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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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

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Latham Group, 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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No fee required.

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Fee paid previously with preliminary materials.

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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11.

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To Our Stockholders:

We are pleased to invite you to attend the 2023 Annual Meeting of Stockholders of Latham Group, Inc. to be held on Tuesday, May 2, 2023, at 8:00 a.m. Eastern Daylight Time at Saratoga National Golf Club, 458 Union Avenue, Saratoga Springs, NY 12866.

In fiscal 2022, we delivered our 13th consecutive year of net sales and adjusted EBITDA growth in spite of a challenging macroeconomic environment. We are pleased with this strong performance, which was enabled by our progress in driving the material conversion from concrete to fiberglass swimming pools, strengthening our supply chain and driving operational efficiency. Together in close partnership, Latham’s Board and management team have taken actions to respond to evolving market conditions while continuing to make strategic investments that position Latham for future growth.

In 2023, our focus remains on our mission to reimagine the pool-buying journey and to provide high-quality in-ground swimming pools as an attainable luxury for homeowners. We are confident in our ability to navigate through ongoing market challenges and position ourselves for long-term growth as we continue to execute on our strategic priorities and further transform the pool industry.

2023 Annual Meeting of Stockholders

Details regarding the business to be conducted at the 2023 Annual Meeting of Stockholders and admission thereto are described in the accompanying Notice of Annual Meeting of Stockholders and proxy statement.

Your vote is important. Whether or not you plan to attend the 2023 Annual Meeting of Stockholders, we hope you will vote by Internet, telephone or mail as soon as possible to ensure your vote is recorded promptly. Please carefully review the instructions on each of your voting options described in the accompanying proxy statement, as well as in the accompanying Notice of Internet Availability of Proxy Materials, proxy card or voting instruction card you received in the mail.

Thank you for your ongoing support of and continued interest in Latham Group, Inc. We look forward to your participation at our Annual Meeting.

Sincerely,

Latham, New York

March 21, 2023

 

   

Latham Group, Inc. Notice of Annual Meeting of Stockholders to be held May 2, 2023

Notice is hereby given that the 2023 Annual Meeting of Stockholders (the “Annual Meeting”) of Latham Group, Inc., a Delaware corporation, will be held on Tuesday, May 2, 2023, at 8:00 a.m. Eastern Daylight Time at Saratoga National Golf Club, 458 Union Avenue, Saratoga Springs, NY 12866 to conduct the following items of business.

These items of business are more fully described in the accompanying proxy statement. We have not received notice of any other matters that may be properly presented at our Annual Meeting.

Stockholders of record at the close of business on March 6, 2023 are entitled to notice of, and to vote at, our Annual Meeting and any adjournment or postponement thereof.

We have elected to provide access to our proxy materials over the Internet under the U.S. Securities and Exchange Commission’s “notice and access” rules. We will furnish proxy materials to all of our stockholders via the Internet in order to expedite stockholders’ receipt of proxy materials while lowering the cost of delivery and reducing the environmental impact of our Annual Meeting. Accordingly, we are mailing to our stockholders of record and beneficial owners a Notice of lnternet Availability of Proxy Materials, which provides instructions on how to access the accompanying proxy statement and our annual report to stockholders for the fiscal year ended December 31, 2022 via the Internet and how to vote online. The Notice of lnternet Availability of Proxy Materials also contains instructions on how to obtain the proxy materials in printed form.

We intend to hold our Annual Meeting in person. In the event it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Please monitor the investor relations page of our website at https://ir.lathampool.com for updated information. If you are planning to attend our Annual Meeting, please check the website prior to the meeting date.

 

 

You may cast your vote over the Internet, by telephone or by completing and mailing a proxy card or voting instruction card. Voting instruction cards forwarded by or for banks, brokers or other nominees should be returned as requested by them.

We encourage you to vote promptly to ensure your vote is represented at our Annual Meeting and that we have a quorum, regardless of whether you plan to attend in person. Voting in advance does not deprive you of your right to attend our Annual Meeting and to change your vote during our Annual Meeting.

By order of the Board of Directors,

Patrick M. Sheller
Secretary
Latham, New York
March 21, 2023

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 2, 2023

The Notice of the 2023 Annual Meeting of Stockholders, the accompanying proxy statement for the 2023 Annual Meeting of Stockholders and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 are available at www.proxyvote.com.

 

   

Table of Contents

In this proxy statement, unless otherwise indicated or the context otherwise requires, references to the “Company,” “Latham,” “we,” “us” and “our” refer to Latham Group, Inc. Latham Group, Inc. is a holding company that does not conduct any business operations and therefore references to our operations and financial performance include Latham Group, Inc. and its consolidated subsidiaries.

​	Proxy Summary​	​	​	​	​	1	​	​
​	Proposal One: Election of Class II Directors​	​	​	​	​	10	​	​
​	Board of Directors and Corporate Governance	​	​	​	​	13	​	​
​	Board of Directors	​	​	​	​	13	​	​
​	Class III Directors—Term Expiring at the 2024 Annual Meeting	​	​	​	​	13	​	​
​	Class I Directors—Term Expiring at the 2025 Annual Meeting	​	​	​	​	15	​	​
​	Qualifications, Attributes, Skills and Experience of our Directors	​	​	​	​	17	​	​
​	Identifying and Evaluating Candidates for Director	​	​	​	​	18	​	​
​	Director Independence	​	​	​	​	19	​	​
​	Board Diversity	​	​	​	​	19	​	​
​	Board Roles and Responsibilities	​	​	​	​	20	​	​
​	Board Leadership	​	​	​	​	20	​	​
​	Board Committees	​	​	​	​	21	​	​
​	Meetings of our Board—Strong Director Attendance	​	​	​	​	26	​	​
​	Board’s Role in Risk Oversight	​	​	​	​	26	​	​
​	Key Governance Policies	​	​	​	​	27	​	​
​	Evaluations of our Board and Committees	​	​	​	​	28	​	​
​	Oversight of Environmental, Social and Governance	​	​	​	​	28	​	​
​	Oversight of Human Capital Management	​	​	​	​	28	​	​
​	Stockholder Engagement	​	​	​	​	30	​	​
​	Communications with our Board	​	​	​	​	30	​	​
​	Director Compensation​	​	​	​	​	31	​	​
​	Director Compensation Table for 2022	​	​	​	​	32	​	​
​	Report of our Audit Committee​	​	​	​	​	33	​	​
​	Other Audit Committee Matters​	​	​	​	​	35	​	​
​	Pre-Approval Policy and Procedures	​	​	​	​	35	​	​
​	Independent Registered Public Accounting Firm Fees and Services	​	​	​	​	35	​	​
​	Proposal Two: Ratification of the Appointment of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for 2023​	​	​	​	​	36	​	​

​	Executive Officers​	​	​	​	​	38	​	​
​	Named Executive Officer Compensation​	​	​	​	​	42	​	​
​	Executive Summary	​	​	​	​	42	​	​
​	Initial 2023 Compensation Determinations and Future Commitments	​	​	​	​	44	​	​
​	2022 Compensation Determinations	​	​	​	​	45	​	​
​	Compensation Policies	​	​	​	​	48	​	​
​	Process for Making Compensation Determinations	​	​	​	​	49	​	​
​	2022 Peer Group Utilized for Benchmarking	​	​	​	​	49	​	​
​	Employment Agreements	​	​	​	​	50	​	​
​	Named Executive Officer Compensation Tables	​	​	​	​	52	​	​
​	Summary Compensation Table for 2022 and 2021	​	​	​	​	52	​	​
​	Outstanding Equity Awards as of December 31, 2022	​	​	​	​	53	​	​
​	Potential Payments upon Termination of Employment or Change in Control	​	​	​	​	54	​	​
​	Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan​	​	​	​	​	56	​	​
​	Certain Relationships and Related Party Transactions	​	​	​	​	70	​	​
​	Security Ownership of Certain Beneficial Owners and Management​	​	​	​	​	74	​	​
​	Questions and Answers​	​	​	​	​	76	​	​
​	Forward-Looking Statements​	​	​	​	​	82	​	​
​	Where You Can Find More Information​	​	​	​	​	82	​	​
​	Form 10-K​	​	​	​	​	83	​	​
​	Other Matters​	​	​	​	​	83	​	​
​	Appendix A: First Amendment to Latham Group, Inc. 2021 Omnibus Equity Incentive Plan	​	​	​	​	A-1	​	​
​	Appendix B: Latham Group, Inc. 2021 Omnibus Equity Incentive Plan​	​	​	​	​	B-1	​	​

 

   

Proxy Summary

This proxy statement is furnished to stockholders of Latham Group, Inc., a Delaware corporation (the “Company”), in connection with the solicitation of proxies by our board of directors (our “Board”) for use at our 2023 Annual Meeting of Stockholders to be held on Tuesday, May 2, 2023 (the “Annual Meeting”), at 8:00 a.m. Eastern Daylight Time, and at any adjournment or postponement thereof. Our Annual Meeting will be held at Saratoga National Golf Club, 458 Union Avenue, Saratoga Springs, NY 12866.

We are making this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”) available to our stockholders electronically via the Internet at www.proxyvote.com. On or about March 21, 2023, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “Internet Notice”) containing instructions on how to access this proxy statement and vote online or by telephone. If you received an Internet Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request them pursuant to the instructions provided in the Internet Notice. The Internet Notice also instructs you on how to access this proxy statement.

This proxy summary highlights information contained elsewhere in this proxy statement for our Annual Meeting. This proxy summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the 2022 operational and financial performance of Latham, you should review our Annual Report.

Annual Meeting Information

Voting Methods Prior to Annual Meeting

Your vote is important. Whether or not you plan to attend our Annual Meeting, we urge you to vote promptly to save us the expense of additional solicitation. Please carefully review the proxy materials and cast your vote on all of the proposals.

If you are a record holder, you may vote using one of the following methods. If you are a beneficial owner, you may vote using one of the methods listed on your voting instruction card. Make sure to have your Internet Notice, proxy card or voting instruction card and follow the instructions.

 

Proxy Summary

Proposals, Board Recommendations and Required Vote

Business Overview

Latham Group, Inc., headquartered in Latham, New York, is the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. With an operating history that spans over 65 years, we offer the industry’s broadest portfolio of pools and related products, including fiberglass pools, packaged pools, pool liners and pool covers. We hold the #1 market position in North America in every product category in which we compete. We believe that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. We are Latham, The Pool Company™.

We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners.

Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as an operations platform consisting of approximately 2,200 employees across over 30 facilities. The full resources of the Company are dedicated to designing and manufacturing high-quality pool products with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers.

 

Proxy Summary

2022 Company Performance Highlights

Highlights of Latham’s 2022 operational and financial performance include:

 

Proxy Summary

 

Proxy Summary

Proposal 1—Election of Three Class II Director Nominees

In connection with our initial public offering (“IPO”) and our related reorganization transactions, our Board was constituted on December 9, 2020. Our Board currently consists of eight directors. Following a review of the individual and aggregate qualifications, attributes, skills and experience of Board members, our Board has re-nominated the three Class II directors for election at our Annual Meeting. Our Board believes that the director nominees will continue to collectively serve in the best interests of stockholders and the Company and assist our Board to fulfill its significant oversight role.

Each of the Class II director nominees will serve a three-year term and until a successor has been duly elected and qualified, or until such director’s earlier resignation, retirement or other termination of service.

Mr. Evans and Mr. Pruellage are two of the four current designees of Pamplona under the Stockholders’ Agreement.

Qualifications, Attributes, Skills and Experience of our Directors

The following table sets forth a summary of key qualifications, attributes, skills and experience that our current directors contribute to our Board.

 

Proxy Summary

Compensation Governance

See “Named Executive Officer Compensation” for a detailed discussion of our compensation programs and determinations for our named executive officers in 2022. The following table sets forth a summary of key compensation governance matters for our current program.

