Proxy Statement and Annual Report Select Comfort Corporation 2013 Annual Meeting

216 Pages·2013·1.93 MB·English

Proxy Statement and Annual Report

Select Comfort Corporation

2013 Annual Meeting

To our Shareholders,

At Sleep Number, it is our strong belief that delivering an unparalleled sleep experience for our
customers will enable us to achieve our financial goals and realize our vision to become the
world’s most beloved brand. Our customers give us clarity about what is important; therefore,
our priorities and investments are well-aligned to support their experience.

Last year, we improved the lives of more than 550,000 customers, resulting in more than 8
million total lives improved since the company was founded in 1987. In 2012, we drove a record
$935 million in sales, representing a 26 percent year-over-year increase on a 23 percent rise in
same-store comparable sales. We realized this growth on top of a 23 percent increase in sales and
a 26 percent rise in same-store comparable sales in 2011. We also continued to increase the
productivity of our stores, ending the year with a record average-sales-per-store of $2.2 million.
And in 2012, we became the 6th most productive retail brand behind iconic brands Apple,
Tiffany, Lululemon, Coach and Michael Kors, according to RetailSails.com.

While growing the top-line, we kept our focus on profitability and value creation. In 2012,
adjusted operating margin increased by 120 basis points to a record 13.4 percent. Our adjusted
earnings per share grew by 34 percent to a record $1.43, following a four-fold increase from
2009 to 2011. We ended the year with a cash and securities balance of $178 million (a $32
million year-over-year increase) after self-funding capital expenditures of $52 million and
repurchasing over $30 million of our stock. This performance enabled us to solidly advance
towards our long-term goals.

Sleep Number also continued to outpace overall industry growth on the basis of mattress units,
average selling price and total dollars…and we again took market share in 2012.

As we look ahead, the mattress industry remains dynamic, as does the macro-economic
environment. We expect increased competition through recent consolidation and sustained
efforts from competitors to capitalize on the success of our products and distribution model. We
also believe the economy will continue its uneven recovery throughout 2013.

Yet, we are clear and will not lose sight of our proven long-term growth strategies and our
commitments to our customers and shareholders. We recognize and understand the opportunity
in front of us. While the mattress industry out-performed the economy, it remains a low-
engagement category. The industry is now more than $14 billion in retail sales with growth
driven by non-innerspring and hybrid mattresses. Sleep Number represents just 5 percent
national market share, leaving significant potential upside as we increase brand and store
awareness.
And, we understand the path to get there. As both the manufacturer and the retailer, we are
competitively advantaged because we control every aspect of our customer’s brand experience.
This unique business model allows us to innovate proprietary, benefit-driven products and
services; provide an elevated retail experience with exclusive distribution across our national
store footprint; and build a life-time relationship with each of our customers; all while realizing
operating leverage through control of our end-to-end cost and pricing structure.

In 2013, we’ll continue to relentlessly focus on our customer, executing well against our stated
growth strategy. Specifically, we’ll maintain our investment in marketing to drive increased
awareness for the Sleep Number brand…ensuring consumers know how we can uniquely
improve their lives. We also will thoughtfully expand our store base as part of our local-market
development strategy, allowing our customers to shop where and how they want.

Most important, we will launch transformational products that will benefit our customers in a
profound way. Over the past two years, we’ve increased funding for R&D and implemented an
organizational structure to support a robust, multi-year pipeline of proprietary product
innovations. And we recently made strategic investments to support long-term competitive
positioning, including the acquisition of Comfortaire and an investment in a key R&D partner
related to near-term product innovations.

Our approach to 2013 remains consistent. We will continue to invest in our long-term growth
strategy while also focusing on our short-term profitability targets. We are dedicated to
unleashing the power of our brand, our products, our service and our people, while continuing to
deliver shareholder value. We will balance our focus on growth with sound fiscal management.
We will learn quickly and iterate; understanding the road to transformation requires courage and
vision as well as discipline and operational excellence.

