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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.    )

Check the appropriate box:

SELECT COMFORT CORPORATION

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

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Dear Shareholders,

Sleep Number’s mission of improving lives by individualizing sleep experiences is at the core of our purpose-driven company. To date, we have improved the lives of more than eleven and a half million people. Our consumer innovation strategy translates directly to increased shareholder value. Over the past five years, our strategic consistency, profitable investments, and sleep innovations have generated total shareholder returns of 144% through March 1^st, 2019.

We have prioritized approximately $500 million in investments since 2012 to strengthen our competitive advantages of proprietary sleep innovations, exclusive distribution, and lifelong customer relationships. These strategic choices contributed to a 16% return on invested capital for 2018, compared to our high single-digit weighted average cost of capital.

Our revolutionary Sleep Number 360^® smart beds have disrupted the industry. With the only bed that delivers proven quality sleep, Sleep Number is at the intersection of sleep, technology and health trends. Consumer enthusiasm for our smart bed drove double-digit sales growth since we completed the transition of our product line in the back half of 2018. Record full-year results included:

In 2019, we expect to generate earnings per diluted share of between $2.25 and $2.75, up 17% to 43% versus prior year.

9800 59^th Avenue NorthSleep Number 360 smart bed

Plymouth, Minnesota 55442Five years ago, we saw the potential of connected technology and incorporated biometric tracking into our Sleep Number^® beds with SleepIQ^® technology. Today, more than half of consumer households are interested in purchasing sleep tracking technology. Our 360^® smart beds detect movement, sleep disturbances, and biometric changes, and then use that information to automatically adjust the bed’s firmness for each individual sleeper.

We are communicating the vital role that this life-changing sleep plays in overall wellness through our integrated marketing campaigns, storytelling, and social media. We are amplifying our purpose-driven brand through groundbreaking partnerships with the NFL, the NFL Players Association, and the Professional Football Athletic Trainers Society. Now, over 1,800 NFL players are sleeping on our 360 smart beds and experiencing the powerful link between quality sleep and their performance.

Lifelong customer relationships with our brand are another key competitive advantage that drives sustainable, profitable growth. With digital at the core of our smart beds, customers now interact with our brand daily. They can use their SleepIQ^® score to understand how quality sleep impacts their day. This deep engagement leads to increased customer loyalty, which drives higher referrals and repeat sales.

Our integrated online and retail strategy highlights the science and value of our smart beds. Our exclusive distribution is also an important competitive advantage. With award-winning store design and interactive technology, our 580 Sleep Number^® stores deliver a unique sales experience across all 50 states.

The 360 smart bed is creating leverage across our business. With our full line of smart beds in place, we expect the absence of transition costs to benefit 2019. The simpler bed design and streamlined operational processes drive efficiencies in manufacturing, logistics, and supply chain. The multi-year network evolution is improving assembly flow, reliability, and scale.

Looking Ahead

In many ways, we are just getting started with our 360 smart beds, which have tremendous potential to add increasing value to consumers’ well-being. Today, our smart bed’s SleepIQ^®platform captures over 8.5 billion biometric data points every night and uses that data to deliver proven quality sleep. In the future, SleepIQ technology will likely enable customers to use their smart bed to better manage their health and wellness.

We are excited to be in a position of broader relevance in a changing consumer and competitive landscape. We expect our purpose-driven company, which is delivering life-changing sleep, to continue to generate top-tier shareholder returns over the long term.

Sleep well, dream big,

Shelly Ibach

Sleep Number^® setting 40, average SleepIQ^®score of 82

President and Chief Executive Officer

1001 Third Avenue South 

Minneapolis, Minnesota 55404

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

May 16, 201615, 2019

TO THE SHAREHOLDERS OF SELECT COMFORTSLEEP NUMBER CORPORATION:

Select ComfortSleep Number Corporation will hold its Annual Meeting of Shareholders at1:8:30 p.m.a.m. Central Time onMonday,Wednesday, May 16, 201615, 2019, at theMillennium Minneapolis Hotel located at 1313 Nicollet Mall, Minneapolis, Minnesota 55403 and. The meeting will be conducted completely as a virtual meeting via the Internet atwww.virtualshareholdermeeting.com/scss2016SNBR2019. The purposes of the meeting are to:

Shareholders of record at the close of business on March 21, 201620, 2019 will be entitled to vote at the meeting and any adjournments thereof.

Your vote is important. Please be sure to vote your shares in favor of the Board of Directors’ recommendations in time for our May 16, 201615, 2019 meeting date.

Your attention is directed to the Proxy Statement accompanying this Notice for a more complete statement of the matters to be considered at the meeting. A copy of the Annual Report for the year ended January 2, 2016 also accompanies this Notice.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDERS’ MEETING TO BE HELD ONMAY 16, 2016:15, 2019: The Proxy Statement and Annual Report for the year ended January 2, 2016December 29, 2018 and related materials are available atwww.sleepnumber.com/investor-relations.

These materials were first sent or made available to our shareholders on April 2, 2019.

		By Order of the Board of Directors,
		Samuel R. Hellfeld
		Mark A. Kimball
		Senior Vice President,
		Chief Legal and Risk Officer and Secretary

April 1, 2016

Plymouth,2,2019
Minneapolis, Minnesota

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As used in this Proxy Statement, the terms “we,” “us,” “our,” the “company” and “Select Comfort”“Sleep Number” mean Select ComfortSleep Number Corporation and its subsidiaries and the term “common stock” means our common stock, par value $0.01 per share.

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1001 Third Avenue South 

Minneapolis, Minnesota 55404

9800 59^th Avenue North

Plymouth, Minnesota 55442

PROXY STATEMENT

FOR

FOR

ANNUAL MEETING OF SHAREHOLDERS

May 16, 201615, 2019

FREQUENTLY ASKED QUESTIONS ABOUT THE MEETING AND VOTING

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Select ComfortSleep Number Corporation for use at the 20162019 Annual Meeting of Shareholders.

When and where is the Annual Meeting and who mayhow can I attend?

The Annual Meeting will be held at 1:8:30 p.m.a.m. Central Time on Monday, May 16, 2016, at the Millennium Minneapolis Hotel located at 1313 Nicollet Mall, Minneapolis, Minnesota 55403 and15, 2019. The meeting will be conducted completely as a virtual meeting via the Internet at www.virtualshareholdermeeting.com/scss2016.Internet. Shareholders who are entitled to vote may attend the meeting and submit questions electronically during the meeting via live webcast by visiting the virtual meeting platform at www.virtualshareholdermeeting.com/SNBR2019. Shareholders will need the 16-digit control number included in personNotice of Internet Availability of Proxy Materials, on the proxy card, or viain the Internet.instructions that accompanied the proxy materials to enter the Annual Meeting. Shareholders may log into the virtual meeting platform beginning at 8:15 a.m. Central Time on May 15, 2019. The meeting will begin promptly at 8:30 a.m. Central Time on May 15, 2019.

Why is this Annual Meeting virtual?

We are utilizing technology to provide expanded access and participation, improved communication, and cost savings to benefit our shareholders and the company. Shareholders will be able to listen, vote, and submit questions from any remote location through the Internet. The virtual format for the Annual Meeting is also environmentally friendly and sustainable over the long-term.

What if I have technical difficulties during the meeting or trouble accessing the virtual Annual Meeting?

We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during check-in or the meeting, please call the technical support number that will be posted on the virtual meeting platform log-in page.

Who is entitled to vote?

Shareholders of record at the close of business on March 21, 201620, 2019 (the “Record Date”) are entitled to vote at the meeting. As of the Record Date, there were 47,150,94930,127,273 shares of common stock outstanding. Each share is entitled to one vote on each matter to be voted on at the Annual Meeting. Shareholders are not entitled to cumulative voting rights.

If I am eligible to vote and want to attend the Annual Meeting, what do I need to bring?

Shareholders of Record. If you are a Shareholder of Record and plan to attend the meeting, please bring the notice of the meeting and photo identification. Shareholders of Record who do not present the notice of the meeting will be admitted only upon verification of ownership at the meeting.

Beneficial Owners. If you are a Beneficial Owner and plan to attend the meeting, you must present proof of ownership of the company’s common stock as of the Record Date, such as a brokerage account statement, and photo identification. If you are a Beneficial Owner and wish to vote at the meeting, you must also bring a legal proxy from your bank, broker or other holder of record.

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What is the difference between “Shareholders of Record” and “Beneficial Owners”?

If your shares are registered in your name in the records maintained by our stock transfer agent, you are a “Shareholder of Record.” If you are a Shareholder of Record, notice of the meeting was sent directly to you.

If your shares are held in the name of your bank, broker, nominee or other holder of record, your shares are held in “street name” and you are considered the “Beneficial Owner.” Notice of the meeting has been forwarded to you by your bank, broker, nominee or other holder of record, who is considered, with respect to those shares, the Shareholder of Record. As the Beneficial Owner, you have the right to direct your bank, broker, nominee or other holder of record how to vote your shares by using the voting instructions you received.

If you are a Beneficial Owner and you do not give instructions to the organization holding your shares, then that organization cannot vote your shares and the shares held by that organization will not be considered as present and will not be entitled to vote on any matter to be considered at the Annual Meeting.

How can I receive proxy materials?

We are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing a full set of printed proxy materials to each shareholder.Internet. On or about April 6, 2016,2, 2019, we will begin mailing to certain of our shareholders a Notice of Internet Availability of Proxy Materials (the “Shareholder Notice”), which includes instructions on (i) how to access our Proxy Statement and Annual Report on the Internet, (ii) how to request that a printed copy of these proxy materials be forwarded to you, and (iii) how to vote your shares. If you receive the Shareholder Notice, you will not receive a printed copy of the proxy materials unless you request a printed copy by following the instructions in the Shareholder Notice. All other shareholders will be sent the proxy materials by mail beginning on or about April 6, 2016.2, 2019.