2022 Compensation Program

The compensation program for our named executive officers is designed to attract, motivate and retain qualified employees and to provide them incentives to achieve or exceed the Company’s annual operational, financial and strategic goals and to increase long-term stockholder value. As a new public company in 2021, our Compensation Committee continues to evolve our compensation philosophy, policies and practices for our named executive officers. The 2022 compensation program for named executive officers consisted principally of a base salary, an annual cash bonus, and equity awards (annual stock option awards and new hire RSU awards).

Our Chief Executive Officer’s target annual compensation included a base salary of  $450,000 (an increase of 12.5%), a target bonus of 100% of base salary (consistent with 2021), and a target long-term incentive award of 250% of base salary (consistent with 2021). Based on Company performance and individual performance, he earned 13.8% of his target annual cash bonus, or $62,280.

 

Proxy Summary

Initial 2023 Compensation Determinations and Future Commitments

Our Compensation Committee intends to continue to evolve our compensation program for named executive officers. Our Compensation Committee has approved key components of the 2023 compensation program for named executive officers:

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The base salaries, target bonuses (as a % of base salary) and target annual equity (as a % of base salary) for named executive officers will remain unchanged from 2022.

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The annual bonus plan will be solely based on an Adjusted EBITDA performance goal.

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The annual equity program will consist of 70% RSUs and 30% stock appreciation rights (“SARs”); the SARs are contingent on stockholder approval of Proposal Three.

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Key Corporate Governance Highlights

Our Board has taken a reasonable, measured approach in implementing our corporate governance policies and practices in light of our IPO in April 2021, our ongoing status as a controlled company and challenging macroeconomic conditions.

Key elements of our current governance are set forth below.

 

Proxy Summary

On April 27, 2021, we entered into a stockholders’ agreement (the “Stockholders’ Agreement”) with Pamplona Capital Partners V, L.P., an investment fund (the “Pamplona Fund”) managed by affiliates of Pamplona Capital Management, LLC (together with its respective subsidiaries and affiliates, “Pamplona”), and Wynnchurch Capital Partners IV, L.P. (“Wynnchurch IV”) and WC Partners Executive IV, L.P. (“WC Executive”) (collectively, the “Wynnchurch Funds”), managed by affiliates of Wynnchurch Capital, L.P. (together with its respective subsidiaries and affiliates, “Wynnchurch”). The Stockholders’ Agreement grants Pamplona the right to nominate to our Board a number of designees on a sliding scale depending on Pamplona’s affiliates’ ownership of shares of the Company’s common stock, par value $0.01 per share (our “Common Stock” or “shares of Common Stock”). Mr. Derbyshire, Mr. Evans, Mr. Laven and Mr. Pruellage are the current designees of Pamplona under the Stockholders’ Agreement. Wynnchurch had certain director nomination rights, which they waived beginning in July 2022. For more information, see “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.” References to our “Principal Stockholders” in this proxy statement refer to the Pamplona Fund, managed by Pamplona, and the Wynnchurch Funds, managed by Wynnchurch.

Environmental, Social and Governance

As a leading global manufacturer of inground swimming pools, our ambition is to lead the way towards a more sustainable future for our industry. In launching our formal ESG program, we worked with independent consultants beginning in the second half of 2021 to assess our ESG performance, benchmark our efforts against industry peers and establish a comprehensive strategy to manage ESG risks and opportunities and enhance disclosure of our program. See “—Board of Directors and Corporate Governance—​Oversight of Environmental, Social and Governance.”

Proposal 2—Ratification of Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2023

Our Board is seeking stockholder support to ratify the appointment of Deloitte & Touche LLP (“Deloitte & Touche”) as our independent registered public accounting firm for 2023. Our Audit Committee conducted a competitive process to select an independent registered public accounting firm for 2020 in connection with preparing for our IPO, and Deloitte & Touche was selected and appointed at such time. Our Audit Committee has continued its engagement with Deloitte & Touche since such date.

Proposal 3—Amendment to the Latham Group, Inc. 2021 Omnibus Equity Incentive Plan

Our Board is asking our stockholders to approve an amendment (the “Amendment”) to the Latham Group, Inc. 2021 Omnibus Equity Incentive Plan (the “2021 Omnibus Equity Plan”). The 2021 Omnibus Equity Plan was initially adopted in April 2021 preceding our IPO.

 

Proxy Summary

We use awards under the 2021 Omnibus Equity Plan to attract and retain employees, ensure that our compensation program provides appropriate incentives to motivate our key employees, officers and non-employee directors to contribute to our long-term performance and growth, develop a culture of ownership, and align further the interests of participants and our stockholders. Stockholder approval of the Amendment will permit us to continue to grant equity compensation awards to our key employees, officers and non-employee directors in furtherance of this philosophy.

Our Board has determined that it is in the best interests of us and our stockholders to approve the Amendment, which includes an increase in the share pool, as well as other best practice equity plan matters. The Amendment provides for the following terms.

On March 1, 2023, our Compensation Committee approved our annual equity award grants under the 2021 Omnibus Equity Plan to officers and other employees. A portion of the awards granted to our executive officers included SARs for an aggregate of 790,181 shares of our Common Stock, with a strike price of $3.24 per share (the “Contingent Grants”). The Contingent Grants are subject to stockholder approval of this Proposal Three and the effectiveness of the Amendment, since we do not have enough shares of Common Stock in the share pool to support such grant currently. If the Amendment is not approved, the Contingent Grants will be canceled in their entirety.

Excluding the Contingent Grants, we had 289,475 shares of our Common Stock remaining available for issuance for awards under the 2021 Omnibus Equity Plan as of March 6, 2023.

 

   

Proposal One: Election of Class II Directors

General

At our Annual Meeting, our stockholders will vote to elect the three Class II director nominees named in this proxy statement. Class II directors elected at our Annual Meeting will serve for three-year terms until our annual meeting of stockholders to be held in 2026 and until a successor has been duly elected and qualified, or until such director’s earlier resignation, retirement or other termination of service.

Based on its beneficial ownership of our Common Stock as of the record date, Pamplona has the right to designate four directors to our Board.

Class II Directors—Nominees for Election at our Annual Meeting

Our Board nominated Robert D. Evans, William M. Pruellage and Scott M. Rajeski for election to our Board as Class II directors at our Annual Meeting. These nominees were recommended by our Nominating and Corporate Governance Committee and approved for nomination by our Board, each in accordance with our established process for evaluating candidates to serve on our Board. Each of Mr. Evans and Mr. Pruellage is a director designee of Pamplona.

Our Nominating and Corporate Governance Committee recommended the appointment of Mr. Evans, Mr. Pruellage and Mr. Rajeski to our Board after considering each of their backgrounds, qualifications and professional experience. See “—Qualifications, Attributes, Skills and Experience of our Directors”, and “—Identifying and Evaluating Candidates for Director” for additional information thereon.

Each of Mr. Evans, Mr. Pruellage and Mr. Rajeski currently serves on our Board, has consented to be named in this proxy statement and has agreed to serve, if elected, until the 2026 annual meeting of stockholders and until his or her successor has been duly elected and qualified or until his or her earlier resignation, removal or other termination of service. There are no family relationships between or among any of our executive officers, nominees, or continuing directors.

The following sets forth the biographical information regarding our Class II director nominees, including the experience, qualifications, qualities and skills that led our Board to conclude that each director should continue to serve on our Board.

 

Proposal One: Election of Class II Directors

 

Proposal One: Election of Class II Directors

If any nominee becomes unable or unwilling to serve between the date of this proxy statement and our Annual Meeting, which we do not anticipate, then our Board may designate a new nominee. In that case, the persons named as proxies on the attached proxy card will vote for that substitute nominee (unless the proxies were previously instructed to withhold votes for the nominee who has become unable or unwilling to serve). Alternatively, our Board may reduce its size.

 

   

Board of Directors and Corporate Governance

Board of Directors

In connection with our IPO and our related reorganization transactions, our Board was constituted on December 9, 2020. Our Board currently consists of eight members and is divided into three classes. The members of each class serve staggered, three-year terms (other than with respect to the initial term of the Class I directors (one year) and Class II directors (two years) following our IPO). At each annual meeting, our stockholders will elect the successors to one class of our directors for three-year terms. Each of our directors serve as a director until a successor has been duly elected and qualified, or until such director’s earlier resignation, retirement or other termination of service.

The authorized number of directors may be increased or decreased by our Board in accordance with our certificate of incorporation. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors.

See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement” for information regarding director nomination and other rights currently held by Pamplona and director nomination and other rights previously held by Wynnchurch until its waiver in July 2022.

See “Proposal One: Election of Class II Directors” for biographical information on our Class II directors. The following sets forth biographical information regarding our Class III and I directors, including the experience, qualifications, qualities and skills that led our Board to conclude that each director should continue to serve on our Board.

Class III Directors—Term Expiring at the 2024 Annual Meeting

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(1)

Mr. Derbyshire was appointed to our Board on February 25, 2022. Mr. Derbyshire is a director-designee of Pamplona. Mr. Derbyshire replaced Mr. Andrew D. Singer, who resigned from our Board effective February 25, 2022.

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Board of Directors and Corporate Governance

 

Board of Directors and Corporate Governance

Class I Directors—Term Expiring at the 2025 Annual Meeting

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(1)

Chair of our Board

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(2)

Vice Chair of our Board

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Board of Directors and Corporate Governance

 

Board of Directors and Corporate Governance

Qualifications, Attributes, Skills and Experience of our Directors

The following table sets forth a summary of key qualifications, attributes, skills and experience that our current directors contribute to our Board to ensure our Board fulfills its oversight role and responsibilities, in the context of the operations and strategy of our business and the long-term interests of stockholders.

 

Board of Directors and Corporate Governance

Identifying and Evaluating Candidates for Director

Subject to the terms of the Stockholders’ Agreement, our Nominating and Corporate Governance Committee has, as one of its responsibilities, the recommendation of director candidates to our Board. Nominees for directorship are identified by our Nominating and Corporate Governance Committee in accordance with the criteria set forth below and any other criteria that may be identified by our Board or a committee of our Board, if appropriate, and in accordance with the procedures set forth in our Nominating and Corporate Governance Committee’s charter. Our Board seeks members from diverse professional and personal backgrounds who combine a broad spectrum of experience and expertise, as discussed above, with a reputation for integrity. Our Nominating and Corporate Governance Committee’s assessment of a potential candidate will include an individual’s independence, as well as consideration of age, skills and experience, and a policy of promoting diversity, in the context of the needs of the Company.

In addition to the key qualifications, attributes, skills and experience noted above, the minimum core criteria assessed by our Nominating and Corporate Governance Committee when evaluating a candidate for director include:

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Ensuring No Director Overboarding. No director should serve on more than three other public company boards. No member of our Audit Committee should serve on more than two other public company audit committees. No director who is an executive officer of another public company should serve on more than one other public company board, aside from the board of his/her own company. Directors should advise the Chair of our Board and the chair of our Nominating and Corporate Governance Committee in advance of accepting an invitation to serve on another public company board or audit committee or to assume the chair or lead independent director position on another public company board.

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Financial Literacy. Directors should know how to read and understand fundamental financial statements and understand the use of financial ratios and information in evaluating the financial performance of the Company.

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Character. Directors should be persons of good character and thus should possess all of the following personal characteristics:

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Integrity: Directors should demonstrate high ethical standards and integrity in their personal and professional dealings;

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Accountability: Directors should be willing to be accountable for their decisions as directors;

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Judgment: Directors should possess the ability to provide wise and thoughtful counsel on a broad range of issues;

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Responsibility: Directors should interact with each other in a manner which encourages responsible, open, challenging and inspired discussion;

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High Performance Standards: Directors should have a history of achievements which reflects high standards for themselves and others;

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Commitment and Enthusiasm: Directors should be committed to, and enthusiastic about, their performance for the Company as directors, both in absolute terms and relative to their peers; and

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•

Courage: Directors should possess the courage to express views openly, even in the face of opposition.