To conclude, I’d like to thank our Sleep Number Brand Ambassadors who represent one of our
most important assets and competitive advantages. Our success is driven by their efforts to live
our mission every day and improve more lives. I’d also like to thank our shareholders for your
continued trust and support of our brand and company.

Sleep well, dream big.

Shelly Ibach
Sleep Number® setting 35
President and Chief Executive Officer
9800 59th Avenue North
Plymouth, Minnesota 55442

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 2013

TO THE SHAREHOLDERS OF SELECT COMFORT CORPORATION:
Select Comfort Corporation will hold its Annual Meeting of Shareholders at 1:00 p.m.
Central Time on Tuesday, May 14, 2013, at the Marriott Minneapolis Northwest located at
7025 Northland Drive North, Brooklyn Park, Minnesota 55428. The purposes of the meeting
are to:
1. Elect three persons to serve as directors for three-year terms;
2. Vote on a proposed amendment to the Select Comfort Corporation Amended and
Restated 2010 Omnibus Incentive Plan to increase the number of shares reserved for
issuance by 4,500,000 shares;
3. Cast an advisory vote on executive compensation; and
4. Cast an advisory vote on the ratification of the selection of Deloitte & Touche LLP
as our independent registered public accounting firm for the fiscal year ending
December 28, 2013.
Shareholders of record at the close of business on March 19, 2013 will be entitled to vote
at the meeting and any adjournments thereof. A Notice of Internet Availability of Proxy
Materials will be mailed to certain shareholders beginning on or about April 4, 2013. The Notice
of Internet Availability of Proxy Materials contains instructions on how to access our Proxy
Statement and Annual Report and how to vote your shares. All other shareholders will receive
the proxy materials by mail. Please be sure to vote your shares in time for our May 14, 2013
meeting date.
Your attention is directed to the Proxy Statement accompanying this Notice for a more
complete statement of the matters to be considered at the meeting. A copy of the Annual Report
for the year ended December 29, 2012 also accompanies this Notice.
By Order of the Board of Directors,

Mark A. Kimball
Senior Vice President,
Chief Legal and Risk Officer and Secretary

April 4, 2013
Plymouth, Minnesota
TABLE OF CONTENTS

Page
INTRODUCTORY INFORMATION ABOUT THE MEETING AND VOTING ............................... 1
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS................ 7
PROPOSAL 1 − ELECTION OF DIRECTORS .................................................................................... 9
EXECUTIVE COMPENSATION ........................................................................................................... 25
PROPOSAL 2 − PROPOSAL TO APPROVE A PROPOSED AMENDMENT TO THE
SELECT COMFORT CORPORATION AMENDED AND RESTATED 2010 OMNIBUS
INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE BY 4,500,000 SHARES ....................................................................................................... 58
PROPOSAL 3 − ADVISORY VOTE ON EXECUTIVE COMPENSATION ................................... 83
AUDIT COMMITTEE REPORT ........................................................................................................... 85
PROPOSAL 4 − RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ............................................................................................................. 87
OTHER MATTERS ................................................................................................................................. 88

As used in this Proxy Statement, the terms “we,” “us,” “our,” the “company” and “Select
Comfort” mean Select Comfort Corporation and its subsidiaries and the term “common stock”
means our common stock, par value $0.01 per share.
i
9800 59th Avenue North
Plymouth, Minnesota 55442

PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS

May 14, 2013

INTRODUCTORY INFORMATION ABOUT THE MEETING AND VOTING

This Proxy Statement is furnished in connection with the solicitation of proxies by the
Board of Directors of Select Comfort Corporation for use at the Annual Meeting of
Shareholders. The meeting will be held on Tuesday, May 14, 2013, at 1:00 p.m. Central Time, at
the Marriott Minneapolis Northwest located at 7025 Northland Drive North, Brooklyn Park,
Minnesota 55428.
How can I receive proxy materials?
We are furnishing proxy materials to our shareholders primarily via the Internet, instead
of mailing a full set of printed proxy materials to each shareholder. On or about April 4, 2013,
we began mailing to certain of our shareholders a Notice of Internet Availability of Proxy
Materials (the “Shareholder Notice”), which includes instructions on (i) how to access our Proxy
Statement and Annual Report on the Internet, (ii) how to request that a printed copy of these
proxy materials be forwarded to you, and (iii) how to vote your shares. If you receive the
Shareholder Notice, you will not receive a printed copy of the proxy materials unless you request
a printed copy by following the instructions in the Shareholder Notice. All other shareholders
will be sent the proxy materials by mail beginning on or about April 4, 2013.
Requests for printed copies of the proxy materials can be made by Internet at
http://www.proxyvote.com, by telephone at 1-800-579-1639 or by email at
[email protected] by sending a blank email with your control number in the subject
line.
What does it mean if I receive more than one proxy card or Shareholder Notice?
It generally means you hold shares registered in more than one account. If you received a
paper copy of the proxy statement and you choose to vote by mail, sign and return each proxy
card. If you choose to vote by Internet or telephone, vote once for each proxy card and/or
Shareholder Notice you receive. If you have received more than one Shareholder Notice, vote
once for each Shareholder Notice that you receive.
1
What are shareholders being asked to vote on?
There are four items to be voted on at the meeting:
The election of three persons to serve as directors for three-year terms;
A proposal to amend the Select Comfort Corporation Amended and Restated 2010
Omnibus Incentive Plan to increase the number of shares reserved for issuance by
4,500,000 shares
An advisory vote on executive compensation; and
An advisory vote on the ratification of the selection of Deloitte & Touche LLP as our
independent registered public accounting firm for the fiscal year ending December
28, 2013.
Who is entitled to vote?
Shareholders of record at the close of business on March 19, 2013 will be entitled to vote
at the meeting. As of that date, there were 55,635,685 outstanding shares of common stock.
Each share is entitled to one vote on each matter to be voted on at the Annual Meeting.
Shareholders are not entitled to cumulative voting rights.
What constitutes a quorum?
The presence, in person or by proxy, of the holders of a majority of the outstanding
shares of common stock entitled to vote (i.e., at least 27,817,843 shares) will constitute a quorum
for the transaction of business at the Annual Meeting. In general, shares of common stock
represented by a properly signed and returned proxy card or properly voted by telephone or via
the Internet will be counted as shares represented and entitled to vote at the Annual Meeting for
purposes of determining a quorum, without regard to whether the card reflects abstentions (or is
left blank) or reflects a “broker non-vote” on a matter.
What is the vote required to approve each proposal?
Proposal 1 (election of directors) will require the affirmative vote of holders of a majority
of the shares represented and entitled to vote in person or by proxy on such action.
Proposal 2 (amendment of the Select Comfort Corporation Amended and Restated 2010
Omnibus Incentive Plan), proposal 3 (the advisory vote on executive compensation) and
proposal 4 (the advisory vote on ratification of the selection of independent auditors) will each
require the affirmative vote of holders of the greater of: (i) a majority of the shares represented
and entitled to vote in person or by proxy on such matter, or (ii) a majority of the minimum
number of shares entitled to vote in person or by proxy that would constitute a quorum for the
transaction of business at the Annual Meeting, in order to be considered approved by
shareholders.
2
Please note that each of proposals 3 and 4 are “advisory” votes, meaning that the
shareholder votes on these items are for purposes of enabling shareholders to express their point
of view or preference on these proposals, but are not binding on the company or its board of
directors and do not require the company or its board of directors to take any particular action in
response to the shareholder vote. The Board intends to consider fully the votes of our
shareholders in the context of any future action with respect to these proposals.
How are votes counted?
You may vote “For,” “Against” or “Abstain” on each of proposal 1 (election of
directors), proposal 2 (amendment of the Select Comfort Corporation Amended and Restated
2010 Omnibus Incentive Plan), proposal 3 (the advisory vote on executive compensation) and
