribute to this plan any company 401(k) match and profit sharing contributions that cannot be credited to the executives’ accounts due to Internal Revenue Code limitations. These contributions are equivalent to the amounts other participants receive (measured as a percentage of pay).

 

We Have Change in Control Agreements to Ensure Continuity of Leadership

 

We have change in control agreements with our named executive officers to ensure continuity of our leadership in the event of a change in ownership of the company. Under the agreements, if there is a change in control and an executive’s employment is subsequently terminated, the officer would receive cash payments and other benefits. The total change in control-related payment is capped so as not to result in any excise taxes. Under our long-term incentive plan, all unvested stock options and restricted share awards would immediately vest and performance-based shares would be paid based on performance to date.

 

We do not have a formal severance plan for the named executive officers.

 

The Potential Payments Upon Termination or Change in Control section, beginning on page 30, shows the change in control agreements and potential payments.

 

Other Considerations

 

Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code generally precludes public companies from taking a tax deduction for compensation over $1 million to a named executive officer unless the compensation is performance-based. Equity grants were made under the 1997 Incentive Stock Option Plan and are made under the Long-term

Equity Award Plan. These plans provide for the granting of awards that qualify as performance-based compensation exempt from the tax deduction limit. Stock options and performance-based stock awards qualify as performance-based compensation. Restricted stock awards do not.

 

We monitor the executive pay programs with respect to the present federal tax law to maximize the deductibility of compensation paid to named executives. However, we may pay compensation in excess of the Section 162(m) limitation if we conclude that it would be in the best interests of La-Z-Boy and its shareholders.

 

Potential Adjustment/Recovery of Previously Paid Incentive Awards

 

If performance metrics upon which annual or long-term incentive award payments are based are later restated or otherwise adjusted, we can potentially adjust or recover such related incentive award payments. We do not have a formal policy regarding compensation recoupment. We will consider making such adjustments on a case-by-case basis if such situations arise.

 

Compensation Committee Report

 

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the company’s Annual Report on Form 10-K and this proxy statement.

 

Richard M. Gabrys, Chairman
Dr. H. George Levy
W. Alan McCollough
Nido R. Qubein
Jack L. Thompson

 

EXECUTIVE COMPENSATION

 

For fiscal 2008, the Summary Compensation Table and other tables present pay for five executive officers. This includes four executive officers serving at the end of 2008 and one former officer, who retired during fiscal 2008.

 

Executive Officers as of April 26, 2008

 

 

Former Officer (retired on February 22, 2008)

 

 

Summary Compensation Table

 

The Summary Compensation Table presents “total compensation” (see footnotes for the included pay elements) for the named executive officers.

 

 

2008 Summary Compensation Table

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table provides details of all incentive plan-based awards granted to the named executive officers during fiscal 2008. Specifically, the table presents the following fiscal 2008 incentive awards:

 

 

2008 Grants of Plan-Based Awards

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table presents all outstanding stock options and unvested stock awards (performance-based stock and restricted stock) held by the named executive officers at the end of the fiscal year. Market values for the unvested stock awards are presented based on the closing stock price of La-Z-Boy’s stock on April 25, 2008, of $6.91.

 

Outstanding Equity Awards at 2008 Fiscal Year-End