Requests for printed copies of the proxy materials can be made by Internet at http://www.proxyvote.com, by telephone at 1-800-579-1639 or by email at sendmaterial@proxyvote.com by sending a blank email with your control number in the subject line.

What does it mean if I receive more than one proxy card or Shareholder Notice?

ItIf you received more than one proxy card or Shareholder Notice, it generally means you hold shares registered in more than one account. If you received a paper copy of the proxy statementProxy Statement and you choose to vote by mail, sign and return each proxy card. If you choose to vote by Internet or telephone, vote once for each proxy card and/or Shareholder Notice you receive. If you have received more than one Shareholder Notice, vote once for each Shareholder Notice that you receive.

What are shareholders being asked to vote on?

There are three items to be voted on at the meeting:

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What are my voting choices?

For proposal 1, the election of directors,Directors, you may:

For each of proposal 2 (the advisory vote onto approve executive compensation) and proposal 3 (the advisory vote on ratification ofto ratify the selection of independent auditors), you may:

How does the Board recommend that I vote?

Select Comfort’sSleep Number’s Board unanimously recommends that you vote your shares:

How are votes counted?

If you are a Shareholder of Record and grant a proxy by telephone or Internet without voting instructions, or sign and submit your proxy card without voting instructions, your shares will be voted “FOR”“For” each directorDirector nominee “FOR” proposal 2 (the advisory vote on executive compensation), and “FOR” proposal 3 (the advisory vote on ratification“For” each of the selectionother proposals outlined above in accordance with the recommendations of independent auditors).

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What constitutes a “quorum,” or how many shares are required to be present to conduct business at the Annual Meeting?

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of common stock entitled to vote (i.e., at least 23,575,47515,063,637 shares) will constitute a quorum for the transaction of business at the Annual Meeting. In general, shares of common stock represented by a properly signed and returned proxy card or properly voted by telephone or via the Internet will be counted as shares represented and entitled to vote at the Annual Meeting for purposes of determining a quorum, without regard to whether the card reflects abstentions and withhold votes (or is left blank) or reflects a “broker non-vote” on a matter.

How do I vote my shares?

If you are aShareholder of Record as of the record date, you can give a proxy forvote your shares to be voted in any of the following ways:

The telephone and Internet voting procedures have been set up for your convenience. We encourage you to save corporate expense by submitting your vote by telephone or Internet. The procedures have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly.

If you are aBeneficial Owner of shares held in “street name,” you must vote your shares in the manner prescribed by your bank, broker or other nominee. Your bank, broker or other nominee has provided notice by email or a printed voting instruction card for you to use in directing the bank, broker or nominee how to vote your shares. Telephone and Internet voting are also encouraged for Beneficial Owners who hold their shares in street name.

Beneficial Owners should be aware that brokers are not permitted to vote shares on non-routine matters, including the election of directorsDirectors or matters related to executive compensation, without instructions from the Beneficial Owner. As a result, brokers are not permitted to vote shares on proposal 1 (election of directors)Directors) or proposal 2 (the advisory vote onto approve executive compensation), without instructions from the Beneficial Owner. Therefore, Beneficial Owners are advised that if they do not timely provide instructions to their bank, broker or other holder of record with respect to proposals 1 or 2, their shares will not be voted in connection with proposals 1 and 2.any such proposal for which they do not provide instructions. Proposal 3 (the advisory vote on ratification ofto ratify the selection of independent auditors) is considered a routine matter and, as such, brokers will still be able to vote shares held in brokerage accounts with respect to proposal 3, even if they do not receive instructions from the Beneficial Owner.

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Your vote is important. Whether or not you plan to attend the meeting, we urge you to vote your shares in time for our May 16, 201615, 2019 meeting date.

How do I vote my shares in person at the meeting?

If you are aShareholder of Record and prefer to vote your shares at the meeting, bring the accompanying proxy card (if you received a paper copy of the proxy statement) and photo identification. If you are aBeneficial Owner holding shares in “street name,” such as through a bank, brokerage account, trust or other nominee, you may vote the shares at the meeting only if you obtain a signed proxy from the record holder (i.e., the bank, broker, trust or other nominee who is the record holder of the shares) giving you the right to vote the shares.

Even if you plan to attend the meeting, we encourage you to vote your shares in advance by Internet, telephone or mail so that your vote will be counted in the event you are unable to attend.

May I revoke a proxy and change my vote?

Yes. Any shareholder giving a proxy may revoke it at any time prior to its use at the Annual Meeting by:

Attendance at the Annual Meeting will not, by itself, revoke your proxy. For shares you hold in street name, such as through a brokerage account, bank, trust or other nominee, you would need to obtain a legal proxy from your broker or nominee and bring it to the meeting in order to revoke a prior proxy and to vote those shares at the Annual Meeting. Prior to the meeting, you may revoke your proxy by contacting your broker or nominee and following their instructions for revoking your proxy.

Can I receive future proxy materials electronically?

Yes. If you are a Shareholder of Record and you received a paper copy of the proxy materials, you may elect to receive future proxy statementsProxy Statements and annual reports online as described in the next paragraph. If you elect this feature, you will receive an email message notifying you when the materials are available, along with a web address for viewing the materials. If you received this proxy statementProxy Statement electronically, you do not need to do anything to continue receiving proxy materials electronically in the future.

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Whether you are a Shareholder of Record or a Beneficial Owner holding shares through a bank or broker, you can enroll for future electronic delivery of proxy statementsProxy Statements and annual reports by following these steps:

You may view this year’s proxy materials atwww.proxyvote.com.Generally, banks and brokers offering this choice require that shareholders vote through the Internet in order to enroll. Beneficial Owners whose bank or broker is not included in this website are encouraged to contact their bank or broker and ask about the availability of electronic delivery. As is customary with Internet usage, the user must pay all access fees and telephone charges. You may view this year’s proxy materials atwww.proxyvote.com.

What are the costs and benefits of electronic delivery of Annual Meeting materials?

There is no cost to you for electronic delivery of annual meeting materials. You may incur the usual expenses associated with Internet access as charged by your Internet service provider. Electronic delivery ensures quicker delivery, allows you to view or print the materials at your computer and makes it convenient to vote your shares online. Electronic delivery also conserves natural resources and saves the company printing, postage and processing costs.

Who bears the proxy solicitation costs?

The proxies being solicited hereby are being solicited by the Board of Directors of the company. The cost of preparing and mailing the notice of Annual Meeting, this proxy statementProxy Statement and the accompanying proxy and the cost of solicitation of proxies on behalf of the Board of Directors will be borne by the company. The company may solicit proxies by mail, internetInternet (including by email, Twitter, the use of our investor relations website and other online channels of communication), telephone, facsimile and other electronic channels of communication, town hall meetings, personal interviews, press releases, and press interviews. Our directors,Directors, officers and regular employeesteam members may, without compensation other than their regular compensation and the reimbursement of expenses, solicit proxies by telephone or personal conversation. In addition, we may reimburse brokerage firms and others for their reasonable and documented expenses incurred in connection with forwarding proxy materials to the Beneficial Owners of our common stock.

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STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table shows the beneficial ownership of Select ComfortSleep Number common stock as of February 27, 201623, 2019 (unless another date is indicated) by (a) each director,Director, each nominee for directorDirector recommended by our Board and each executive officer named in the Summary Compensation Table on page 5051 of this Proxy Statement, (b) all directorsDirectors and executive officers as a group and (c) each person known by us to be the Beneficial Owner of more than 5% of Select ComfortSleep Number common stock.

* Less than 1% of the outstanding shares.

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ELECTION OF DIRECTORS

(Proposal 1)

Nomination

Article XIV of our Third Restated Articles of Incorporation provides that the number of directorsDirectors must be at least one but not more than 12 and must be divided into three classes as nearly equal in number as possible. The exact number of directorsDirectors is determined from time-to-time by the Board of Directors. The term of each class is three years and the term of one class expires each year in rotation.

On March 15, 2016, we announced that Vicki A. O’Meara and Barbara R. Matas were appointed to serve on our Board of Directors effective as of April 25, 2016. Ms. Matas was appointed to the class of directors serving for a term expiring at the 2016 Annual Meeting of Shareholders. Ms. O’Meara was appointed to the class of directors serving for a term expiring at the 2017 Annual Meeting of Shareholders and is expected to stand for election at that meeting for a three-year term expiring at the 2020 Annual Meeting of Shareholders.

Immediately prior to the 20162019 Annual Meeting, our Board will consist of 11 members. David T. Kollat plans to retire from the Board when his term expires at the 2016 Annual Meeting and our Board will thereafter consist of 10 members, threefour of which will be up for election at the 20162019 Annual Meeting. The Board has nominatedMichael J. Harrison, Shelly R. Ibach, Deborah L. Kilpatrick, Ph.D., and Barbara R. Matasfor election to the Board, each for a term of three years expiring at the 20192022 Annual Meeting, or until their successors are elected and qualified. Mr. Harrison, Ms. Ibach, Ms. Kilpatrick and Ms. Matas have each consented to being named as a nominee in this proxy statementProxy Statement and to serve as a directorDirector if elected. Mr. Harrison has served on our Board since 2011; Ms. Ibach has served on our Board since 2012; Ms. Kilpatrick has served on our Board since 2018; and Ms. Matas was appointed tohas served on our Board effectivesince 2016. As previously announced, in light of her increasing professional commitments, Vicki O’Meara will be retiring from the Board following the Annual Meeting. The Company thanks Ms. O’Meara for her service and dedication during her tenure as a member of April 25, 2016.the Board.