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Expectations. Each director will be expected to: dedicate sufficient time, energy and attention to ensure the diligent performance of his or her duties; comply with the duties and responsibilities set forth herein and in the Amended and Restated Bylaws of the Company; comply with all duties of care, loyalty and confidentiality applicable to directors of publicly traded corporations organized in our jurisdiction of incorporation, subject to the provisions set forth in the Company’s governing

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Board of Directors and Corporate Governance

documents; and adhere to the Company’s Code of Conduct and Business Ethics, including, but not limited to, the policies on conflicts of interest expressed therein and any other Company policies that apply to directors.

Director Independence

Our Common Stock is listed on the Nasdaq Global Select Market (“NASDAQ”). So long as the Pamplona Fund and the Wynnchurch Funds continue to control more than 50% of our combined voting power, we will continue to be considered a “controlled company” for the purposes of NASDAQ’s rules and corporate governance standards. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements.

Our Board reviewed director independence in accordance with the applicable rules of NASDAQ, based on the recommendation of our Nominating and Corporate Governance Committee. The independence rules include a series of objective tests, including that a director has not been employed by us within the last three years and has not engaged in various types of business dealings with us. In addition, our Board must make the subjective determination as to each independent director that no relationship exists which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Board Majority of Independent Directors, with Independent Audit and Compensation Committees

Our Board has determined that each of James E. Cline, Dane Derbyshire, Robert D. Evans, Suzan Morno-Wade, and William M. Pruellage are independent directors, and Christopher P. O’Brien was an independent director during his service period, under NASDAQ rules. Our Board further has determined that each member of our Audit Committee and our Compensation Committee (including Mr. O’Brien during his service period on our Compensation Committee) qualifies as independent under the additional independence rules established by the U.S. Securities and Exchange Commission (the “SEC”) and NASDAQ for service on such Committees.

We intend to continue to elect not to comply with certain corporate governance requirements, including those that would require our Nominating and Corporate Governance Committee to be comprised entirely of independent directors. As a “controlled company,” we are also permitted to elect not to comply with certain other corporate governance requirements, although we currently comply, including (1) that our Board have a majority of independent directors and (2) that our Compensation Committee be composed entirely of independent directors. In the event that we cease to be a “controlled company” and our shares of Common Stock continue to be listed on NASDAQ, we intend to comply with the independence requirements within the applicable transition periods.

Board Diversity

Although we are an emerging growth company and a controlled company as of the record date, the Company and our Board continue to seek to ensure our Board includes directors with diverse attributes and backgrounds, as well as critical qualifications, skills and experience relevant to the Company’s business and strategy. Set forth below is summary information regarding our directors’ independence, age and gender and ethnic diversity.

 

Board of Directors and Corporate Governance

Board Diversity Matrix (as of March 6, 2023)

We are committed to have at least two diverse Board members by 2025. We also have taken the Board Challenge Charter Pledge to support the goal of true and full representation on all boards of directors and to support and encourage the broader corporate community to accelerate these important changes.

Board Roles and Responsibilities

As outlined in our corporate governance guidelines and further discussed below, our Board is elected by stockholders to provide oversight and strategic guidance to management. The basic responsibility of the directors is to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its stockholders. In discharging that obligation, directors are entitled to rely on the honesty and integrity of the Company’s officers, employees, outside advisors and independent auditors. Our Board selects and oversees management, to whom our Board delegates the authority and responsibility for the conduct of the day-to-day operations of the business. Our Board utilizes a strategic planning process to establish objectives and goals for the Company, taking into account the opportunities and risks of the Company’s business and affairs. Our Board reviews, approves and modifies as appropriate the strategies proposed by management to achieve such objectives and goals.

Board Leadership

Our Board is led by our Chair, Mr. Cline, who has served in this capacity since December 2020 and is the former President and Chief Executive Officer of Trex. We believe this current leadership structure allows for Mr. Rajeski, our President and Chief Executive Officer, to focus on executing the Company’s strategy and policies adopted by our Board and to lead and manage the Company’s day-to-day operations and performance. Our Corporate Governance Guidelines provide that if the Company is not a controlled company and if our Chair of the Board is not an independent director, then our Board will appoint a Lead Director that is independent and such person will have many of the same responsibilities of our independent Chair.

 

Board of Directors and Corporate Governance

The Company benefits from Mr. Cline’s significant leadership experience and accumulated expertise in the consumer products industry. Mr. Cline’s roles, powers and responsibilities in serving as Chair of the Board include the matters set forth below.

Further, our independent Board leadership is enhanced by the deep engagement and critical insights provided by our five independent directors. In addition, we have a fully independent Audit Committee and Compensation Committee that provide significant oversight of key Board functions.

Board Committees

Our Board committees include our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each Committee operates under a written charter approved by our Board, which the applicable Committee and our Board review annually. Each charter is available under the Governance tab on our Investor Relations website, at https://ir.lathampool.com/.

Our Audit Committee and Compensation Committee are comprised entirely of independent directors. We have availed ourselves of the “controlled company” exception under the NASDAQ rules that allows us to have a Nominating and Corporate Governance Committee that is not composed entirely of independent directors. If at any time we cease to be a “controlled company” under the NASDAQ rules, our Board will comply with the applicable NASDAQ rules, including having the foregoing committees composed entirely of independent directors, subject to a permitted “phase-in” period.

 

Board of Directors and Corporate Governance

See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement” for information regarding Committee nomination and other rights currently held by Pamplona, as well as the Committee observer and other rights previously held by Wynnchurch until its waiver in July 2022.

Our Nominating and Corporate Governance Committee recommends and our Board appoints our Committee members and Chairs. The following table provides membership as of the record date and meeting information for 2022 for each of these Committees. Mr. Rajeski does not serve on any standing committees of our Board.

C = Committee Chair; X = Member

(1)

Mr. Cline is Chair of our Board and Mr. Laven is Vice Chair of our Board.

​

(2)

Mr. Derbyshire was appointed to our Nominating and Corporate Governance Committee upon his appointment to our Board in February 2022. Mr. Pruellage served on our Nominating and Corporate Governance Committee until February 2022.

​

(3)

Mr. Pruellage was appointed to our Compensation Committee following the resignation of Andrew D. Singer from our Compensation Committee and our Board in February 2022. Ms. Morno-Wade was appointed to our Compensation Committee in August 2022 following the resignation of Christopher P. O’Brien from our Compensation Committee and our Board in July 2022. Mr. Cline served as Chair of our Compensation Committee until December 2022, and Ms. Morno-Wade has served as Chair of our Compensation Committee since January 2023.

​

 

Board of Directors and Corporate Governance

Audit Committee

Our Audit Committee assists our Board by providing independent, objective oversight of our auditing, accounting and financial reporting activities. The principal duties and responsibilities of our Audit Committee are set forth below.

Our Audit Committee has the authority to retain counsel and other advisors to fulfill its responsibilities and duties. Our Audit Committee may also form and delegate authority to subcommittees, provided that the subcommittees are composed entirely of directors who satisfy the applicable independence requirements.

Our Board has determined that each of James E. Cline and Robert D. Evans qualifies as an “audit committee financial expert” and that each member of our Audit Committee has sufficient knowledge in reading and understanding financial statements.

Our Audit Committee charter also provides that an Audit Committee member may not simultaneously serve on more than two other audit committees of public companies unless our Board determines that such service would not impair the ability of such person to effectively serve on our Audit Committee. No Audit Committee member currently serves on more than two other audit committees of public companies.

See “Report of our Audit Committee,” “Other Audit Committee Matters,” and “Proposal Two: Ratification of the Appointment of Deloitte & Touche as our Independent Registered Public Accounting Firm for 2023” for additional information regarding Audit Committee activities.

 

Board of Directors and Corporate Governance

Compensation Committee

Our Compensation Committee is responsible for overseeing the compensation of our Chief Executive Officer and other executive officers, and for oversight of our incentive compensation and equity-based plans. The principal duties and responsibilities of our Compensation Committee are set forth below.

Our Compensation Committee may form and delegate authority to subcommittees, provided that the subcommittees are composed entirely of directors who satisfy the applicable independence requirements.

Our Board has determined that each member of our Compensation Committee qualifies as a non-employee director under applicable rules and regulations of the SEC.

Role of Independent Compensation Consultant and Management

Our Compensation Committee has the authority to retain counsel and other advisors to fulfill its responsibilities and duties. In connection with the engagement of such advisors generally, our Compensation Committee reviews the independence of such advisor, based on factors specified by NASDAQ, and other factors it deems appropriate, and specifically with respect to any compensation consultant, any actual or potential conflicts of interest.

Our Compensation Committee determined to re-engage Pearl Meyer, its independent compensation consultant since 2020. Upon engagement and consistent with historical practice, our Compensation Committee worked with management to determine Pearl Meyer’s responsibilities and direct its work product for 2022, although our Compensation Committee was responsible for formal approval of the work plan. Pearl Meyer performed de minimis other services for us for 2022, and our Compensation Committee determined there were no conflicts of interest raised by the work of Pearl Meyer for 2022.

Our Compensation Committee also regularly receives input from management, including our Chief Executive Officer, our General Counsel and our Chief Human Resources Officer, with respect to the Company’s executive compensation programs and other human capital matters.

 

Board of Directors and Corporate Governance

See “Named Executive Officer Compensation” and “Named Executive Officer Compensation Tables” for further information on the activities of our Compensation Committee, Pearl Meyer and management regarding the consideration and determination of named executive officer compensation in 2022, and “Director Compensation” for further information on the activities of our Compensation Committee and Pearl Meyer regarding our 2022 non-employee director compensation program.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee identifies and recommends director nominees to our Board for election, develops and recommends to our Board the Corporate Governance Guidelines and other key governance policies, and oversees Board and Committee self-evaluations. The principal duties and responsibilities of our Nominating and Corporate Governance Committee are set forth below.

Our Nominating and Corporate Governance Committee has the authority to retain counsel and other advisors to fulfill its responsibilities and duties. Our Nominating and Corporate Governance Committee may also form and delegate authority to subcommittees, provided that the subcommittees are composed entirely of directors who satisfy the applicable independence requirements.

See “—Qualifications, Attributes, Skills and Experience of our Directors” and “—Identifying and Evaluating Candidates for Director” for a description of the experience, mix of skills and other criteria that our Nominating and Corporate Governance Committee considers in the director nomination process or to fill vacancies or newly created directorships.

 

Board of Directors and Corporate Governance

See “Questions and Answers—When are stockholder proposals due for next year’s annual meeting of the stockholders?” for information for stockholders to present timely notice of stockholder proposals and director nominations. See also our Amended and Restated Bylaws for additional information required to nominate candidates for election as directors or to bring other business before an annual stockholder meeting.

Meetings of Our Board—Strong Director Attendance

Our Board held 13 meetings during 2022.

During 2022, each person currently serving as a director attended at least 90% of the aggregate of the total number of meetings of our Board and each Committee of which such director was a member. Each director also is encouraged and expected to attend the Company’s annual meeting. All of our current directors who were then serving on our Board attended the 2022 annual meeting of stockholders.

Board’s Role in Risk Oversight

Our Board and Committees have a significant role in overseeing management’s activities regarding risk identification, risk management and risk mitigation. While each Committee is responsible for specific matters, our Board is informed regularly through Committee reports about material activities and discussions. Our Board and Committees also regularly meet to discuss these matters in executive session with their independent advisors and other advisors, as well as with certain members of management. Set forth below is a non-exhaustive list of key risk topics that are subject to Board and Committee oversight.

 

Board of Directors and Corporate Governance

Key Governance Policies

Our Board and management are committed to responsible corporate governance to ensure that we are managed in the best interests of our stockholders. Our Board periodically reviews and updates our key governance policies. Each policy below is available under the Governance tab on our Investor Relations website, at https://ir.lathampool.com/.