proposal 4 (the advisory vote on ratification of the selection of independent auditors).
If you are a shareholder of record and grant a proxy by telephone or Internet without
voting instructions, or sign and submit your proxy card without voting instructions, your shares
will be voted “For” each director nominee, “For” proposal 2 (amendment of the Select Comfort
Corporation Amended and Restated 2010 Omnibus Incentive Plan), “For” proposal 3 (the
advisory vote on executive compensation) and “For” proposal 4 (the advisory vote on ratification
of the selection of independent auditors).
Proxies marked “Abstain” on proposal 1 (election of directors), proposal 2 (amendment
of the Select Comfort Corporation Amended and Restated 2010 Omnibus Incentive Plan),
proposal 3 (the advisory vote on executive compensation) or proposal 4 (the advisory vote on
ratification of the selection of independent auditors) will be counted in determining the total
number of shares “entitled to vote” on such proposals and will have the effect of a vote
“Against” a director or a proposal.
If you hold your shares in “street name,” such as through a broker, you generally cannot
vote your shares directly and must instead instruct the broker how to vote your shares using the
voting instruction form provided by the broker. If a street name holder does not provide timely
instructions, the broker will not have the authority to vote on any non-routine proposals at the
Annual Meeting, which includes proposals 1, 2 and 3. Brokers will have discretionary authority
to vote on proposal 4 because the ratification of the appointment of independent auditors is
considered a routine matter. If the broker votes on proposal 4 (the advisory vote on ratification
of the selection of independent auditors), but does not vote on another proposal because the
broker does not have discretionary voting authority and has not received instructions from the
beneficial owner, this results in a “broker non-vote” with respect to proposals 1, 2 and 3.
Broker non-votes on a matter may be counted as present for purposes of establishing a
quorum for the meeting, but are not considered entitled to vote on that particular matter.
Consequently, broker non-votes generally will have no effect on the outcome of the matter.
However, if and to the extent that broker non-votes are required to establish the presence of a
quorum at the Annual Meeting, then any broker non-votes will have the same effect as a vote
“Against” any matter that requires approval of a majority of the minimum number of shares
required to constitute a quorum for the transaction of business at the Annual Meeting.
3
How does the Board recommend that I vote?
Select Comfort’s Board recommends that you vote your shares:
“For” the election of each of the nominees for director;
“For” the proposal to amend the Select Comfort Corporation Amended and Restated
2010 Omnibus Incentive Plan;
“For” the advisory vote on executive compensation; and
“For” the advisory vote on the ratification of the selection of Deloitte & Touche LLP
as our independent registered public accounting firm for the fiscal year ending
December 28, 2013.
How do I vote my shares without attending the meeting?
If you are a shareholder of record, you may vote by granting a proxy. For shares held in
street name, such as through a brokerage account or through a bank, trust or other nominee, you
may vote by submitting voting instructions to your broker or nominee. In most circumstances,
you may vote:
By Internet or Telephone — If you have Internet or telephone access, you may
submit your proxy by following the voting instructions on the proxy card or Notice
no later than 11:59 p.m., Eastern Daylight Time, on May 13, 2013. If you vote by
Internet or telephone, you do not need to return your proxy card.
By Mail — If you received a paper copy of the proxy statement, you may vote by
mail by signing, dating and mailing your proxy card in the envelope provided. You
should sign your name exactly as it appears on the proxy card. If you are signing for
jointly held shares, all joint owners should sign. If you are signing in a
representative capacity (for example, as guardian, executor, trustee, custodian,
attorney or officer of a corporation), you should indicate your name and title or
capacity.
Street name holders should be aware that brokers are not permitted to vote shares on non-
routine matters, including the election of directors or matters related to executive compensation
without instructions from the beneficial owner. As a result, brokers are not permitted to vote
shares on proposal 1 (election of directors), proposal 2 (amendment of the Select Comfort
Corporation 2010 Amended and Restated Omnibus Incentive Plan) or proposal 3 (the advisory
vote on executive compensation), without instructions from the beneficial owner. Therefore,
street name holders are advised that if they do not timely provide instructions to their broker or
other nominee, their shares will not be voted in connection with proposals 1, 2 and 3. Proposal 4
(the advisory vote on ratification of the selection of independent auditors) is considered a routine
matter and, as such, brokers will still be able to vote shares held in brokerage accounts with
respect to proposal 4, even if they do not receive instructions from the beneficial owner.
4