Vote Required

The election of each nominee for directorDirector requires the affirmative vote of a majority of the shares represented and entitled to vote on the election of directorsDirectors at the Annual Meeting. Any broker non-votes on the election of each nominee for directorDirector will be treated as shares not entitled to vote on that matter, and thus will not be counted in determining whether the directorDirector has been elected.

Board Recommendation

The Board recommends a vote “For” the election of each of Mr. Harrison, Ms. Ibach, Ms. Kilpatrick and Ms. Matas. In the absence of other instructions, properly signed and delivered proxies will be voted “For” the election of each of these nominees.

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If prior to the Annual Meeting the Board should learn that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for such nominee will be voted for such substitute nominee as selected by the Board. Alternatively, the proxies, at the Board’s discretion, may be voted for such fewer number of nominees as results from the inability of any such nominee to serve. The Board has no reason to believe that any of the nominees will be unable to serve.

Information about the Board’s Nominees and Other Directors

The following table provides information as of the date of this Proxy Statement about each individual serving as a Director of our company and each individual nominated by the Board to serve as a Director. Each Director or Nominee has furnished the information included below that relates to his or her respective age, principal occupation and business experience, as well as the names of other boards on which he or she currently serves as a directorDirector or has served in the past. In addition, the table below highlights the relevant experience, qualifications, attributes and skills that led our Board to conclude that each directorDirector or nominee shouldis qualified to serve as a directorDirector of our company.

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Corporate Governance

Information about the Board of Directors and its Committees

The Board of Directors has determined that each of the following directorsDirectors who either served as a member of our Board during any part of fiscal 2015 or has been appointed to our Board during 20162018 is an “independent director”Director” as defined by applicable rules of the NASDAQNasdaq Stock Market and the rules and regulations of the Securities and Exchange Commission (“SEC”):

The Board maintains three standing committees, including an Audit Committee, a Management Development and Compensation Committee and a Corporate Governance and Nominating Committee. Each of the committees of the Board has a charter and each of these charters is included in the investor relations section of the company’s website athttp://www.sleepnumber.com/sn/en/investor-relations.investor-relations. The information contained in or connected to our website is not incorporated by reference into or considered a part of this Proxy Statement.

The current members of each of the Board committees are identified in the table below. In his capacity as non-executive Chairman of the Board, Mr. Valette may attend and vote at any committee meeting.

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Upon their appointment to the Board, effective as of April 25, 2016, each of Barbara R. Matas and Vicki A. O’Meara will also serve on the Audit Committee. In connection with the Annual Meeting of Shareholders in May of 2016, the Board intends to review and reconfigure Board Committee assignments.Mr. Valette generally attends all committee meetings.

The Board has determined that each directorDirector serving on a committee meets the independence and other requirements applicable to such committee prescribed by applicable rules and regulations of the NASDAQNasdaq Stock Market, the SEC and the Internal Revenue Service.

The Board of Directors has further determined that two current members of the Audit Committee, Stephen L. Gulis, Jr. and Jean-Michel Valette, as well as Barbara R. Matas, upon her appointment to the Board and Audit Committee effective as of April 25, 2016, meet the definition of “audit committee financial expert” under rules and regulations of the SEC and meet the qualifications of “financial sophistication” under the Marketplace Rules of the NASDAQNasdaq Stock Market. These designations related to our Audit Committee members’ experience and understanding with respect to certain accounting and auditing matters are disclosure requirements of the SEC and the NASDAQNasdaq Stock Market and do not impose upon any of them any duties, obligations or liabilities that are greater than those generally imposed on a member of our Audit Committee or of our Board of Directors.

The Board of Directors met in person or by telephone conference ninefive times during 2015.2018. The Audit Committee met in person or by telephone conference eight times during 2015.2018. The Management Development and Compensation Committee met in person or by telephone conference five times during 2015.2018. The Corporate Governance and Nominating Committee met in person or by telephone conference fiveseven times during 2015. All2018. Each of the members of our Board of Directors serving in 20152018 attended 75% or more of all meetings of the Board and committees on which they served during fiscal 2015.2018.

Audit Committee. The Audit Committee is comprised entirely of independent directors,Directors, currently including Barbara R. Matas (Chair), Stephen L. Gulis, Jr. (Chair), Michael J. Harrison, Brenda J. Lauderback, KathleenDeborah L. NedorostekKilpatrick, Ph.D. and Jean-Michel Valette.Vicki A. O’Meara. The Audit Committee provides assistance to the Board in satisfying its fiduciary responsibilities relating to accounting, auditing, operating and reporting practices of our company. The Audit Committee is responsible for providing independent, objective oversight with respect to our company’s accounting and financial reporting functions, internal and external audit functions, systems of internal controls regarding financial matters and legal, ethical and regulatory compliance. The responsibilities and functions of the Audit Committee are further described in the Audit Committee Report beginning on page 6365 of this Proxy Statement.

Management Development and Compensation Committee. The Management Development and Compensation Committee is comprised entirely of independent directors,Directors, currently including Brenda J. Lauderback (Chair), Daniel I. Alegre, David T. KollatMichael J. Harrison and Michael A. Peel.Kathleen L. Nedorostek. The principal function of the Committee is to discharge the responsibilities of the Board relating to executive compensation and development of current and future leadership resources.

The Committee has the authority under its charter to retain and consult with independent advisors to assist the Committee in fulfilling these responsibilities and duties.

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The Committee usually meets four to six times per year in person or by telephone conference as needed. The Chairman of the Committee works with members of our senior management team and with the Committee’s independent compensation consultant to determine the agenda for each meeting.

At the beginning of each fiscal year, the Committee reviews and approves compensation for the CEO and each of the other executive officers, which generally includes:

In connection with this review and approval, the independent compensation consultant provides relevant market data and trends for the Committee to consider, and the Committee compares each element of total compensation against this market data as it makes compensation decisions.

Following the end of each fiscal year, the Committee reviews and confirms the level of achievement of performance goals previously established for the fiscal year and approves any resulting annual cash incentive or performance share payouts that may be applicable.

Also on an annual basis, the Committee leads the Chief Executive Officer performance evaluation process and reviews the development and succession plans with respect to the entire executive team.

The responsibilities and functions of the Management Development and Compensation Committee, as well as its processes and procedures for consideration and determination of executive and directorDirector compensation, are further described in the Compensation Discussion and Analysis beginning on page 2930 of this Proxy Statement.

Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee is comprised entirely of independent directors,Directors, currently including Michael A. Peel (Chair), Stephen L. Gulis, Jr., Michael J. Harrison and Kathleen L. Nedorostek. The primary functions of the Corporate Governance and Nominating Committee are to develop and recommend to the Board corporate governance principles to govern the Board, its committees, and our executive officers and employeesteam members in the conduct of the business and affairs of our company; to identify and recommend to the Board individuals qualified to become members of the Board and its committees; and to develop and oversee the annual Board and Board committee evaluation process.

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Board Leadership Structure

Our Board is currently comprised of eight10 independent directorsDirectors and one executive director,Director, Shelly R. Ibach, who has served as our President and Chief Executive Officer since June 2012. Two additional independent directors have been appointed to serve on the Board effective as of April 25, 2016. Since February 2008, the Board has determined to separate the positions of Chairman of the Board and Chief Executive Officer. Based on its ongoing review of best practices in corporate governance, and to enable the President and Chief Executive Officer to focus all of her time and energy in leadership of the day-to-day operations of the company and its growth and profitability initiatives, the Board continues to believe it is best for the company to separate these positions. Jean-Michel Valette, an independent director,Director, has served as Chairman of the Board since May 2010.

Consistent with the company’s Corporate Governance Principles, the Board retains the right to review this determination and to either continue to maintain these positions as separated positions or to combine the positions, as the Board determines to be in the best interests of the company at the time. Under the company’s Corporate Governance Principles, during any period in which the positions of Chairman of the Board and Chief Executive Officer are combined, the Board would appoint a Lead Director from among the independent members of the Board, who would have certain Board leadership responsibilities specified in our Corporate Governance Principles.

Board Role in Risk Oversight

Our Board is responsible for overseeing the company’s policies and practices with respect to risk assessment and risk management and has delegated to the Audit Committee the responsibility of assisting the Board in fulfilling this role. Among its duties and processes, the Audit Committee (a) reviews and discusses with management the company’s policies and practices with respect to risk assessment and risk management; (b) oversees the company’s internal audit function and processes; (c) establishes and oversees procedures for receiving and addressing complaints regarding accounting, internal controls or auditing matters; (d) reviews legal compliance and other legal matters with the company’s counsel; and (e) reports to the full Board with respect to matters within its area of responsibility.

The Audit Committee oversees the company’s internal audit function, which is responsible for undertaking an annual risk assessment process and reporting to the Audit Committee with respect to this assessment and related risk management strategies. The Audit Committee reviews and approves, at least annually, the company’s internal audit plan and receives quarterly reports with respect to the results of internal audits. The leader of the company’s internal audit function reports directly to the Audit Committee with respect to internal audit matters, and the Audit Committee has authority to review and approve the appointment, replacement or dismissal of the leader of this function. The leader of the internal audit function meets regularly in executive session with the Audit Committee without any other members of the company’s management team present.

In addition to the Audit Committee’s role, each of the other committees considers risks within its respective areas of responsibility. We believe our current Board leadership structure helps ensure proper risk oversight, based on the allocation of duties among committees and the role of our independent directorsDirectors in risk oversight.

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Director Nominations Process

The Corporate Governance and Nominating Committee (the “CGNC”) administers the process for nominating candidates to serve on our Board of Directors. The CGNC recommends candidates for consideration by the Board as a whole, which is responsible for appointing candidates to fill any vacancy that may be created between meetings of the shareholders and for nominating candidates to be considered for election by shareholders at our Annual Meeting.