Corporate Governance Guidelines

Our Board has adopted Corporate Governance Guidelines, which provide the framework for our corporate governance along with our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, committee charters and other key governance practices and policies. Our Corporate Governance Guidelines cover a wide range of subjects, including the conduct of Board meetings, independence and selection of directors, Board membership criteria, and Board committee composition.

Code of Business Conduct and Ethics

Our Board has adopted a Code of Conduct and Business Ethics, which is applicable to all directors, officers and employees, including our Chief Executive Officer and Chief Financial Officer. To the extent required by SEC rules, we intend to disclose any amendments to our Code of Conduct and Business Ethics, and any waiver of a provision of the Code of Conduct and Business Ethics with respect to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website referred to above within four business days following any such amendment or waiver, or within any other period that may be required under SEC rules from time to time.

Prohibition on Hedging and Pledging of Company Securities

Our Corporate Governance Guidelines prohibit directors, executive officers and employees of the Company, and their designees from purchasing any financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) or otherwise engaging in transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of the Company’s equity securities whether such securities are (1) granted to the director, officer or employee by the

 

Board of Directors and Corporate Governance

Company as part of such director’s, officer’s or employee’s compensation; or (2) held, directly or indirectly, by the director, officer or employee.

Directors, executive officers and employees and their designees are prohibited from engaging in hedging transactions, such as purchasing securities of the Company on margin or pledge, or otherwise grant a security interest in, securities of the Company in margin accounts.

Evaluations of Our Board and Committees

In 2022, our Nominating and Corporate Governance Committee administered our initial self-evaluation by our Board and Committees. Members of our Board and each Committee filled out a written questionnaire focused on such governing body’s culture, structure, process and effectiveness. At the request of our Nominating and Corporate Governance Committee, the General Counsel received all comments and provided a summary to our Board. Our Nominating and Corporate Governance Committee then led a Board discussion regarding such results and opportunities to improve the effectiveness of our Board and Committees. Our Board and Committees intend to conduct such self-evaluation on an annual basis and will consider ways in which to enhance such process in the future.

Oversight of Environmental, Social and Governance

To achieve long-term success as a business, we realize we need to align our business strategy and prioritization with the expectations of our stakeholders and society at large. As a leading global manufacturer of inground swimming pools, our ambition is to lead our industry towards a more sustainable future. In launching our formal ESG program, we worked with independent consultants in the second half of 2021 to assess our ESG performance, benchmark our efforts against our competitors and establish a comprehensive strategy to manage ESG risks and opportunities effectively.

Everything we do centers around quality, whether manufacturing pools from premium materials or offering the longest and strongest warranties in the industry. We want our customers to feel great about their decision to invest in one of our pools.

We have achieved this level of quality in our products and service by creating a working environment where we prioritize respect, integrity and doing the right thing. Compliance and safe working conditions are fundamental to our operations and our culture. We operate responsibly and uphold all our obligations as a member of the global business community. We also want to make a positive impact through the work we do and give back to the communities where we operate.

Our Board views oversight and effective management of ESG related risks and opportunities as essential to the Company’s ability to execute its strategy and achieve long-term sustainable growth. Our management team develops ESG strategy and related goals and policies through an ESG working group, and our ESG program is overseen by our Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee and ESG working group are involved in policy planning and the coordination of corporate-wide ESG efforts. The working group is a cross-functional team managing the day-to-day implementation of company initiatives and accountability for performance. Our Nominating and Corporate Governance Committee reviews the Company’s progress towards the achievement of its ESG strategy and goals on a periodic basis.

We published our inaugural ESG report in the second quarter of 2022, which included information regarding our first materiality assessment. We intend to publish an annual ESG report to update our stakeholders on our ongoing journey. See https://ir.lathampool.com/esg for more information.

Oversight of Human Capital Management

As of December 31, 2022, we had approximately 2,200 full-time employees, of whom 230 were based outside of North America. Our workforce is not unionized. We believe we have satisfactory relations with our employees.

Our reputation for exceptional quality relies on having exceptional people, so we ensure that our team is rewarded, engaged and developed to build fulfilling careers. We provide competitive employee wages that

 

Board of Directors and Corporate Governance

are appropriate to employee positions, skill levels, experience, knowledge and geographic location, and additional rewards including incentive plans, bonus plans and achievement awards In the United States, we offer our employees a wide array of health, welfare and retirement benefits, which we believe are competitive relative to others in our industry. We benchmark our benefits plan annually to ensure our employee value proposition remains competitive and attractive to new talent. In our operations outside the United States, we offer benefits that may vary from those offered to our U.S. employees due to customary local practices and statutory requirements. In all locations, we provide time off benefits, company-paid holidays, retirement benefits, wellness benefits, recognition programs and career development opportunities.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. Our talented employees drive our mission and share core values that both stem from and define our culture, which plays an invaluable role in our execution at all levels in our organization. Our culture is based on these shared core values which we believe contribute to our success and the continued growth of the organization. These values are used in candidate screening and in employee evaluations to help reinforce their importance in our organization. By engaging employees and management in focus groups, these values are being updated to better define Latham’s culture with a focus on safety, accountability, pride, simplicity, continuous improvement, wellness, fun and leadership at every level. A third-party vendor conducts bi-annual engagement surveys on our behalf. We have used the same vendor for seven consecutive years, giving us strong insight into the trends and drivers impacting employee engagement.

The health and safety of our people is a primary concern for us, so we have implemented a comprehensive health and safety program to manage workplace safety hazards and to protect employees. We provide regular training and competency development to verify and ensure compliance with health and safety procedures and regulations. In the post-pandemic world, we continue to drive community health safety guidelines and best practices for employee wellness gained from our COVID-19 experience.

Diversity, Equity and Inclusion

Diversity, equity, inclusion and belonging are fundamental principles in our culture. We strive to create a workplace where all our employees can thrive and to employ a workforce that represents the communities where we operate and the customers we serve. We are committed to fostering, cultivating, celebrating and preserving a culture of diversity, equity, inclusion and belonging among our employees, customers and suppliers. We embrace our employees’ differences in age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, caste, veteran status, and other characteristics that make our employees unique. Latham’s diversity initiatives include, but are not limited to, our practices and policies on recruitment and selection; compensation; benefits plan design; professional development and training; promotions; transfers; internal communications; social and recreational programs; terminations; and the ongoing development of a work environment that encourages and enforces respectful communication, teamwork, work/life balance and engaging in community efforts that promote a greater understanding and respect for the principles of diversity.

Talent Development and Training

We believe that learning and development (L&D) is a strategic driver for the mutual success of our workforce and our dealers, and we encourage employees to steer their career development through learning. L&D is centralized under the Chief Human Resources Officer and dealer-facing activities are closely aligned with the Chief Marketing and Chief Sales Officers. L&D is a key factor in our employee engagement efforts. Learning programs for employees through the Latham Learning program include new hire onboarding and curriculum in key areas such as safety, products, sales, customer service and annual compliance training, including our Code of Conduct and Business Ethics. Additional offerings include skills-based training, career pathing, professional certification training, tuition reimbursement for post-secondary education and our annual Leadership Academy. Learning objectives are tied to career pathing and annual goals. External programs are offered to customers through Latham University and

 

Board of Directors and Corporate Governance

teach business management and planning, product safety and installation techniques. We believe these educational programs enhance Latham’s value to our dealers as a key partner in their success.

Health, Safety and Wellness

Our health and safety policies and practices include an employee training and competency development program to train, verify and encourage compliance with health and safety procedures and regulations annually. We monitor our total recordable incident rate monthly as part of our Operations Review. We review workplace injury and claims trends with our carriers monthly to identify areas of focus and opportunities for implementing new programs to protect our employees. Our Environmental, Health and Safety team, led by a Senior Director is responsible for managing, auditing and executing unified, company-wide safety and compliance programs, as well as working directly with site leadership and associates on safety awareness, reports and preventative measures. The Environmental, Health and Safety Senior Director also provides monthly updates to the Executive Leadership Team. Employee wellness is facilitated through the Human Resources organization and includes external vendor partnerships, wellness incentives, biometric screenings, onsite programs and supplemental resources through our Employee Assistance Program and employee health benefits providers which are highly accessible to our employees and their family members for holistic wellness services.

Succession Planning

Our Nominating and Corporate Governance Committee develops and recommends to our Board for approval a Chief Executive Officer and executive officer succession plan, which encompasses both emergency and long-term planning. Our Nominating and Corporate Governance Committee and Compensation Committee review this succession plan from time to time with the Chief Executive Officer and any Chief Administration Officer it deems appropriate and recommend any changes to our Board for its approval. We maintain a succession planning process as part of our talent development strategy whereby high potential employees are identified and provided with development opportunities. This annual exercise assures contingency and long-term key talent planning for executives, senior leadership and functional leaders throughout the Company.

Stockholder Engagement

Our Board and management value the opportunity to engage with our stockholders and prospective stockholders to better understand their priorities, and to foster consistent and constructive dialogue. Throughout the year, our executive leadership and investor relations consultants, engage our stockholders at investor conferences and private meetings to seek their input, to remain well-informed regarding their perspectives and help increase their understanding of our business and industry. Management also provides our Board with additional information regarding institutional voting and governance policies and trends in stakeholder issues. Our Board utilizes the information and feedback to inform key decisions and long-term strategy.

Communications with our Board

Stockholders and other interested parties desiring to communicate directly with the full Board the non-management directors as a group or with any individual director or directors may do so by sending such communication in writing, addressed to the attention of the intended recipient(s), c/o Corporate Secretary, Latham Group, Inc., 787 Watervliet Shaker Road, Latham, NY 12210.

All communications that relate to accounting, internal accounting controls or auditing matters can be sent through http://www.lighthouse-services.com/lathampool and will be referred to the Chair of our Audit Committee unless the communication is otherwise addressed. All other communications received will be forwarded to the appropriate director or directors.

 

   

Director Compensation

Our non-employee director compensation program is intended to attract and retain non-employee directors and further align the interests of our Board and stockholders. All employee directors and directors affiliated with our Principal Stockholders do not participate in such compensation program.

In connection with our IPO in 2021, we established a non-employee director compensation program based on peer group and director compensation survey data, and our Compensation Committee determined to continue such program in 2022 without change. Later in 2023, our Compensation Committee intends to review benchmarking data and applicable market trends for our non-employee director compensation program.

The following table sets forth the compensation program for non-employee directors in 2022.

The annual cash retainers for Board and Committee service are paid in quarterly installments, subject to the director’s continued service as of such payment date.

The annual equity retainers will be granted either in shares of restricted stock or RSUs, as determined annually by our Compensation Committee. In 2022, our Compensation Committee determined to grant RSUs. The grant value is divided by the grant date fair market value, which is equal to the closing price of our Common Stock on the grant date, to calculate the number of shares issued. The equity awards will vest on the first anniversary of the grant date, unless the director is removed for cause or voluntarily resigns prior to vesting.

In addition, each director will be reimbursed for out-of-pocket expenses in connection with his or her services and for all reasonable travel expenses incurred in connection with attendance at meetings of our Board and Committees. In addition, the directors are provided with indemnification in accordance with our indemnification policies in effect from time to time. The Company generally does not provide any perquisites to directors.

The 2021 Omnibus Equity Plan provides that the sum of any cash compensation for service as a director and the grant date fair value of all equity awards for service as a director will not exceed $750,000 in any calendar year.

In lieu of formal stock ownership guidelines, the Corporate Governance Guidelines recommends that non-management directors hold the equity awards they receive as director compensation (except as necessary to pay any taxes) until termination of their service. Our Compensation Committee has committed in 2023 to adopt stock ownership guidelines for our named executive officers and non-employee directors.

 

Director Compensation

Director Compensation Table for 2022

The following table sets forth information regarding the compensation paid to, awarded to or earned by the members of our Board for services rendered in 2022.

​

(1)

The amounts in this column represent the value of the annual cash Board and Committee retainers earned by directors in 2022. The cash retainers for the fourth quarter of 2022 were paid in January 2023.

​

(2)

The amounts reported in this column represent the grant date fair value of RSUs granted to each person in 2022 under the 2021 Omnibus Equity Plan. The grant date fair value of the RSUs are calculated as of the closing price of our Common Stock as quoted on NASDAQ on the grant date multiplied by the number of shares subject to the award. We do not pay fractional shares.

​

At December 31, 2022, the following directors held the following amount of RSUs: Mr. Cline, 10,170; Messrs. Evans, Hawkinson and Laven, 6,102; and Ms. Morno-Wade, 16,629.

 

   

Report of our Audit Committee

Our Audit Committee’s purpose is to assist our Board in generally overseeing, among other things, the integrity of our financial reporting and internal control functions, to review our reports filed with or furnished to the SEC that include financial statements or results, to monitor compliance with significant legal and regulatory requirements and other risks related to financial reporting and internal control, and to appoint, retain, compensate, and oversee the work of our independent registered public accounting firm, which is currently Deloitte & Touche. See “Other Audit Committee Matters” below for a description of our Audit Committee’s pre-approval policies regarding the services of Deloitte & Touche.

Management is responsible for the preparation, presentation and integrity of our financial statements, accounting and financial reporting principles, internal controls and compliance with applicable laws and regulations. Deloitte & Touche, as our independent registered public accounting firm, is responsible for performing an independent audit of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (U.S.) (“PCAOB”) and for expressing its opinion thereon.

Key Responsibilities

In fulfilling its oversight responsibilities regarding our financial statements for 2022, our Audit Committee:

•

Reviewed and discussed with management and Deloitte & Touche our unaudited quarterly financial statements included in Quarterly Reports on Form 10-Q filed with the SEC.

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•

Periodically reviewed and discussed with management and Deloitte & Touche our earnings press releases, earnings guidance and the use of non-GAAP information.

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•

Reviewed and discussed with Deloitte & Touche the overall scope and plans for its audit for 2022.

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•

Reviewed and discussed with management and Deloitte the audited consolidated financial statements, and Deloitte & Touche’s opinion thereon, included in the Annual Report on Form 10-K for 2022 filed with the SEC and the 2022 annual report to stockholders.

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•

Evaluated our critical accounting policies and procedures and significant judgments and estimates, and changes in our accounting practices, principles, controls and methodologies, relating to our financial statements.

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•

Reviewed with management and Deloitte & Touche the significant risks and exposures identified by management and the overall adequacy and effectiveness of our legal, regulatory and compliance programs.

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•

Discussed with Deloitte & Touche the matters required to be discussed by the applicable requirements of the PCAOB and the SEC.

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•

Received the written disclosures and the letter from Deloitte & Touche required by the applicable requirements of the PCAOB regarding Deloitte & Touche’s communications with our Audit Committee concerning independence, and discussed with Deloitte& Touche its independence with respect to us, including any relationships which may impact its objectivity and independence and whether the provision of specified non-audit services was compatible with its independence under current guidelines.

​

 

Report of our Audit Committee

Recommendation of Our Audit Committee

Based on our Audit Committee’s review and discussions noted above, our Audit Committee recommended to our Board, and our Board approved, that our audited consolidated financial statements be included in our Annual Report on Form 10-K for 2022, which was filed with the SEC on March 7, 2023. Our Audit Committee also appointed Deloitte & Touche as our independent registered public accounting firm for 2023.

Robert D. Evans, Chair
James E. Cline
Suzan Morno-Wade

 

   

Other Audit Committee Matters

Pre-Approval Policy and Procedures

Our Audit Committee has the sole authority to review and pre-approve all audit and non-audit services to be provided by our independent registered public accounting firm, or any other auditors as permitted by applicable law, as well as all related fees and other terms of engagement, to ensure the provision of these services do not impair such auditor’s independence. Our Audit Committee pre-approved all services provided by Deloitte & Touche during 2022. Our Audit Committee has considered the nature and amount of the fees billed by Deloitte and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining Deloitte & Touche’s independence.

If a product or service arises that has not been pre-approved by our Audit Committee, our Audit Committee has delegated to the Chair of our Audit Committee the authority to consider and pre-approve any such product or service between regular meetings of our Audit Committee. Any interim approvals granted by the Chair of our Audit Committee are reported to our Audit Committee at its next regularly scheduled meeting.

Independent Registered Public Accounting Firm Fees and Services

The following table presents fees for professional audit services rendered by Deloitte & Touche for the audit of our consolidated financial statements, and fees billed for other services rendered by Deloitte & Touche, for 2022 and 2021.

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(1)

Audit fees in 2022 and 2021 included fees related to the annual audit of our financial statements, review of quarterly financial statements, and professional consultations with respect to accounting issues directly related to the financial statement audit. Fees in 2021 also included fees in connection with the filing of our registration statements related to our IPO in April 2021 and our secondary offering in January 2022.

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(2)

Audit-related fees in 2022 consisted of fees that are reasonably related to the performance of the audit or review of Latham’s financial statements.

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(3)

Tax fees in 2022 and 2021 consisted of fees in connection with tax compliance and preparation relating to tax returns.

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Proposal Two: Ratification of the Appointment of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for 2023

Our Audit Committee has ultimate authority and responsibility to appoint, compensate, evaluate and, when appropriate, replace our independent registered public accounting firm.

Our Audit Committee conducted a competitive process to select an independent registered public accounting firm for 2020 in connection with preparing for our IPO, and Deloitte & Touche was selected and appointed at such time. Our Audit Committee has continued its engagement with Deloitte & Touche since such date.

For the reasons noted below, our Audit Committee has reappointed Deloitte & Touche as our independent registered public accounting firm for 2023.

Support for recommendation

In determining that retaining Deloitte & Touche for 2023 was in the best interests of us and our stockholders, our Audit Committee reviewed:

•

Efficiencies of continued engagement—Our Audit Committee, management and Deloitte & Touche have invested significant time, resources and money to ensure a successful transition and ongoing engagement.

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•

Audit effectiveness—Deloitte & Touche’s performance on our audit and non-audit work for 2022 and management’s assessment of such performance.

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•

Expertise and industry knowledge—Deloitte & Touche’s qualifications, independence, capabilities, and expertise, evident through its audit planning and reports, industry knowledge, resources and staffing, objectivity and professional skepticism.

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•

External data on audit quality and performance—Results of recent PCAOB reports on Deloitte & Touche and peer firms and improvements made from period to period.

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•

Reasonableness of fees—The terms of the audit engagement, including the reasonableness of audit and non-audit fees charged taking into account the breadth and complexity of services provided, as well as the efficiency achieved in performing such services.

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•

Communication—The quality of Deloitte & Touche’s communications to and interactions with our Audit Committee at meetings and the Chair of our Audit Committee between meetings.

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•

Ratification Proposal at 2022 Annual Meeting—At the 2022 annual meeting, over 99% of stockholder votes supported the ratification of the appointment of Deloitte & Touche to serve as the independent registered public accounting firm for 2022.

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ADVISORY VOTE

Our Audit Committee appoints our independent registered public accounting firm, and your ratification of the appointment of Deloitte & Touche is not necessary. However, our Audit Committee will take your vote on this proposal into consideration when appointing our independent registered public accounting firm in the future. Even if the stockholders ratify the appointment of Deloitte & Touche, our Audit Committee may in its sole discretion terminate the engagement of Deloitte & Touche and direct the appointment of another independent auditor at any time during the year, although it has no current intent to do so.

 

Proposal Two: Ratification of the Appointment of Deloitte & Touche LLP as our Independent Registered Public

Accounting Firm for 2023

Representatives of Deloitte & Touche will attend our Annual Meeting, will have the opportunity to make a statement, if they desire to do so, and will be available to answer appropriate questions from stockholders.

 

   

Executive Officers

The following table sets forth information with respect to our executive officers as of March 21, 2023.

In addition, we have included information regarding Robert L. Masson II, who served as our Chief Financial Officer until March 17, 2023 and is a named executive officer.

See “Proposal One: Election of Class II Directors” for a description of the business experience of Scott Rajeski.

 

Executive Officers

 

Executive Officers

 

Executive Officers

 

   

Named Executive Officer Compensation

This section provides an overview of our compensation program for our Chief Executive Officer and our other executive officers named below (our “named executive officers”). The compensation program for our named executive officers generally is consistent with the compensation program with other executive officers, and our Compensation Committee generally designs and administers the compensation program for our named executive officers and the other executive officers as a group.

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(1)

Mr. Masson resigned as Chief Financial Officer effective March 17, 2023.

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Executive Summary

Compensation Philosophy

The compensation program for our named executive officers is designed to attract, motivate and retain qualified employees and to provide them incentives to achieve or exceed the Company’s annual operational, financial and strategic goals and to increase long-term stockholder value. As a new public company in 2021, our Compensation Committee continues to evolve our compensation philosophy, policies and practices for our named executive officers. Our Compensation Committee reviews peer market data but does not benchmark to any specific percentile or range of percentiles.

 

Named Executive Officer Compensation

2022 Compensation Elements

The 2022 compensation program for named executive officers consisted principally of the following elements.

In addition, our named executive officers are each party to an employment agreement with our subsidiary Latham Pool Products. See “—Employment Agreements” below for a description of specified terms of employment, some of which impacted compensation of our named executive officers in 2022.

See below for our Compensation Committee’s revisions to the 2023 compensation program for named executive officers and for future commitments.

 

Named Executive Officer Compensation

2022 Target Annual Compensation

The target annual compensation of named executive officers in 2022, excluding benefits, consisted of base salary, a target cash bonus, and stock options (excluding new hire amounts). Amounts may not add to 100% due to rounding.

2022 CEO Earned and Realizable Compensation

For 2022, the Company reported Adjusted EBITDA of  $143.3 million, and our Compensation Committee approved the corresponding 6.3% payout of the target bonus (80% weighting). In addition, our Compensation Committee approved a payout of 44% of the target bonus (20% weighting) based upon Mr. Rajeski’s individual performance goals. In aggregate, Mr. Rajeski earned 13.8% of his 2022 target bonus, or $62,280.

Our CEO’s realizable compensation for 2022 is lower than his target total compensation as demonstrated in the table below. Target total compensation is the sum of his base salary, target bonus and the reported grant date value of stock options in 2022. Realizable compensation is the sum of his base salary, bonus payout for 2022 performance and the current intrinsic value of his 2022 stock options. The intrinsic value of the 2022 stock options is zero because the current stock price is trading below the exercise price of  $15.69.

Initial 2023 Compensation Determinations and Future Commitments

Our Compensation Committee intends to continue to evolve our compensation program for named executive officers. Our Compensation Committee has approved key components of the 2023 compensation program for named executive officers:

•

The base salaries, target bonuses (as a % of base salary) and target annual equity (as a % of base salary) for named executive officers will remain unchanged from 2022.

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•

The annual bonus plan will be solely based on an Adjusted EBITDA performance goal.

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•

Adjusted EBITDA is a key supplemental metric used by management and our Board to assess our financial performance, and the effectiveness of our business strategies to make budgeting

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Named Executive Officer Compensation

decisions and to compare our performance against that of other companies using similar measures. We believe it is also used by analysts, investors and other interested parties to evaluate companies in our industry.

•

Our 2021 and 2022 annual bonus plan included a component based on individual performance goals (weighted at 20% of the target bonus). In 2023, individual performance goals will be utilized solely for future base salary determinations.

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•

The annual equity program will consist of 70% RSUs and 30% SARs; the SARs are contingent on stockholder approval of Proposal Three.

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•

Our Compensation Committee believes the new mix of equity, in effect for 2023, will provide a better tool to attract and retain executives given the volatility of our shares of Common Stock and the challenging industry trends we are expect in the near term.