Consistent with the company’s Corporate Governance Principles, the CGNC periodically reviews with the Board the appropriate skills and characteristics required of Board members in the context of the current membership of the Board and the strategic direction of the company.

The Board has established selection criteria to be applied by the CGNC and by the full Board in evaluating candidates for election to the Board. These criteria include general characteristics, areas of specific expertise and experience, and considerations of diversity. The general characteristics include:

The specific areas of expertise and experience sought by the CGNC and the Board from time to time will vary depending on the composition of the Board and the strategic direction of the company, at the time, but will generally include CEO experience, executive level experience with analogous businesses and industries, and functional expertise relevant to the strategic direction of the company or the needs of the committees of the Board.

The directorDirector nomination process specifically includes consideration of diversity, such as diversity of age, gender, race and national origin, educational and professional experience and differences in viewpoints. The CGNCcompany does not have a formal policy with respect to diversity; however,diversity. However, the CGNC considers Director candidates in the context of the Board’s overall composition, including whether the Board has an appropriate combination of professional experience, skills, knowledge and variety of viewpoints and backgrounds in light of the company’s current and expected future needs. In addition, the CGNC believealso believes that it is essential thatdesirable for new candidates to contribute to a variety of viewpoints on the Board, members represent diverse perspectives.

which may be enhanced by a mix of different professional and personal backgrounds and experiences. Currently, six of our 11 Directors are women.

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The CGNC reviews these selection criteria and the overall directorDirector nomination process at least annually in connection with the nomination of directorsDirectors for election at the company’s annual meeting for consistency with best practices in corporate governance and effectiveness in meeting the needs of the Board from time-to-time.

The CGNC may use a variety of methods for identifying potential nominees for election to the Board, including consideration of candidates recommended by directors,Directors, officers or shareholders of the company. The CGNC also has the authority under its charter to engage professional search firms or other advisors to assist the CGNC in identifying candidates for election to the Board, or to otherwise assist the CGNC in fulfilling its responsibilities.

Shareholder nominations of candidates for membership on the Board submitted in accordance with the terms of our Bylaws will be reviewed and evaluated by the CGNC in the same manner as for any other nominations. Any shareholder who wishes the CGNC to consider a candidate should submit a written request and related information to our Corporate Secretary. Under our Bylaws, if a shareholder intends to nominate a person for election to the Board of Directors at a shareholder meeting, the shareholder is required to give written notice of the proposed nomination to the Corporate Secretary at least 120 days prior to the first anniversary of the date that the company first released or mailed its proxy materials to shareholders in connection with the preceding year’s regular or annual meeting. The shareholder’s notice must include, for each nominee whom the shareholder proposes to nominate for election as a director:Director: (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class and number of shares of capital stock of the company that are beneficially owned by the nominee, and (iv) any other information concerning the nominee that would be required under the rules of the Securities and Exchange Commission in a proxy statement soliciting proxies for the election of such nominee. The shareholder’s notice must also include: (i) the name and address of the nominating shareholder, as they appear on the company’s books, and (ii) the class and number of shares of the company that are owned beneficially and of record by the shareholder. The shareholder’s notice must also be accompanied by the proposed nominee’s signed consent to serve as a directorDirector of the company.

Shareholder Communications with the BoardEngagement

Our Board of Directors and management team maintain a deep commitment to strong corporate governance. Engagement with, and accountability to, our shareholders are cornerstones of this commitment. Accordingly, we maintain an active shareholder engagement program that facilitates channels of communication and aims to foster relationships with our shareholders to drive sustainable, long-term growth and shareholder value. As part of our engagement program, members of our management team and the Chairman of the Board of Directors regularly meet with shareholders, in-person or by phone, to discuss strategy, governance, pay for performance orientation, and other matters of shareholder interest. Our ongoing shareholder engagement and commitment to long-term value creation will continue to inform the Board of Director’s deliberations in 2019 and beyond.

Shareholders may communicate with the Board of Directors, its Committees or any individual member of the Board of Directors by sending a written communication to our Corporate Secretary at 9800 59^th1001 Third Avenue North, Plymouth,South, Minneapolis, MN 55442.55404. The Corporate Secretary will promptly forward any communication so received to the Board, any Committee of the Board or any individual Board member specifically addressed in the communication. In addition, if any shareholder or other person has a concern regarding any accounting, internal control or auditing matter, the matter may be brought to the attention of the Audit Committee, confidentially and anonymously, by calling 1-800-835-5870, inserting the I.D. Code of AUDIT (28348) and following the prompts from the recorded message. The company reserves the right to revise or make exceptions to this policy in the event that the process is abused, becomes unworkable or otherwise does not efficiently serve the purposes of the policy.

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Policy Regarding Director Attendance at Annual Meeting

Our policy is to require attendance by all of our directorsDirectors at our Annual Meeting of Shareholders, except for absences due to causes beyond the reasonable control of the director.Director. All of the directorsDirectors then serving on our Board were in attendance at our 20152018 Annual Meeting of Shareholders.

Corporate Governance Principles

Our Board of Directors has adopted Corporate Governance Principles that were originally developed and recommended by the Corporate Governance and Nominating Committee.CGNC. These Corporate Governance Principles are available in the investor relations section of the company’s website athttp://www.sleepnumber.com/sn/en/investor-relations. The information contained in or connected to our website is not incorporated by reference into or considered a part of this Proxy Statement. Among these Corporate Governance Principles are the following:

Independence. A substantial majority of the members of the Board should be independent, non-employee directors.Directors. It is the responsibility of the Board to establish the standards for independence, and the Board has followed the independence standards for companies listed on The NASDAQNasdaq Stock Market. All of our directorsDirectors are independent except our Chief Executive Officer, Shelly R. Ibach. All Committees of the Board are composed entirely of independent directors.Directors.

Chairman and Chief Executive Officer Positions. At the present time, the Board believes that it is in the best interests of the company and its shareholders for the positions of Chairman of the Board and Chief Executive Officer to be separated, and for the position of Chairman of the Board to be held by a non-executive, independent member of the Board. The Board retains the right to review this determination and to either continue to maintain these positions as separated positions or to combine the positions, as the Board determines to be in the best interests of the company at the time. During any period in which the positions of Chairman of the Board and Chief Executive Officer are combined, the Board will appoint a Lead Director from among the independent members of the Board.

Classified Board Structure. Our Third Restated Articles of Incorporation provide for a classified Board serving staggered terms of three years each. The Board will periodically review its classified Board structure in the context of other provisions and measures applicable to unsolicited takeover proposals with the objective of positioning the Board and the company to maximize the long-term value of our company for all shareholders.

Majority Voting Standard with Resignation Policy for Board Elections. Our Third Restated Articles of Incorporation provide for a majority voting standard in the case of uncontested elections of directorsDirectors and a plurality voting standard in the case of contested elections of directorsDirectors in order to reduce the risk of a “failed election” in the context of a contested directorDirector election.

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Requirement of Incumbent Directors who do not Receive a Majority Vote in an Uncontested Election to Tender Resignation. If a nominee for Director who is an incumbent Director is not elected at a meeting of shareholders and no successor to the incumbent Director is elected at the meeting of shareholders, the incumbent Director shall promptly offer to tender his or her resignation to the Board. The Corporate Governance and Nominating CommitteeCGNC shall make a recommendation to the Board on whether to accept or reject the offer, or whether other action should be taken. The Board shall act on whether to accept the Director’s offer, taking into account the Corporate Governance and Nominating Committee’sCGNC’s recommendation, and publicly disclose (by press release, a filing with the Securities and Exchange CommissionSEC or other broadly disseminated means of communication) its decision and the supporting rationale within 90 days after the date of the certification of the election results. The Corporate Governance and Nominating Committee,CGNC, in making its recommendation, and the Board, in making its decision, may each consider any factors or other recommendations that it considers relevant and appropriate. The incumbent Director who offers to tender his or her resignation shall not participate in the Board’s decision. If such incumbent Director’s offer to tender his or her resignation is not accepted by the Board, such Director shall continue to serve until his or her successor is duly elected, or his or her earlier death, resignation, retirement, disqualification or removal.

Board DiversityDiversity.. The company does not have a formal policy with respect to diversity. Instead,However, the CGNC considers Director candidates in the context of the Board’s overall composition, when considering Director candidates, including whether the Board has an appropriate combination of professional experience, skills, knowledge and variety of viewpoints and backgrounds in light of the company’s current and expected future needs. In addition, the CGNC Committee also believes that it is desirable for new candidates to contribute to a variety of viewpoints on the Board, which may be enhanced by a mix of different professional and personal backgrounds and experiences.

Approach to Term and Age Limits. The Board has determined to not adoptWe believe that specific or fixed term or age limits in ordercould cause the company to not arbitrarily lose important contributors to the Board. In order to ensure an appropriate balance between new perspectives and experienced Directors, ifIt is the median tenuresense of the Board, exceeds 8.5 yearshowever, that a Director who reaches the age of 72 should promptly tender his or ifher resignation to the majorityChair of the Directors are 60 years of age or older, thenCGNC, and the Board may consider alternativesshould have an opportunity to achieve an appropriate balancereview the qualifications of new perspectivesthe Director for continued Board membership. The CGNC will review the qualifications of the Director for continued Board membership annually and experienced directors onmake a recommendation to the Board over the ensuing years. Such alternatives may be considered in the context of an evaluation of the Board’s needs at the time and into the future and individual Directors’ contributionseach year, which will make a final determination with respect to the Board.tendered resignation.

Change in Responsibilities. The Board does not believe that Directors who retire or who have a change in their principal employment or affiliation after joining the Board should not necessarily leave the Board. There should, however, be an opportunity for the Board through the Corporate Governance and Nominating Committee, to review the qualifications of the directorDirector for continued Board membership. Any Director who undergoes a material change in principal employment or affiliation is requiredwill promptly tender his or her resignation to promptly notify the Chair of the Corporate Governance and Nominating CommitteeCGNC. The CGNC will review the qualifications of the change.Director for continued Board membership and make a recommendation to the Board, which will make a final determination with respect to the tendered resignation.

Other Board or Audit Committee Service. The Board recognizes that service on other boards can in some circumstances limit the time that Directors may have to devote to fulfilling their responsibilities to the company. It is the Board’s guideline that no Director shall serve on more than a total of six public company boards (including the Select ComfortSleep Number Board), and that no member of the company’s Audit Committee shall serve on more than a total of three public company audit committees (including the Select ComfortSleep Number Audit Committee). If any Director exceeds or proposes to exceed these guidelines, the Director is required to promptly notify the Chair of the Corporate Governance and Nominating CommitteeCGNC and the committee will review the facts and circumstances and determine whether such service would interfere with the Director’s ability to devote sufficient time to fulfilling the Director’s responsibilities to the company. Currently, none of the Directors serve on more than three public company boards, including the Sleep Number Board.

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Chief Executive Officer Service on Other Boards. The Chief Executive Officer shallmay not serve on more than two public company boards other than the Sleep Number Board of Directors of the company.Directors.

Board and Committee Evaluations. The Board believes that the company’s governance and the Board’s effectiveness can be continually improved through evaluation of both the Board as a whole and its committees. The Corporate Governance and Nominating CommitteeCGNC is responsible for annually evaluating effectiveness in these areas and reviewing the results and recommendations for improvement with the full Board.

Board Executive Sessions. Executive sessions or meetings of independent directorsDirectors without management present will be held at least twice each year. At least one session will be to review the performance criteria applicable to the Chief Executive Officer and other senior managers,executive officers, the performance of the Chief Executive Officer against such criteria, and the compensation of the Chief Executive Officer and other senior managers.executive officers. Additional executive sessions or meetings of outside directorsindependent Directors may be held from time-to-time as required. The Board’s practice has been to meet in executive session for a portion of each regularly scheduled meeting of the Board. Any member of the Board may request at any time an executive session without the presence of management. Executive sessions or meetings with the CEO shall be held from time-to-time for a general discussion of relevant topics.

Paid Consulting Arrangements. The Board believes that the company should not enter into paid consulting arrangements with independent directors.Directors.

Board Compensation. Board compensation should encourage alignment with shareholders’ interests and should be at a level equitable to comparable companies. The Management Development and Compensation Committee is responsible for periodic assessments to assure these standards are being met.

Share Ownership Guidelines for Executive Officers and Directors. The Board has established the stock ownership guidelines described below for executive officers and directors. For purposes of these guidelines, stock ownership includes the fair market value of (1) all shares of common stock owned outright, (2) unvested restricted stock and restricted stock units that are subject only to time-vesting, net of an assumed effective tax rate of 40%, and (3) vested stock options, net of an assumed effective tax rate of 40%. The fair market value of stock options shall mean the then-current market price less the exercise price. Unvested performance shares, whetherDirectors as further described in the formCompensation Discussion and Analysis beginning on page 30 of restricted stock or restricted stock units, will not count toward stock ownership.this Proxy Statement and as summarized below.

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Prohibition of Hedging or Pledging of Shares. Under our policy with respect to trading in the company’s securities, directors,Directors, officers and other employeesteam members whose duties regularly bring them into contact with confidential or proprietary information (“insiders”) are prohibited from engaging in any form of hedging or monetization transactions involving the company’s securities. In addition, insiders are prohibited from engaging in short sales of the company’s securities and from trading in any form of publicly traded options, puts, calls or other derivatives of the company’s securities. Insiders are also prohibited from engaging in any form of pledging of the company’s securities, including (i) purchasing company securities on margin; (ii) holding company securities in any account which has a margin debt balance; (iii) borrowing against any account in which company securities are held; or (iv) pledging company securities as collateral for a loan.

Conflicts of Interest. Directors are expected to avoid any action, position or interest which conflicts with an interest of the company, or that gives the appearance of a conflict. If any member of the Board becomes aware of any such conflicting or potentially conflicting interest involving any member of the Board, the directorDirector should immediately bring such information to the attention of the Chairman of the Board, the Chief Executive Officer and the General Counsel of the company.

Performance Goals and Evaluation. The Management Development and Compensation Committee is responsible for establishing the procedures for setting annual and long-term performance goals for the Chief Executive Officer and for the evaluation by the full Board of his or her performance against such goals. The Committee meets at least annually with the Chief Executive Officer to receive his or her recommendations concerning such goals. Both the annual goals and the annual performance evaluation of the Chief Executive Officer are reviewed and discussed by the outside directorsindependent Directors at a meeting or executive session of that group. The Committee is also responsible for setting annual and long-term performance goals and compensation for the direct reportsexecutive officers whom report directly to the Chief Executive Officer.

Compensation Philosophy. The Board supports and, through the Management Development and Compensation Committee, oversees employeeteam member compensation programs that are closely linked to business performance and emphasize equity ownership.

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Senior Management Depth and Development. The Chief Executive Officer reports to the Board, at least annually, on senior management depth and development, including a discussion of assessments, leadership development plans and other relevant factors.

Provisions Applicable to Unsolicited Takeover Attempts or Proposals. The Board will periodically review (not less often than every three years) the company’s Third Restated Articles of Incorporation and Bylaws and various provisions that are designed to maximize shareholder value in the event of an unsolicited takeover attempt or proposal. Such review includes consideration of matters such as the company’s state of incorporation, whether the company should opt in or out of applicable control share acquisition or business combination statutes, and provisions such as the company’s classified Board structure. The objective of this review is to maintain a proper balance of provisions that will not deter bona fide proposals from coming before the Board, and that will position the Board and the company to maximize the long-term value of our company for all shareholders.

Shareholder Approval of Equity-Based Compensation Plans. Shareholder approval will be sought for all equity-based compensation plans.

Social Impact

Our mission is to improve lives by individualizing sleep experiences.  Every day, we educate consumers on the importance of sleep and its connection to their overall wellness.  We inspire them to make it a priority in their lives.  In 2018, we announced our commitment to help over one million young people achieve life-changing sleep through our products and sleep expertise.  We are partnering with leading national organizations focused on youth health and wellness initiatives to achieve their commitment, including GENYOUth, Alliance for a Healthier Generation and Good360.  We believe excellent sleep is essential to a healthier and happier society, strengthening our connections with one another, and expanding the frontier of what’s possible. We strive to conduct our business in an ethical and socially responsible manner. In addition to our Code of Business of Conduct detailed below, we maintain a Code of Conduct for Business Partners that addresses labor and human rights, health and safety, environmental issues, ethics, and compliance with related laws, rules and regulations.  We also maintain Equal Employment Opportunity standards to foster a culture of diversity, inclusion and respect.

Code of Conduct

We have developed and circulated to all of our employeesteam members a Code of Business Conduct addressing legal and ethical issues that may be encountered by our employeesteam members in the conduct of our business. Among other things, the Code of Business Conduct requires that our employeesteam members comply with applicable laws, engage in ethical and safe conduct in our work environment, avoid conflicts of interests, conduct our business with integrity and high ethical standards, and safeguard our company’s assets. A copy of the Code of Business Conduct is included in the investor relations section of our website athttp://www.sleepnumber.com/sn/en/investor-relations. We intend to disclose any amendments to and any waivers from a provision of our Code of Business Conduct on our website. The information contained in or connected to our website is not incorporated by reference into or considered a part of this Proxy Statement.

EmployeesTeam members are required to report any conduct that they believe in good faith violates our Code of Business Conduct. The Code of Business Conduct also sets forth procedures under which employeesteam members or others may report through our management team and, ultimately, directly to our Audit Committee (confidentially and anonymously, if so desired) any questions or concerns regarding accounting, internal accounting controls or auditing matters.

All of our employeesteam members are required to periodically certify their commitment to abide by our Code of Business Conduct. We regularly monitor compliance with the Code of Business Conduct and report to our Audit Committee with respect to our findings. We also provide training in key areas covered by the Code of Business Conduct to help our employeesteam members to comply with their obligations.

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Related Party Transactions Policy

The Board of Directors has adopted a written policy intended to ensure the proper approval and reporting of transactions between the company and any of its directors,Directors, nominees for director,Director, executive officers or significant stockholdersshareholders or entities or persons related to them that would be required to be disclosed by the company pursuant to Item 404 or Regulation S-K of the Federal securities laws. Under this policy, any proposed or existing related party transaction is subject to the approval or ratification of the Corporate Governance and Nominating Committee. A copy of the Related Party Transactions Policy can be accessed through our Investor Relations website athttp://www.sleepnumber.com/sn/en/investor-relations. The information contained in or connected to our website is not incorporated by reference into or considered a part of this Proxy Statement. There were no related party transactions during the year ended December 29, 2018 and there are none currently contemplated.

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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS AND COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION COMMITTEE REPORT

The Management Development and Compensation Committee of the Board of Directors (the “Committee”), consisting entirely of independent Directors, has reviewed and discussed the following Compensation Discussion and Analysis (CD&A) with management, and based on this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

The Management Development and Compensation Committee

Brenda J. Lauderback, Chair

Daniel I. Alegre

David T. Kollat

Michael A. PeelJ. Harrison 

This Compensation Committee Report shall not be deemed to be “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, in whole or in part, this Compensation Committee Report shall not be incorporated by reference into any such filings.Kathleen L. Nedorostek

COMPENSATION DISCUSSION AND ANALYSIS

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Introduction

ThisThe Compensation Discussion and Analysis (CD&A) describes our executive compensation program, including the key principlesobjectives and programs used to determineelements of compensation as well as determinations made by the compensation of theCommittee regarding our named executive officers (NEOs) for fiscal 2015 (January 4, 2015 through January 2, 2016) and explains how the company’s practices align with our pay for performance philosophy..