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•

Our 2021 and 2022 annual equity program consisted solely of stock options.

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2022 Compensation Determinations

Base Salary

We pay base salaries to attract, recruit and retain qualified employees. Historically, our Compensation Committee has established base salaries for named executive officers on an annual basis primarily based on the assessment of the individual’s prior performance, peer data and industry surveys and anticipated performance growth (including any recent or expected promotion or change in job responsibilities). Our Compensation Committee also may review internal pay equity as well as successional planning needs. Except for new hires, our base salary changes in 2022 were effective January 9, 2022.

The base salaries of our named executive officers for 2021 and 2022 are set forth below.

Management Incentive Bonus Plan (“MIB Plan”)

During 2022, our named executive officers were eligible to participate in our annual performance-based MIB Plan. The annual target bonuses are determined as a percentage of their base salaries in effect as of January of the plan year. Our Compensation Committee determined not to change the annual target bonuses as a percentage of base salary, but the target dollar value of the opportunity was impacted by the base salary changes noted above.

 

Named Executive Officer Compensation

The target bonus in 2021 and 2022, as a percentage of base salary and dollar value, for our named executive officers are set forth below.

In the 2022 MIB, named executive officers were eligible to earn 0% to 200% of their respective target bonus based on the achievement of two pre-established, objective components: Adjusted EBITDA of the Company (80% weighting) and individual performance goals (20% weighting).

Adjusted EBITDA

The Adjusted EBITDA performance goal in the 2022 MIB utilized the same definition included in our Annual Report as a supplemental performance measure. In addition to utilizing it for our 2022 MIB, we use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is defined as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) management fees, (vii) stock-based compensation expense, (viii) unrealized (gains) losses on foreign currency transactions, (ix) strategic initiative costs, (x) acquisition and integration related costs, (xi) other and (xii) IPO costs. See our Annual Report for additional information on the use and utility of Adjusted EBITDA, as well as its limitations.

For the 2022 MIB, our Compensation Committee established the following payout scale for Adjusted EBITDA:

•

Threshold (0% payout) = $139.8 million (actual 2021 Adjusted EBITDA)

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•

Target (100% payout) = $195.0 million (the midpoint of our initial guidance issued in March 2022)

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•

Maximum (200% payout) = $219.6 million (57.1% growth compared to actual 2021 Adjusted EBITDA)

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•

For actual performance between the specified levels, the results percentage achievement and payout were determined on a linear interpolation basis.

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For 2022, the Company reported Adjusted EBITDA of  $143.3 million, and our Compensation Committee approved the corresponding 6.3% payout of the target bonus (80% weighting) for our named executive officers.

Individual Performance Goals

Our Compensation Committee approved individual performance goals for the Chief Executive Officer in March 2022. Such goals were based on the roles and responsibilities of the person, were aligned with the Company’s key performance indicators, budget and long-term strategy, and were objectively determinable.

For 2022, our Compensation Committee approved the following payouts of the target bonus (20% weighting) for our named executive officers based upon their individual performance goals: Mr. Rajeski, 44%; and Mr. Bahl, 46%. Mr. Masson’s individual performance goals were not analyzed due to his minimum guaranteed bonus.

 

Named Executive Officer Compensation

Earned Bonuses

The following table sets forth the earned bonuses for our named executive officers for the 2022 MIB, which were paid on March 10, 2023.

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(1)

Mr. Masson’s 2022 earned bonus was guaranteed at a minimum of 100% of the target bonus in accordance with his employment agreement as a new hire benefit.

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2022 Annual Equity Awards

In connection with and following our IPO in 2021, our Compensation Committee established an annual equity program under the 2021 Omnibus Equity Plan, including for our named executive officers. For the annual equity program for named executive officers in 2021 and 2022, our Compensation Committee granted stock options with four-year, annual pro rata vesting.

The grant value for each named executive officer was based on a percentage of base salary. The grant values in 2021 and 2022, as a percentage of base salary and dollar value, and the stock options granted to our named executive officers are set forth below.

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(1)

The exercise price was $19.00 for each stock option (based on a grant date of April 22, 2021).

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(2)

For Messrs. Rajeski and Bahl, the exercise price was $15.69 for each stock option (based on a grant date of March 3, 2022). For Mr. Masson, the exercise price was $5.77 (based on a grant date of August 4, 2022).

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(3)

Mr. Masson’s grant value was a negotiated term of employment. The grant value was pro-rated based on date of hire.

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2022 New Hire Equity Awards

In connection with and following our IPO in 2021, our Compensation Committee established a new hire equity program under the 2021 Omnibus Equity Plan, including for certain of our named executive officers. For the new hire equity program for the applicable named executive officers in 2021 and 2022, our Compensation Committee granted RSUs with three-year, annual pro rata vesting.

The grant value for the applicable named executive officer was a negotiated term of employment. The grant values in 2021 and 2022 and the RSUs granted to the applicable named executive officers are set forth below.

 

Named Executive Officer Compensation

Limited Other Benefits and Perquisites

Our named executive officers are entitled to participate in our 401(k) plan on the same basis as our other eligible employees. The Company’s matching contributions for 401(k) plan participants is 50% of the first 6% contributed by the employee for a maximum employer match of 3%.

The Company also provides our named executive officers with other limited benefits and perquisites, including an automobile reimbursement, a cell phone allowance and attendance at entertainment events.

Compensation Policies

Executive Clawback Policy

Clawback Policy. Our Board believes it is in the best interests of us and our stockholders to ensure the cash-based and equity-based incentive compensation that is paid or awarded to executive officers is based on accurate financial statements and the correct calculation of performance metrics in any incentive compensation plan. Our recently adopted Executive Clawback Policy provides that our Compensation Committee or our Board (referred to as the Administrator) has discretion to take appropriate action if it determines that any fraud, intentional misconduct, gross negligence or lack of sufficient oversight by an executive officer was a significant contributing factor to the Company (i) having to restate all or a portion of its financial statements due to a material error to its previously issued financial statements or (ii) having miscalculated one or more performance metrics used by our Administrator to determine incentive compensation that, if calculated correctly, would have resulted in reduced compensation payout (whether in cash or equity) to one or more executive officers (a “Clawback Event”). Upon our Administrator’s determination of a Clawback Event, our Administrator is authorized to seek to recover from any applicable executive officer any cash-based or equity-based incentive compensation, including but not limited to annual or special performance-based bonuses and equity-based awards that were granted, issued, earned, paid or became vested or settled in the covered period and to prevent the recurrence of such activity to the fullest extent permitted by governing law. The subject compensation will be determined without regard to any net settlement of, or taxes paid or withheld on, such compensation. The recovery period under the policy is three full years preceding and including the date our Administrator concludes, or reasonably should have concluded based on evidence available to it, that a Clawback Event occurred; provided, however, the recovery period and subject compensation exclude any incentive compensation granted, issued, earned, paid or that vested or settled prior to the IPO in April 2021.

We expect to substantially revise our Executive Clawback Policy in the next 12 months to comply with listing standards to be adopted by NASDAQ as a result of recent SEC rulemaking.

2021 Omnibus Equity Plan. As permitted by the 2021 Omnibus Equity Plan, our equity award agreements provide that our Compensation Committee may cancel an equity award if the participant, without our consent, has engaged in or engages in activity that is in conflict with or adverse to the interest of the Company or any Affiliate (as defined in the 2021 Omnibus Equity Plan) while employed by, or otherwise providing services to, the Company or any Affiliate, including fraud or conduct contributing to any financial restatements or irregularities, or violates the restrictive covenants set forth therein (including non-competition, non-solicitation, non-disparagement or non-disclosure covenant or agreement) or any similar restrictive covenant agreement with the Company or any Affiliate (after giving effect to any applicable cure period set forth therein). In such event, the participant will forfeit any compensation, gain or other value realized thereafter on the vesting, exercise or settlement of the equity award, the sale or other transfer of the equity award, or the sale of shares of Common Stock acquired in respect of the equity award, and must promptly repay such amounts to the Company. If the participant receives any amount in excess of what the participant should have received under the terms of the equity award for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), all as determined by our Compensation Committee, then the participant must promptly repay any such excess amount to the Company.

 

Named Executive Officer Compensation

Prohibition on Hedging and Pledging of Company Securities

Our Corporate Governance Guidelines prohibit directors, executive officers and employees of the Company, and their designees, from hedging or pledging our securities. See “Board of Directors and Corporate Governance—Key Governance Policies” for more information.

Stock Ownership Guidelines

As noted above, our Compensation Committee intends in 2023 to adopt reasonable stock ownership guidelines for our named executive officers (and non-employee directors).

Process for Making Compensation Determinations

Our Compensation Committee establishes the compensation of the Chief Executive Officer and other named executive officers after reviewing their respective performance against pre-established annual goals, the overall performance of the Company (and business unit and other areas of responsibility, as applicable), market data and other factors it deems relevant. As discussed below under “—Employment Agreements,” we entered into employment agreements with each of our named executive officers, which address certain elements of their compensation and benefits package.

During the foregoing process, our Compensation Committee seeks significant input of the Chief Executive Officer, our General Counsel and the Chief Human Resources Officer. No named executive officer provides input or participates in the deliberation of our Compensation Committee with respect to their own compensation. At the end of each year, the Chief Executive Officer reviews, with input from the Chief Human Resources Officer, the performance of each named executive officer as well the potential for advancement. Our Compensation Committee then considers the Chief Executive Officer’s assessment, the relevant performance factors, benchmarking data and other factors it deems relevant, and reviews and approves the compensation for each named executive officer.

Our Compensation Committee determined to re-engage Pearl Meyer as its independent compensation consultant for 2022 and approved the terms of the engagement. Pearl Meyer has served in such capacity since 2020, prior to the IPO. In 2022, a representative of Pearl Meyer attended each regular Compensation Committee meeting. For our named executive officer compensation program for 2022, Pearl Meyer’s services included:

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Reviewing and recommending the peer group

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•

Providing and analyzing benchmarking data in late 2021 to inform 2022 compensation decisions

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•

Providing advice with respect to incentive plan designs

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•

Reviewing regulatory updates and compensation trends

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2022 Peer Group Utilized for Benchmarking

Since November 2020, our Compensation Committee benchmarks our named executive officer compensation against a peer group of public companies with which we believe we compete with for executive talent, as well as executive compensation surveys (based on comparable revenue size) from Pearl Meyer. The benchmarking analyses focused primarily on the survey data because several peer companies have more significant revenues than us. Such benchmarking focused on target total direct compensation, which consists of base salary, the target annual incentive bonus opportunity and the target long-term equity incentive opportunity. Our Compensation Committee used the benchmarking information as one data point of several factors and did not utilize the data to benchmark individual compensation components at specific percentiles or ranges of percentiles.

The peer group is periodically evaluated to ensure the companies in the group remain relevant to us based on our changing size, changing dynamics in the market in which we compete for executive talent

 

Named Executive Officer Compensation

and other factors. In assessing the appropriateness of peer companies, our Compensation Committee primarily considered the following criteria for our peer group in 2022: direct competitors in the pool-related business, leisure products, building products and other high-growth/high margin consumer goods companies, and enterprise value, revenues, and other related factors, including number of employees and Adjusted EBITDA margin.

The peer group of 17 companies utilized for 2022 compensation determinations of our named executive officers is set forth below and did not change from the prior year.

Employment Agreements

We (or our subsidiary Latham Pool Products) are a party to an employment agreement with each of our named executive officers.

In addition to the terms below, each employment agreement includes other customary terms and conditions, including perpetual confidentiality and assignment of intellectual property provisions, and a two-year post-termination non-competition covenant and a two-year post-termination non-solicitation covenant of employees and customers. Further, each employment agreement provides for severance upon certain terminations of employment, as described below under “Named Executive Officer Compensation Tables—Potential Payments Upon Termination of Employment or Change in Control.”