For 2018, the following five current executive officers were determined to be NEOs as a result of their position during the year as chief executive officer (CEO), or chief financial officer (CFO), or their total compensation making them among the three other highest paid executives for the fiscal 2015, our NEOs were:year.

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Our CD&A is divided into the following sections:

Executive Summary

Compensation Philosophy:Philosophy and Approach

Select Comfort’sThe executive compensation philosophy is to provide compensation opportunities that attract, retain and motivate talented key executives to deliver sustainable profitable growth. Our program generally consists of a fixed base salary, variable performance-based cash incentive and long-term equity awards including Performance Shares and Stock Option grants. Our program is designed to alignsupport our long-term strategic orientation. It is competitive, heavily weighted toward performance-based incentive programs, and encourages appropriate risk taking and investing in the business as we execute our consumer innovation strategy. Our incentive programs reward our executive officers for superior performance and strengthening competitive advantages to deliver sustainable, long-term profitable growth. The incentive opportunities are tied to multiple financial metrics that support our business strategy and are aligned with shareholder interests.

Our executive compensation with shareholder interests by:program is designed to:

Shareholders have expressed their support of our executive compensation program and its alignment with company performance. Over the last six years (2013-2018), an average of 96% of votes cast by shareholders were in support of our annual proposal to approve, on an advisory basis, the compensation of the company’s NEOs including 93% of votes cast at our 2018 Annual cashMeeting. We have maintained this strong support from our shareholders over time. We have regular outreach discussions with shareholders to benefit from their interests. We regularly review and equity-basedupdate our executive compensation program to ensure alignment with our objectives. We also adhere to many governance best practices and policies.

Progress as a Company

The U.S. retail bedding market is approximately $16 billion, fragmented, and competitive. Sleep Number is breaking through the commodity-driven “sea of sameness” by executing our consumer innovation strategy and delivering highly differentiated innovations. Consumers are engaged with our purpose-driven brand and are responding strongly to our new revolutionary 360 smart beds. The execution of our strategy has broadened our relevance, as individuals increasingly understand the importance of quality sleep to their overall well-being. As the sleep innovation leader, we are taking market share and realizing the benefits of our advantaged products and integrated marketing and retail initiatives.

In 2012, we embarked on a transformational, consumer innovation strategy as the path to improve lives and deliver sustainable, profitable long-term growth. Executing this strategy has required significant capital investments, substantial buildout of vital performance capabilities, and time to execute these plans. Since 2012, we have taken numerous transformative actions including:

In summary, we operate with a compensation program designed to reward achievement of superior results and creation of long-term shareholder value.

2018 Performance and Accomplishments

We delivered superior performance in 2018 with net sales and earnings per share (EPS) exceeding street consensus and the midpoint of our external guidance. With additional transition costs and investments, we fell short of our aggressive internal business plan on adjusted EBITDA and net operating profit (NOP) for the year. Consumers have responded strongly to our innovations, driving accelerated sales growth in the back-half of the year. Highlights of our full year financial results include:

For additional information on our non-GAAP financial measures, such as adjusted EBTIDA and ROIC, see “Non-GAAP Data Reconciliations” in our Annual Report on Form 10-K filed on February 26, 2019.

In addition to these financial results, consumers again recognized Sleep Number with a J.D. Power Award for #1 in Customer Satisfaction with Mattresses and #1 in the top six categories of support, durability, comfort, variety of features, value and warranty. We took market share in 2018 as consumers choose the sleep benefits of our 360^® smart beds, reaching more than 410 million sleep sessions for the year. While completing our transition to 360 smart beds, we continued to evolve our outbound logistics network and execute continuous improvement initiatives across the business.

We delivered a total shareholder return (TSR) for three and five years that was in the top quartile of our peer companies (as described on page 49) when measured through the end of our fiscal year 2018. Our one, three, and five-year TSR are in the top quartile when the measurement period ends on March 1, 2019 to include the market reaction to our fourth quarter earnings release issued on February 13, 2019.

TSR results when the measurement period ends on March 1, 2019:

Notes: TSR refers to the percent change in the value of a shareholder’s investment in the company over the measurement period as determined by change in share price plus the value of any dividends paid. Peer companies are described on page 49.

We are delivering life- changing value to our customers, resulting in superior shareholder value creation.

Compensation Program Overview

Our pay for performance compensation program has three main components that make up the total direct compensation opportunity for our executive officers, as summarized in the table below. With the effectiveness of the program, there were no changes to the design of these elements of our compensation program for 2018.

By design, our executive compensation mix is heavily weighted toward performance-based incentive programs that only have value if company performance meets or exceeds pre-determined financial goals, or if shareholder value increases. As highlighted in the charts below, over 80% of our CEO’s target total direct compensation opportunity is directly tiedperformance-based and fully at-risk; for our other NEOs, this percentage is over 60%.

Pay and Performance Alignment

The letter to achievementshareholders from our CEO in this Proxy Statement and the section “2018 Performance and Accomplishments” provide a full description of keyour performance for the year. The following is a summary of our company performance that determined the actual payouts earned for our 2018 AIP and 2016 Performance RSUs. The performance and payouts for these incentive programs are described in more detail later in this CD&A.

Pay earned for 2018 demonstrates that when the company falls short of its internal goals, payouts are reduced below target. The following chart illustrates the alignment between our incentive payouts and shareholder outcomes for the three-year period from 2016 to 2018.

Compensation Framework and Actions

Each March, the Committee considers both shareholder feedback and market data provided by its independent consultant when setting the base pay and target incentive opportunities for our executive officers. The Committee generally seeks to align the target direct compensation opportunity with the median of the market(our approach to benchmarking is described in more detail on page 49).

Given the significant weight the executive compensation program places on at-risk and performance-based incentive opportunities,the compensation realized by our executive officers will vary significantly depending on company performance against pre-determined goals and changes in shareholder value—an important design objective of our executive compensation program.

Base Salary

We set base salaries for our executive officers to be competitive and to allow us to attract and retain top executive talent. Base salaries are the smallest component of our target 2018 pay mix, comprising 19% of the CEO’s target total direct compensation and 37% on average for our other NEOs.

Our Committee reviews base salaries annually, considering market data and both individual and company performance when making base pay decisions. At its meeting on March 8, 2018, the Committee approved the base salary adjustments for 2018 shown in the following table. Ms. Ibach and Mr. Callen each received a combination of a merit increase based on performance and a market adjustment since their respective salaries were both at least 10% below the market median based on benchmarking data provided by the Committee’s independent compensation consultant. Other NEOs each received merit increases that considered market position and their performance.

Note: The base salary adjustments approved by the Committee in March 2018 were effective with the pay period beginning March 25, 2018.

Annual Incentive Plan (AIP)

Performance Metric. Our AIP provides our executive officers with an annual incentive opportunity contingent upon our adjusted EBITDA performance. Adjusted EBITDA is a useful indicator of our annual financial strategicperformance and our ability to generate cash flow from operating performance objectives. Specifically, the annual cash incentive is dependent on achievingactivities, an earnings beforeimportant source of our shareholder value creation. We define adjusted EBITDA as net income plus: income tax expense, interest income taxes,expense, depreciation and amortization, (EBITDA)stock-based compensation expense and asset impairments (as detailed in our quarterly and annual financial filings). For additional information on adjusted EBTIDA, see “Non-GAAP Data Reconciliations” in our Annual Report on Form 10-K filed on February 26, 2019.

Design Overview. The design of our AIP has two main components that determine the amount of the payout earned by our NEOs for company performance. First is the executive officer’s target incentive opportunity, which is set each year by the Committee considering market data and their position within the company. The other component is the leverage curve with performance objectivegoals for adjusted EBITDA that determine the percent of the target payout earned for the year. It is the combination of these two components that results in the final AIP payout for our NEOs.

Our AIP includes an opportunity to receive a progress payment if a first half performance goal for adjusted EBITDA is achieved or exceeded. The progress payment is equal to half of the AIP target incentive for the first half of the year. If the progress payment is earned and paid out in July of the fiscal year, it is awardedsubtracted from the annual payout earned and paid out following the end of the fiscal year in February. By having this opportunity for a progress payment in our AIP, it reinforces the importance of starting out the year with strong first half performance.

Individual Target Incentive. Each executive officer has a target incentive that is expressed as a percent of the actual salary they receive for the fiscal year. The Committee reviews these targets annually to motivateensure that they are aligned with the median target incentives and total cash opportunities of our peers and the market (our peer group and approach to benchmarking is described on page 49). The Committee approved the following target annual incentives for the named executive officers for 2018. The Committee increased the target incentive for Ms. Ibach from 115% to 120% of salary effective March 25, 2018 to more closely align with the market median based on benchmarking data provided by the Committee’s independent compensation consultant.

2018 Performance Goals. At its meeting on January 18, 2018, the Committee approved the following performance goals and range of payout opportunity for the 2018 AIP. These goals and payout opportunities were set to provide a strong motivation for achievement of stretch performance objectives and a reasonable sharing rate of incremental adjusted EBITDA. The 2018 goal for target payout was set at adjusted EBITDA of $183.4 million, an 8% increase over 2017 actual of $169.1 million. When this goal was set, it represented top quartile performance compared to the three-year historical growth rate in EBITDA of our peer companies. The payout levels and performance goals for threshold and maximum were set for 2018 consistent with the AIP methodology for 2017. This approach ensures that there is an appropriate sharing rate for how the AIP payout cost changes with incremental adjusted EBITDA.