Scott M. Rajeski

We are party to an employment agreement with Mr. Rajeski, dated December 17, 2018, to serve as the President and Chief Executive Officer of Latham Pool Products with a term ending December 18, 2023, unless terminated sooner.

Pursuant to his employment agreement, Mr. Rajeski is entitled to an annual base salary of  $400,000 (subject to increase, but not decrease other than as part of a reduction made across all or substantially all executive officers) and is eligible to participate in our annual performance-based MIB Plan as in effect from time to time. In addition, pursuant to his employment agreement, Mr. Rajeski is entitled to participate in our employee benefit, fringe and perquisite arrangements (including an automobile allowance) as in effect from time to time.

Sanjeev Bahl

We are party to an employment agreement with Mr. Bahl, dated December 28, 2021, to serve as the Chief Operating Officer of Latham Pool Products, Inc. for an indefinite term.

Mr. Bahl’s employment agreement provides for a base salary of  $350,000 (subject to increase, but not decrease other than as part of a reduction made across all or substantially all executive officers) and he is eligible to participate in our MIB Plan. Under our MIB Plan, Mr. Bahl is eligible to earn a target bonus of 60% of his annual base salary at target based on achievement of performance targets. He was also granted a one-time award of a number of RSUs with an equivalent value of  $525,000 on the date of the grant. In addition, pursuant to his employment agreement, Mr. Bahl is entitled to participate in our employee benefit, fringe and perquisite arrangements (including an automobile allowance) as in effect from time to time.

 

Named Executive Officer Compensation

Robert L. Masson II

We were party to an employment agreement with Mr. Masson, dated June 9, 2022, to serve as the Chief Financial Officer of Latham Pool Products for an indefinite term.

Mr. Masson’s employment agreement provided for a base salary of  $420,000 (subject to increase, but not decrease other than as part of a reduction made across all or substantially all executive officers) and a target bonus of 60% of his annual base salary at target, based on achievement of performance targets; provided that the bonus for 2022 was guaranteed at not less than $252,000. He was also granted a one-time award of RSUs with an equivalent value of  $315,000 on the date of the grant, with vesting over three years. In addition, pursuant to his employment agreement, Mr. Masson was entitled to participate in our employee benefit, fringe and perquisite arrangements (including an automobile allowance) as in effect from time to time.

Mr. Masson resigned from the Company effective March 17, 2023. He was entitled to specified severance as of December 31, 2022 upon certain termination events, as further described below under “Named Executive Officer Compensation Tables—Potential Payments Upon Termination of Employment or Change in Control.” However, his resignation as of March 17, 2023 did not qualify for severance thereunder.

 

   

Named Executive Officer Compensation Tables

Summary Compensation Table for 2022 and 2021

The following table sets forth the compensation paid to, awarded to or earned by our named executive officers for services rendered in all capacities in 2022 and 2021, and reflects their principal position with the Company in 2022.

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(1)

Mr. Bahl and Mr. Masson were hired by the Company in 2022. Accordingly, their respective compensation information for 2021 is not included herein.

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(2)

The amount reported in this column represents the guaranteed cash bonus earned for 2022, which was paid on March 10, 2023.

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(3)

The amounts reported in this column represent the grant date fair value of stock options granted to each person in 2022. We use the Black-Scholes model for estimating the grant date fair value, which requires critical assumptions including risk-free rate, volatility, expected term and expected dividend yield. See Note 19, Stock-Based Compensation to our consolidated financial statements contained in our annual report on Form 10-K for 2022 for a discussion of these assumptions in determining grant date fair value in accordance with FASB ASC Topic 718. The amounts reported in this column do not correspond to the actual economic value that will be ultimately realized by such persons.

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(4)

The amounts reported in this column represent the grant date fair value of RSUs granted to each person in 2022. The grant date fair value of the RSUs are calculated as of the closing price of our Common Stock as quoted on NASDAQ on the grant date multiplied by the number of shares subject to the award. The amounts reported in 2021 for Mr. Rajeski represent the accounting cost for modified vesting of equity he acquired in connection with the reorganization transactions for the IPO, and do not correspond to the actual economic value that he will ultimately receive.

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(5)

Amounts set forth in this column represent cash bonuses earned under the MIB Plan for 2022, based on the achievement of pre-established financial performance criteria (adjusted EBITDA) and individual performance goals. Such amounts were paid on March 10, 2023.

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(6)

Amounts reported under All Other Compensation in 2022 reflect the following: (a) Company 401(k) match for Mr. Rajeski ($9,150) and Mr. Bahl ($2,827); (b) company automobile reimbursement for each named executive officer; (c) cell phone allowance for Messrs. Bahl and Masson); and (d) attendance at sporting events for Mr. Rajeski.

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Named Executive Officer Compensation Tables

Outstanding Equity Awards as of December 31, 2022

The following table provides information about the outstanding equity awards held by our named executive officers as of December 31, 2022.

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(1)

These columns show the number, option exercise price and option expiration date of outstanding stock options held by our named executive officers as of December 31, 2022. The first column shows this information for exercisable stock options, and the second column shows this information for unexercisable stock options.

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(2)

The options vest and become exercisable 25% each year on the anniversary of the grant date, subject to continued employment.

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(3)

This column shows the number of unvested shares of time-based restricted stock (Rajeski) or RSUs (Bahl and Masson) held by our named executive officers as of December 31, 2022. All vesting events are subject to continued employment. For Mr. Rajeski, the restricted stock is held by the Scott Rajeski Family, LLC. For Mr. Rajeski, 539,608 shares vested ratably in June 2022 and December 2022, and will vest ratably in June 2023 and December 2023. For Mr. Bahl, 10,288 shares will vest on each of January 2023, 2024, and 2025. For Mr. Masson, 18,197 shares would have vested on each of August 2023, 2024 and 2025.

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(4)

This column shows the market value of the unvested shares of restricted stock or RSUs held by our named executive officers based on $3.22 per share, the closing price of our Common Stock on December 30, 2022, the last trading day of 2022.

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Named Executive Officer Compensation Tables

Potential Payments upon Termination of Employment or Change in Control

Treatment of Incentive Equity Awards

Upon a termination of a named executive officer’s employment for any reason, all of such officer’s unvested equity awards will be forfeited for no consideration, unless otherwise agreed to in a separation agreement.

Severance Benefits under Employment Agreements

Scott M. Rajeski. Upon a termination of employment by us without cause or a resignation by Mr. Rajeski for good reason (each as defined in his employment agreement), Mr. Rajeski will be entitled to (i) any earned but unpaid base salary through the last day of employment; (ii) any accrued but unused paid time off up to a maximum of 80 hours; (iii) continuation of health coverage through the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Section 601 et seq. of the Employee Retirement Income Security Act of 1974 and at Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”), (collectively, “COBRA”) at a pro-rata cost share and (iv) any other vested benefits to which Mr. Rajeski is entitled, in accordance with the terms of the applicable plans. In addition, subject to Mr. Rajeski’s execution of a separation agreement containing a general release of claims and such general release of claims becoming irrevocable, Mr. Rajeski will also be entitled to a pro rata share of any annual performance bonus to which Mr. Rajeski is entitled determined based on actual performance as of the end of the performance period and continued payment of his base salary for the lesser of  (x) 12 months or (y) the remainder of the term under the employment agreement.

Upon any termination of employment, including a resignation without good reason, termination of employment due to his death or disability or termination for cause, Mr. Rajeski shall also be entitled to payment of base salary through the date of termination, accrued benefits and any other vested benefits to which Mr. Rajeski is entitled, in accordance with the terms of the applicable plans.

If any payments or benefits payable to Mr. Rajeski would be a “parachute payment” resulting in a lost tax deduction for the Company under Section 280G of the Code and excise tax to Mr. Rajeski under Section 4999 of the Code, the payments and benefits shall be reduced to the largest amount that will result in no portion of the severance payment being subject to the excise tax imposed by Section 4999 of the Code.

Sanjeev Bahl. Upon a termination of employment by us without cause or a resignation by Mr. Bahl for good reason (each as defined in his employment agreement), Mr. Bahl will be entitled to (i) any earned but unpaid base salary through the last day of employment; (ii) any accrued but unused paid time off up to a maximum of 80 hours; (iii) continuation of health coverage through COBRA at a pro-rata cost share through the end of the 12 month period following termination and (iv) any other vested benefits to which Mr. Bahl is entitled, in accordance with the terms of the applicable plans. In addition, subject to Mr. Bahl’s execution of a separation agreement containing a general release of claims and such general release of claims becoming irrevocable, Mr. Bahl will also be entitled to 12 months’ base salary paid over the 12-month period following termination.

Upon any termination of employment, including a resignation without good reason, termination of employment due to his death or disability or termination for cause, Mr. Bahl shall also be entitled to payment of base salary through the date of termination, accrued benefits and any other vested benefits to which Mr. Bahl is entitled, in accordance with the terms of the applicable plans.

If any payments or benefits payable to Mr. Bahl would be a “parachute payment” resulting in a lost tax deduction for the Company under Section 280G of the Code and excise tax to Mr. Bahl under Section 4999 of the Code, the payments and benefits shall be reduced to the largest amount that will result in no portion of the severance payment being subject to the excise tax imposed by Section 4999 of the Code.

 

Named Executive Officer Compensation Tables

Robert L. Masson II. Upon a termination of employment by us without cause or a resignation by Mr. Masson for good reason (each as defined in his employment agreement), Mr. Masson will be entitled to (i) any earned but unpaid base salary through the last day of employment; (ii) any accrued but unused paid time off up to a maximum of 80 hours; (iii) continuation of health coverage through COBRA at a pro-rata cost share through the end of the 12 month period following termination and (iv) any other vested benefits to which Mr. Masson is entitled, in accordance with the terms of the applicable plans. In addition, subject to Mr. Masson’s execution of a separation agreement containing a general release of claims and such general release of claims becoming irrevocable, Mr. Masson will also be entitled to 12 months’ base salary paid over the 12-month period following termination.

Upon any termination of employment, including a resignation without good reason, termination of employment due to his death or disability or termination for cause, Mr. Masson shall also be entitled to payment of base salary through the date of termination, accrued benefits and any other vested benefits to which Mr. Masson is entitled, in accordance with the terms of the applicable plans.

If any payments or benefits payable to Mr. Masson would be a “parachute payment” resulting in a lost tax deduction for the Company under Section 280G of the Code and excise tax to Mr. Masson under Section 4999 of the Code, the payments and benefits shall be reduced to the largest amount that will result in no portion of the severance payment being subject to the excise tax imposed by Section 4999 of the Code.

 

   

Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan

Our Board is asking our stockholders to approve an amendment (the “Amendment”) to the Latham Group, Inc. 2021 Omnibus Equity Incentive Plan (the “2021 Omnibus Equity Plan”). On March 2, 2023, our Board, upon the recommendation of our Compensation Committee, approved the Amendment, subject to stockholder approval at our Annual Meeting. The 2021 Omnibus Equity Plan was initially adopted by our Board on April 12, 2021 and our stockholders on April 13, 2021. Our IPO was completed on April 27, 2021.

We use awards under the 2021 Omnibus Equity Plan to attract and retain employees, ensure that our compensation program provides appropriate incentives to motivate our key employees, officers and non-employee directors to contribute to our long-term performance and growth, develop a culture of ownership, and align further the interests of participants and our stockholders. Stockholder approval of the Amendment will permit us to continue to grant equity compensation awards to our key employees, officers and non-employee directors in furtherance of this philosophy.

Our Board has determined that it is in the best interests of us and our stockholders to approve the Amendment, which includes an increase in the share pool, as well as other best practice equity plan matters. The Amendment provides for the following terms.

The proposed Amendment is set forth on Appendix A to this proxy statement. The full text of the 2021 Omnibus Equity Plan (not reflecting the proposed Amendment) is set forth on Appendix B to this proxy statement. The material features of the 2021 Omnibus Equity Plan are summarized below, although stockholders should review the 2021 Omnibus Equity Plan and the Amendment for a full understanding of their contents. If our stockholders approve the Amendment, a Registration Statement on Form S-8 covering the additional shares available for issuance will be filed with the SEC.

Our officers and directors have an interest in this Proposal Three due to their participation in the 2021 Omnibus Equity Plan. In addition, on March 1, 2023, our Compensation Committee approved our annual equity award grants under the 2021 Omnibus Equity Plan to officers and other employees. A portion of the awards granted to our executive officers included SARs for an aggregate of 790,181 shares of our Common Stock, with an strike price of $3.24 per share (the “Contingent Grants”). The Contingent Grants are subject to stockholder approval of this Proposal Three and the effectiveness of the Amendment, as we do not have enough shares of Common Stock in the share pool to support such grant currently. If the Amendment is not approved, the Contingent Grants will be canceled in their entirety. See “—Interests of Directors and Executive Officers; New Benefits under the Plan Resulting From the Amendment—New Plan Benefits” below for additional information.

Excluding the Contingent Grants, we had 289,475 shares of our Common Stock remaining available for issuance for awards under the 2021 Omnibus Equity Plan as of March 6, 2023.

 

Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan

Reasons to Vote For the Amendment

Critical Importance of Equity Awards to Our Long-Term Business Strategy, Including Employee Recruitment and Retention in a Competitive Market

Our Board believes that it is in the best interests of us and our stockholders for the Company to be in a position to offer equity awards to eligible participants described under “—Eligibility” below in accordance with the terms of the 2021 Omnibus Equity Plan. In furtherance of our compensation philosophy, equity awards are a core component of our compensation program for key employees and non-employee directors. As of March 6, 2023, approximately 114,678,263 shares of our Common Stock were subject to awards held by our existing or former executive officers, other key employees, and non-employee directors.

We strongly believe that the approval of the Amendment is essential to our long-term growth strategy, which will require continuing to enhance our employee talent and retention. We are the leader in the large and growing residential in-ground swimming pool industry, and we expect to grow our business organically and through strategic investments and acquisitions. Equity awards motivate high levels of performance, align the interests of our employees and stockholders by giving them the perspective of an owner with an equity stake in the Company, and provide an effective means of recognizing their contributions to the success of the Company. If our stockholders do not approve this Proposal Three, the Contingent Grants will be terminated and we will be unable to maintain our existing equity compensation programs under the 2021 Omnibus Equity Plan. Therefore, we would expect to have to utilize a significant portion of additional cash compensation to provide appropriate attraction, retention and motivation incentives, which would reduce our available cash for other business needs such as capital expenditures, acquisitions, investments, and marketing and adversely impact our growth strategy.

We believe that equity awards are central to our employment value proposition and are necessary for us to continue competing for top talent as we grow. Our ability to grant further equity awards will permit us to remain competitive with our public company peer companies with whom we compete for talent in this post-pandemic, Great Resignation era. The Amendment will give us flexibility as to the compensation packages we offer, which we believe is critical in this challenging labor market. If the Amendment is not approved, we will be significantly limited in our ability to offer equity awards as a component of compensation. Therefore, we will be at a disadvantage relative to other companies that will be able to offer more attractive and broad-based compensation packages to their executive officers, other key employees and non-employee directors. Our inability to attract, retain and motivate our key employees would adversely impact our ability to achieve our long-term growth initiatives.

 

Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan

Historical Usage and Effectiveness of Prior Equity Grants Strongly Impacted by Macroeconomic Conditions and Stock Price Volatility

When our Board and our stockholders approved the initial share pool under the 2021 Omnibus Equity Plan, we expected the share pool to be sufficient to cover anticipated equity awards for the next three to four years, subject to material changes in business conditions or our compensation programs, our ability to hire and retain key employees, and retention considerations for existing equity awards. However, our prior expectation for the share pool was adversely impacted by employee hiring and turnover, challenging operational, industry and macroeconomic conditions, and our stock price volatility and price declines.

Our 2021 and 2022 annual equity program consisted solely of time-based stock options, vesting annually on a pro rata basis over four years. In particular, our annual stock option grants in April 2021 and March 2022 were issued with an exercise price of  $19.00 and $15.69, respectively. Our stock price as of the record date was $3.36. Therefore, the 2021 and 2022 annual equity awards are significantly underwater and have minimal retentive value. Further, in order to provide meaningful grants in the future in light of our current stock price, we will need to utilize significantly more shares of Common Stock than we had anticipated as of the IPO.

We Did Not Utilize Customary Methods to Avoid or Limit Stockholder Approval of Share Pool Increases

In recent years, it has been customary practice for many controlled companies and newly public companies to utilize equity plans with an evergreen provision, which provides for an automatic annual increase in the share pool without stockholder approval. However, we did not elect to include an evergreen provision in the 2021 Omnibus Equity Plan. Therefore, we are seeking approval of the increase in the share pool in this Proposal Three, and we will seek stockholder approval in the future to the extent our Board determines it is in the best interests of the Company and our stockholders to seek additional increases in the share pool.

We also have utilized a significant portion of our share pool in connection with the hiring of key executives and other key employees since our IPO. Our Compensation Committee has approved significant grants of time-based RSUs, vesting annually on a pro rata basis over three years, to key employees upon hiring. New hire awards are a significant retention and motivation tool, as well as to attract persons who may be losing significant equity or other compensation in leaving their current jobs. NASDAQ rules permit companies to utilize a new hire inducement exception that allow new hire grants not to be counted against the share pool. However, we have not historically utilized the new hire inducement exception.

Our Compensation Committee is Committed to Evolving our Annual Equity Program

Our Compensation Committee, with advice from its independent compensation consultant, Pearl Meyer, regularly reviews our historical share usage and availability and considers such information in setting equity compensation levels. Our Compensation Committee administers and oversees our equity compensation practices to ensure they are reasonable, recognizing that equity awards dilute stockholder equity and must be used appropriately.

Our Compensation Committee has begun to evolve our compensation program for named executive officers to address the foregoing challenges and further enhance alignment with stockholders. Our Compensation Committee believes a new mix of equity will provide a better tool to attract and retain executives given the volatility of our shares of Common Stock and the challenging industry trends we expect in the near term.

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In March 2023, our Compensation Committee approved our annual equity program, which consists of 70% RSUs and 30% SARs. As noted, the SARs are contingent on stockholder approval of this Proposal Three.

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For the 2024 annual equity program, our Compensation Committee has committed to include performance-based equity awards for our named executive officers.

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Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan

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Further, to support the utilization of equity awards and to enhance the alignment with stockholders, our Compensation Committee has committed to adopt reasonable stock ownership guidelines for our named executive officers (and non-employee directors) in 2023.

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A Reasonable Number of Shares Will Be Added to the 2021 Omnibus Equity Plan

If our stockholders approve the Amendment, 8,000,000 shares of our Common Stock will be added to the share pool of the 2021 Omnibus Equity Plan.

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Overhang. As of March 6, 2023, outstanding equity awards under the 2021 Omnibus Equity Plan covered 6,878,901 shares, which represented approximately 6% of our outstanding shares of Common Stock as of such date. The additional 8,000,000 shares of our Common Stock represented approximately 7% of our outstanding shares of Common Stock as of such date.

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Historical and Future Grant Practices. See above for a description of our historical and planned future equity grant practices.

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Expected Use for Three Years. We anticipate the additional shares requested will be enough to meet our expected needs for at least the next three years, subject to material changes in business conditions or our compensation programs, our ability to hire and retain key employees, and retention considerations for existing equity awards. Since our 2021 Omnibus Equity Plan does not include an evergreen provision, we will be required to seek stockholder approval for future increases in our share pool.

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Analysis of Forecasted Grants by Our Independent Compensation Consultant. To determine the impact of the proposed increase of the share pool, our Compensation Committee reviewed a forecast provided by its independent compensation consultant, Pearl Meyer, working together with our management. In particular, Pearl Meyer considered:

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The target number of shares needed to make annual equity awards over the next three years based on our current stock price and future potential stock prices

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Total projected overhang and dilution from our equity plan compared to our peer group

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Equity plan provisions aligned with our peer group and broad market “best practices”

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Accordingly, our Board believes that the request to increase the share pool by 8,000,000 shares of our Common Stock is reasonable and prudent. This number of shares should allow us to continue our planned granting practices in the future and to be able to support our planned growth, address market competition and react to stock price fluctuations.

The 2021 Omnibus Equity Plan, as Amended, Includes Significant Compensation and Governance Best Practices

The 2021 Omnibus Equity Plan, as amended, includes provisions considered best practices for compensation and corporate governance purposes. The following provisions align with our stockholders’ interests:

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Independent Administration. The 2021 Omnibus Equity Plan is administered by our Compensation Committee, which consists entirely of independent non-employee directors. NASDAQ rules permit controlled companies such as us not to have a fully independent Compensation Committee, but our Board has determined to implement such practice.

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No Evergreen of Share Pool. The 2021 Omnibus Equity Plan does not include an automatic annual increase in the share pool without stockholder approval, which is a common practice among controlled companies and newly public companies. Therefore, we will seek stockholder approval prior to any future additional increases in the share pool.

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Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan

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No Liberal Share Recycling. Shares of Common Stock used to pay the exercise or strike price of stock options or SARs, respectively, or used to cover withholding taxes for any award, are not available for future grant.

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Minimum Vesting Period. Awards are subject to a minimum vesting period of one year, subject to limited exceptions.

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No Dividends on Unvested Awards, Stock Options and SARs. No dividends or other distributions are paid on unvested awards. Any accrued dividends or other distributions are paid only if such awards are earned and vested, and no dividends or other distributions will be paid with respect to outstanding stock options and SARs.

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No Discounted Stock Options or SARs. The exercise or strike price of stock options or SARs, respectively, must be at least equal to the fair market value of our Common Stock on the date of grant (except in the limited case of substitute awards in connection with acquisition transactions).

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Repricing of Stock Options and SARs is Not Allowed without Stockholder Approval. Other than in connection with specified corporate transactions, the 2021 Omnibus Equity Plan prohibits stock options and SARs to be repriced or exchanged for other awards unless stockholders approve the repricing or exchange.

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No Tax Gross-Ups. The 2021 Omnibus Equity Plan does not provide for tax gross-ups.

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No Liberal Definition of Change in Control. A change-in-control under the 2021 Omnibus Equity Plan, which could trigger an acceleration of unvested awards, is not triggered unless a qualifying transaction is consummated, a third party acquires 50% or more of the Company’s outstanding voting securities or there is a change in more than half of the incumbent directors of our Board.

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Our Compensation Committee Retains a Significant Clawback Right. Upon specified events, our Compensation Committee is authorized to terminate outstanding awards and recoup the benefits from previously vested, settled and exercised awards.

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No Transferability. Awards generally cannot be transferred, except by will or the laws of descent and distribution, unless approved by our Compensation Committee.

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Reasonable Annual Limits on Non-Employee Director Compensation. The 2021 Omnibus Equity Plan sets a reasonable limit as to the total compensation that non-employee directors generally may receive (for service as a non-employee director) during each year.

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Proposal Three: Amendment to the 2021 Omnibus Equity Incentive Plan

Summary of the 2021 Omnibus Equity Plan, as Proposed to be Amended

The proposed Amendment is set forth on Appendix A to this Proxy Statement. The full text of the 2021 Omnibus Equity Plan (not reflecting the proposed Amendment) is set forth on Appendix B to this Proxy Statement. The material features of the 2021 Omnibus Equity Plan are summarized above, but each stockholder should review the 2021 Omnibus Equity Plan itself for a full understanding of its contents. If our stockholders approve the Amendment, a Registration Statement on Form S-8 covering the shares newly available for issuance will be filed with the SEC.