For the progress payment opportunity, the Committee approved a first half goal for 2018 of $81.8 million in adjusted EBITDA. The first half goal for 2018 represented our first half operating plan aligned with the annual AIP goal of $183.4 million.

2018 Performance. Although 2018 net sales were up 6% and we achieved our fifth straight year of positive comp sales, we fell short of our internal adjusted EBITDA goal for 2018. Adjusted EBITDA was $165.6 million for 2018, which was 90% of the AIP goal for target payout. This represented a 2.1% decline over the prior year driven in part by approximately $16 million of profit impacts to complete the replacement of our mattress and adjustable base product lines with the 360 smart bed in 2018. For this level of 2018 adjusted EBITDA, we earned an AIP payout of 53.5% of target. The Committee approved this payout, as it is reflective of our pay for performance alignment, while acknowledging the significant business improvements accomplished to drive accelerated sales and profit growth in the back half of 2018.

Our first half adjusted EBITDA was $66.8 million, below our goal of $81.8 million in order to earn a progress payment for the 2018 AIP. As a result, no progress payment was made in July 2018.

2018 Payout. The following table shows the actual AIP payout earned for 2018 based on the target incentive opportunity for each NEO and approved payout of 53.5% of target. There was no progress payment made for first half of 2018, so the full AIP payout amounts shown below were paid out in February 2019.

Long-Term Incentive Plan (LTI)

Design Overview. LTI is the largest component of the total direct compensation opportunity for our executive officers and one of the most critical. It provides a reward opportunity that is directly aligned with the long-term interest of our shareholders. As an incentive, there is only payout value if we achieve certain long-term company performance goals or, for stock options, positive stock price appreciation. The grants have multi-year vesting requirements which also assist in the retention of our executive team; considered especially important to executing a large portionlong-term oriented innovation strategy.

The design of our LTI includes two types of annual equity grants: Performance RSUs and Stock Options. For 2018, our executive officers received an annual total LTI grant value that was split 75% in Performance RSUs and 25% in Stock Options (same mix as the 2017 LTI grants). This combination appropriately rewards our executive officers for achieving long-term profitable growth and the creation of shareholder value.

As a condition of accepting any LTI grant, our executive officers agree to reasonable restrictions on their activities during and for a reasonable period of time after their respective termination of employment, including, but not limited to, the assignment of inventions, non-competition, non-solicitation, confidentiality, and an agreement to arbitrate disputes.

2018 Stock Option Grants. Stock options vest in three equal annual installments on each of the anniversaries following the grant date. Their term expires 10 years after the grant date, provided they have not been exercised or cancelled earlier due to certain events, and their exercise price is equal to the closing trading price of the company’s employee population includingcommon stock on the NEOs. grant date.

The equity-based awardsnumber of stock options granted in 2018 was determined by dividing the target option grant value (25% of the executive officer’s total LTI grant value) by the calculated grant date fair value per stock option. In this calculation of the grant date option value, we derive a Black-Scholes value under generally accepted accounting principles, using a 20-day average stock price leading up to grant date in order to mitigate short-term stock price volatility. See the footnotes to the “Summary Compensation Table” and “Grants of Plan-Based Awards” for a description of how grant date fair value is determined for purposes of the disclosure in these tables.

The grant date for stock options granted in 2018 was March 21, 2018, the 20-day average share price was $35.80, estimated Black-Scholes value per option was 41% of share price, and the option exercise price was $34.35.

2018 Performance RSU Grants. Performance RSUs become vested on the third anniversary of the grant date, and a percent of target is earned and paid out based on company performance against annual growth goals over a three-year performance period. The payout under the Performance RSUs may be reduced based on an ROIC modifier. The performance metrics for 2018 Performance RSUs are tied toannual growth in net sales and NOP over fiscal years 2018, 2019 and 2020. Prior to the grant date, the Committee established annual growth goals for each of the three years, based on top-quartile peer performance which will determine the percent of target payout earned for net sales and NOP for the entire performance period. The annual measurement for either metric can range from 50% to 200% of target, with the threshold payout being 50% of target if the threshold performance goal is achieved.

At the end of the three-year performance period, the payout for Performance RSUs is determined based on the average of the payouts earned for each of the three years in the performance period, with net operating profit (NOP),sales and NOP equally weighted each year. By assessing growth achieved each year relative to long-term growth goals, our executive officers are able to make the appropriate investments in the business during ever-changing market and competitive environments while prioritizing long-term profitable and sustainable growth.

The final payout of Performance RSUs is subject to a ROIC modifier that can reduce the payout by up to 20%. The reduction occurs if the three-year average difference between return on invested capital (ROIC) premiumROIC and weighted average cost of capital (WACC). All annual and long-term incentive awards include performance thresholds for the 2018-2020 period is below a certain threshold established by the Committee prior to the grant date. The ROIC modifier was added to the design of the Performance RSUs in 2015 to reduce the payout if capital investments in the business do not generate returns that mustare sufficiently above the WACC.

The following chart illustrates how the overall payout for 2018 Performance RSUs, covering the 2018-2020 period, will be metdetermined.

The target number of Performance RSUs for the 2018 award was determined by dividing the grant value (equal to 75% of the executive officer’s total LTI grant value) by the estimated grant date fair value per share, which is calculated using 20-day average stock price leading up to grant date in order to mitigate short-term stock price volatility. See the footnotes to the “Summary Compensation Table” and “Grants of Plan-Based Awards” for any payout to be issued.

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2015 Target Compensation Levels and Incentive Design:how grant date fair value is determined for purposes of the disclosure in these tables.

The Management Developmentgrant date for Performance RSUs granted in 2018 was March 21, 2018 and Compensationthe 20-day average share price was $35.80.

2018 LTI Grant Values. The Committee (the “Committee”) established target compensation levels and incentive design in March 2015. When establishing these compensation levels and design,approves a total LTI grant value for each executive officer, considering the Committee evaluated both: a) 2014 financial and stock priceexecutive officer’s performance and b) continued progresslevel of responsibility, as well as the competitive position of the officer’s targeted total direct compensation. The Committee seeks to make LTI grants to provide a total direct compensation opportunity that is near the market median.

The following table summarizes the LTI grants made to our NEOs in 2018, and the split in grant value between Performance RSUs (75%) and Stock Options (25%). The LTI grant values for Ms. Ibach and Messrs. Callen and Brown were increased for 2018 to have their target total direct compensation opportunity be more aligned with the market median based on four strategic differentiators:benchmarking data provided by the Committee’s independent compensation consultant.

*The actual grant date fair value for these LTI grants as disclosed in the Summary Compensation Table will vary slightly from the amounts shown above due to valuation assumptions as described in the footnotes to the “Grants of Plan-Based Awards” table on page 53.

2016 Performance RSU Payout. The 2016 Performance RSUs covering the 2016-2018 period, which are similar in design as the 2018 Performance RSUs, were granted on March 22, 2016 and vested and paid out on March 22, 2019 in the form of shares of common stock, less tax withholding settled in shares of common stock. Based on net sales and NOP annual growth over the three fiscal years (2016, 2017, and 2018), the overall payout earned for this grant was 89.3% of target. As described below, this was an average of the percent of target payout earned for growth in net sales and NOP in each of the three years covered by the award. The ROIC modifier, which could have reduced this payout, was surpassed and did not apply.

The following is a summary of how the 89.3% of target payout was determined for the 2016 Performance RSUs.

Our 2014 growth in revenue, EBITDA, NOP and Total Shareholder Return, which is provided in the table below, demonstrated the significant progress we made in delivering on our strategic differentiators and transformative initiatives throughout recent years.

Through the end of 2014, the transformation of our retail operations, product innovation strategy, and marketing strategy had all worked together to yield strong growth in profit and shareholder returns that allowed the company to fund the new ERP implementation from both a cash and risk perspective. All four elements of this transformation are critical to achieving our stated long-term EPS goal of $2.75 by 2019.

The Committee considered this performance and the significant progress we made in delivering on our strategic differentiators and transformative initiatives throughout recent years when making the following decisions to establish target compensation levels and design for 2015:

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LTI awards in 2015 were delivered 25% in stock options and 75% in performance-vested restricted stock units (RSU). Similar to the 2014 design, the RSUs will be earned based on annual growth in Revenue and Net Operating Profit over a three-year performance period. Reflecting the continued importance to the company of return on investment, the Committee added a provision for NEOs in 2015 that aligns the RSU payout at the end of the three-year performance period with return on invested capital performance. Specifically, the RSU payout will be subject to a reduction if Return On Invested Capital is not sufficiently above the company’s Weighted Average Cost of Capital (WACC).

As a result of these actions, target Total Direct Compensationwhat was aligned with the median of the market for the CEO, Ms. Ibach, and other NEOs as a group, reinforcing the company’s compensation philosophy to align pay with performance.

2015 Performance and Incentive Payouts:

Our success with three of the company’s transformative differentiators (retail, product innovation, and marketing) led to year-over-year growth of 20% in net sales and 51% in diluted EPS during the first nine months of 2015. However, during our fiscal 2015 fourth quarter, we experienced greater than expected challenges with our ERP implementation, which disrupted our ability to efficiently ship product and realize revenue. As a result, our 2015 full-year growth in revenue, EBITDA, NOP, and Total Shareholder Return was negatively affected, as summarized below.

These 2015 financial results were well below the plan for the year, and our compensation payouts were also well below target.

Our 2015 strategic performance reflects the Company’s commitment to invest in the business for the long-term. The negative impact of the ERP implementation in the fourth quarter of 2015 overshadowed strong financial performance through the first three quarters that was driven by the success of our retail, product innovation and marketing strategy. Significant progress on the ERP implementation continued into 2016. The new system is the right enabler for growth, scale and efficiency.

Executive compensation payouts for 2015 underscore the company’s commitment to pay for performance delivered. While significant strategic progress was accomplished, the 2015 financial performance resulted in payouts that were well below target for both the Annual Incentive Plan and Long-Term Incentive awards earned:

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As shown in the chart below, annual cash incentive payouts relative to EBITDA and NOP performance throughout the 2007 – 2015 period reinforce our compensation philosophy and program design.

2007 - 2015 EBITDA and Annual Incentive Payout

The performance-vested long-term incentive program demonstrates a similar commitment to pay for performance alignment, as outlined below:

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Compensation Governance

Our compensation programs are structured to align the interests of our executive officers with the interests of our shareholders. They are designed to attract, retain and motivate a talented management team to deliver on the company’s strategic and operational goals, capitalize on our competitive advantages and achieve sustainable profitable growth. Key objectives include:

The following are the annual growth goals that were established for this grant.

The following charts show the actual performance achieved for the performance period and how the total payout of 89.3% of target was determined.

Other Elements of Compensation

Benefits. Our executive officers participate in the benefit programs provided to our benefit eligible team members. This includes company provided medical, dental, basic life, short-term disability, long-term disability, and a matched 401(k) savings plans. Our NEOs participate in the 401(k) on the same basis as all other team members. There is no supplemental matching program, excess plan, or other retirement program. The value of the 401(k) matching contribution made by the company for our NEOs is included in “All Other Compensation” as disclosed in the “Summary Compensation Table” on page 51.

Non-Qualified Deferred Compensation Plan. As described in more detail on page 57, our executive officers along with other leaders may elect to defer a portion of their salary, AIP payout, and Performance RSU payout under this non-qualified deferred compensation plan. The company does not make any contributions to this plan on behalf of participants. The plan offers a range of investment options for the tracking of an investment return on the deferrals, and participants can elect how their deferrals will be distributed in the future.

Executive Benefits and Perquisites. Consistent with our commitment to emphasize pay for performance in our mix of total compensation, our executive officers receive very few executive benefits and perquisites. The company has paid for a supplemental long-term disability that provided a benefit of 60% of pay in excess of the limits under the group plan. The Committee has approved the elimination of this executive benefit at the end of 2019. The company provides only two perquisites to our executive officers: financial counseling and an annual executive physical exam. The annual limit for financial counseling is $15,000 for our CEO and $8,000 for our other NEOs. The company pays for the cost after insurance coverage of an annual executive physical exam. Amounts reimbursed for financial counseling or the executive physical exam are fully taxable to the executive and there is no “gross up” by the company to cover these taxes for the executive.

Employment Agreements.We do not have employment agreements with any of our executive officers that provide for continued employment for any period of time.

Severance Plan. Our executive officers and other key leaders of the company participate in the Sleep Number Executive Severance Pay Plan. This plan provides for severance pay, prorated AIP incentive, and other benefits such as outplacement and limited COBRA reimbursement in the event of involuntary termination of employment not for cause or termination for good reason, including for events following a change-in-control, as those terms are defined in the plan. This plan is described in more detail in the section labeled “Potential Payments to Named Executive Officers” found on page 58.

Compensation Governance, Practices, and Policies

In order to meet the key objectives of our executive compensation program, the Company has adopted a strong corporate governance framework with the following practices and policies that ensure alignment with shareholder interests.

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Shareholder Engagement

As partStock Ownership. Encouraging stock ownership among our executive officers is critical in aligning their interests with those of its commitment to strong corporate governance, the company’s management team and its Board of Directors maintain an active shareholder relations effort and welcome shareholder feedback. During the past year, we conducted shareholder meetings and phone calls that included direct shareholder contact with board members, as appropriate. These discussions addressed a variety of topics that are important to our business, includingshareholders. The company strategy, financial performance, capital allocation, corporate governance andhas in place stock ownership guidelines for executive compensation. We appreciate the opportunity to hear from our shareholders on relevant business topics and engage in open dialogue with them. These conversations,officers as well as our strong commitment to pay for performance, will continue to informmembers of the Management Development and Compensation Committee’s decisions related to executive compensation in 2016 and beyond.Board of Directors. The following is the value of share ownership that is expected at various levels under these guidelines:

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BoardAccording to the guidelines, the stock ownership value includes: shares owned outright, shares held in the 401(k) Plan or Deferred Compensation CommitteePlan, after tax intrinsic value of vested and Independent Consultantoutstanding stock options, after tax value of outstanding Performance RSUs (prorated to the extent that any year of the performance period has been completed and the payout for that year is known). Until the guideline is met, executives are required to hold 50% of the net shares from the vesting or payout of any LTI grant or from the exercise of stock options. Directors are expected to achieve the guideline level of ownership within five years of their appointment to the Board.

Committee and Governance.The Committee is comprised entirely of independent, non-employee directors.Directors. The key responsibilities of the Committee as outlined in its charter include:

The Committee usually meets four to six times per year, in person or by conference call. Our CEO, other members of our management team, and the Committee’s independent compensation consultant may be invited to attend all or a portion of a Committee meeting, depending on the nature of the agenda. The Committee also typically meets in executive session without any members of management present.

Neither our CEO nor any other member of our management team votes on any matters before the Committee. The Committee, however, solicits the views of our CEO on compensation matters generally, other than her own, and particularly with respect to the compensation of members of the senior management team reporting to the CEO. The Committee also solicits the views of other members of senior management and the company’s Human Resources department on topics related to key compensation elements and broad-based team member benefit plans.

Role of Independent Compensation Consultant.Under its charter, the Committee has the authority to retain and consult with independent advisors to assist in fulfilling thesetheir responsibilities and duties. To maintain the independence of these advisors, use by the company of any of these advisors for work other than that expressly commissioned by the Committee must be approved in advance by the Committee.

Since fiscal 2013, the Committee has retained the firm of Frederic W. Cook & Co., Inc. (“FW Cook”)(FW Cook) as its independent compensation consultant. At the Committee’s request each year, FW Cook providedcertifies that it continues to be an independent advisor and discloses information addressing its independence as well asin a letter to the independence of its individual advisors, including the following disclosures:

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Committee that demonstrates this independence. The Committee assessed these factors in light of SEC rulesthis certification and NASDAQ listing standardsdisclosure information and concluded that no conflict of interest or independence concerns exist in the engagement of FW Cook as Select Comfort’sthe Committee’s independent compensation consultant.

In the course of its engagement, the independent compensation consultant:

The Committee usually meets four to six times per year in person or by telephone conference as needed. The Chair of the Committee works with members of our senior management team and with the Committee’s independent compensation consultant to determine the agenda for each meeting. Following the development of the agenda, members of senior management and our human capital function, along with the Committee’s independent compensation consultant, prepare materials for each meeting of the Committee. These materials are typically reviewed with the Chair of the Committee in advance of distribution to the entire Committee. Our Chief Executive Officer, other members of our management team involved in the development and administration of our compensation programs and the Committee’s independent compensation consultant may be invited to attend all or a portion of a Committee meeting, depending on the nature of the agenda. The Committee also typically meets in executive session without any members of management present.

Neither our Chief Executive Officer nor any other member of our management team votes on any matters before the Committee. The Committee, however, solicits the views of our Chief Executive Officer on compensation matters generally, and particularly with respect to the compensation of members of the senior management team reporting to the Chief Executive Officer. The Committee also solicits the views of other members of senior management and the company’s human capital department on topics related to key compensation elements and broad-based employee benefit plans.

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Benchmarking Using Compensation Peer Groups

In determining each executive’s annual Total Direct Compensation, the Committee considers peer group market positioning, utilizing relevant market data and trends provided by the independent compensation consultant.The market data and trends are developed from the Towers Watson Compensation Data Bank (CDB), General Industry Executive Compensation Survey Report and from compensation data obtained from publicly available proxy statements for an industry peer group.

The Committee, in consultation with the independent compensation consultant, annually reviews the composition of the industry peer group to ensure that the included companies are appropriate in terms of size and business focus. The selected peer group generally consists of meaningful industry competitors, as well as a representative group of similarly sized companies involved in development, manufacturing and/or retailing of home furnishings and other consumer durableproducts, with which we compete for talent and for shareholder investments. In order to ensure that our peer group includes companies of appropriate size and scope, we generally aim to select peers that have net sales, EBITDA and market cap within a range of one-half to two times our own net sales, EBITDA and market cap. In September 2015, we removed the following two companies from our peer group because they were recently acquired:

Prior to this action, these companies were included in our peer group and were therefore part of the competitive analysis used for compensation decisions made in March and August 2015. Also in September 2015, we added Container Store Group, Inc. and Kate Spade & Company to our peer group. As a result, our current peer group for benchmarking executive compensation going forward consists of the following companies:

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Compensation RiskCEO Assessment

The company has established an annual process to assess whether its compensation practices are reasonably likely to have a material adverse effect on the company. This process includes:

Based on this assessment, the company has determined that none of its compensation policies, practices or programs is reasonably likely to have a material adverse effect on the company. 

Results of 2015 Advisory Vote to Approve Executive Compensation Process.

We welcome communication with shareholders and value their viewpoints. At our 2015 Annual Meeting, our shareholders approved our Say on Pay proposal in support of our executive compensation program, with more than 96 percent of the votes cast by our shareholders on this proposal in favor of the “say on pay” vote (excluding broker non-votes). The Committee believes that these voting results affirm shareholder support of our approach to executive compensation. 

Compensation Framework and Actions

Compensation Program Elements and 2015 Actions

Our executive compensation program is designed to attract, motivate, reward and retain the senior management talent required to achieve our corporate objectives and create long-term value for our shareholders. We do not have employment agreements with any of our executive officers that provide for continued employment for any period of time. Our program currently consists of the following key elements:

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