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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.      )

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Check the appropriate box:

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Preliminary Proxy Statement

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

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material Pursuant to §240.14a-12

 

THE ESTÉE LAUDER COMPANIES INC.

(Name of Registrant as Specified in Its Charter)

 

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

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

 

 

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LOGO


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The Estée Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
   

William P. Lauder
Executive Chairman

 

LOGO

 

 

September 27, 2019

Dear Fellow Stockholder:

        You are cordially invited to attend the 2019 Annual Meeting of Stockholders. It will be held in New York City on Friday, November 15, 2019, at 10:00 a.m., local time, at the JW Marriott Essex House New York, where we will ask you to vote on the items set forth in the Notice of Annual Meeting of Stockholders below.

        Please vote your shares using the Internet or telephone, or by requesting a printed copy of the proxy materials and completing and returning by mail the proxy card you receive in response to your request. Instructions on each of these voting methods are outlined in this Proxy Statement. Please vote as soon as possible.

        Thank you for your continued support.

GRAPHIC

YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY SUBMIT YOUR PROXY
BY INTERNET, TELEPHONE, OR MAIL.


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THE ESTÉE LAUDER COMPANIES INC.
767 Fifth Avenue
New York, New York 10153

LOGO

Notice of Annual Meeting of Stockholders

Friday, November 15, 2019
10:00 a.m., local time
JW Marriott Essex House New York
Grand Salon
160 Central Park South
New York, New York 10019

ITEMS OF BUSINESS:

1.
To elect the six Class II Director Nominees as Directors to serve until the 2022 Annual Meeting of Stockholders;

2.
To ratify the Audit Committee's appointment of KPMG LLP as independent auditors for the 2020 fiscal year;

3.
To provide an advisory vote to approve executive compensation; and

4.
To approve the Company's Amended and Restated Fiscal 2002 Share Incentive Plan.

        We also will transact such other business as may properly come before the meeting and any adjournments or postponements of the meeting.


 

 

By Order of the Board of Directors

 

 

SPENCER G. SMUL
    Senior Vice President,
Deputy General Counsel and Secretary

 

 

New York, New York
September 27, 2019

        THE BOARD OF DIRECTORS URGES YOU TO VOTE BY INTERNET OR BY TELEPHONE OR BY REQUESTING A PRINTED COPY OF THE PROXY MATERIALS AND COMPLETING AND RETURNING BY MAIL THE PROXY CARD YOU RECEIVE IN RESPONSE TO YOUR REQUEST.

        IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 15, 2019: The Company's Proxy Statement for the 2019 Annual Meeting of Stockholders and the Annual Report on Form 10-K for the fiscal year ended June 30, 2019 with certain exhibits (which constitutes the "Annual Report to Stockholders") are available at www.envisionreports.com/EL


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Table of Contents

Proxy Statement Summary

  1

Information about the Annual Meeting and Voting

  4

ELECTION OF DIRECTORS (Item 1)

  8

Board of Directors

  8

Director Qualifications

  8

NOMINEES FOR ELECTION TO TERM EXPIRING 2022 (CLASS II)

  9

INCUMBENT DIRECTORS – TERM EXPIRING 2020 (CLASS III)

  12

INCUMBENT DIRECTORS – TERM EXPIRING 2021 (CLASS I)

  14

Additional Information Regarding the Board of Directors

  17

Stockholders' Agreement and Lauder Family Control

  17

Board Committees

  17

Compensation Committee Interlocks and Insider Participation

  19

Board and Board Committee Meetings; Annual Meeting Attendance; and Executive Sessions

  19

Board Leadership Structure

  19

Board Role in Risk Oversight

  20

Risk in Compensation Programs

  20

Board Membership Criteria

  20

Board Independence Standards for Directors

  21

Communications with the Board

  22

Director Nominees Recommended by Stockholders

  22

Corporate Governance Guidelines and Code of Conduct

  23

Related Person Transactions Policy and Procedures

  23

Certain Relationships and Related Transactions

  23

Director Compensation

  28

Ownership of Shares

  32

Executive Compensation

  38

Compensation Discussion and Analysis

  38

Compensation Committee and Stock Plan Subcommittee Report

  59

Summary Compensation Table

  60

Employment Agreements

  63

Grants of Plan-Based Awards in Fiscal 2019

  65

Outstanding Equity Awards at June 30, 2019

  67

Option Exercises and Stock Vested in Fiscal 2019

  69

Pension Benefits

  70

Nonqualified Deferred Compensation in Fiscal 2019 and at June 30, 2019

  71

Potential Payments upon Termination of Employment or Change of Control

  72

Pay Ratio Disclosure

  79

Audit Committee Report

  81

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (Item 2)

  82

ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (Item 3)

  84

Equity Compensation Plan Information as of June 30, 2019

  85

APPROVAL OF THE ESTÉE LAUDER COMPANIES INC. AMENDED AND RESTATED FISCAL 2002 SHARE INCENTIVE PLAN (Item 4)

  86

Proxy Procedure and Expenses of Solicitation

  95

Stockholder Proposals and Director Nominations for the 2020 Annual Meeting

  95

Other Information

  96

Appendix A – Reconciliation of Non-GAAP Financial Measures

  A-1

Appendix B – The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan

  B-1

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Proxy Statement Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all the information that you should consider, and you should read the entire Proxy Statement before voting. The approximate date on which this Proxy Statement and form of proxy are first being provided to stockholders, or being made available through the Internet for those stockholders receiving their proxy materials electronically, is September 27, 2019.

2019 Annual Meeting of Stockholders

Date and Time:


Record Date:
Friday, November 15, 2019
at 10:00 a.m.

September 16, 2019
Place: JW Marriott Essex House
New York
Grand Salon
160 Central Park South
New York, New York 10019

Voting Matters

ITEMS OF BUSINESS BOARD
RECOMMENDATION
PROXY
STATEMENT DISCLOSURE
1 Election of Class II Directors FOR
each Director Nominee

Page 8
            
2 Ratification of Appointment of KPMG LLP as Independent Auditors FOR Page 82
            
3 Advisory Vote to Approve Executive Compensation FOR Page 84
            
4 Approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan FOR Page 86

Director Nominees

        The following table provides information about the Class II Director Nominees standing for election to serve until the 2022 Annual Meeting of Stockholders. Information about all the Directors can be found in this Proxy Statement beginning on page 8.

Nominee
Current Position
Committee Membership
Ronald S. Lauder Chairman of Clinique Laboratories, LLC None
William P. Lauder Executive Chairman of The Estée Lauder Companies Inc. Nominating and Governance Committee
Richard D. Parsons Senior Advisor to Providence Equity Partners LLC; and co-founder and partner of Imagination Capital LLC Compensation Committee; and Nominating and Governance Committee
Lynn Forester de Rothschild Chair of E.L. Rothschild LLC Nominating and Governance Committee
Jennifer Tejada Chief Executive Officer and Chair of the Board, PagerDuty, Inc. Audit Committee
Richard F. Zannino Managing Director, CCMP Capital Advisors, LLC Audit Committee


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2019 Proxy Statement     |    1


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Performance Highlights

        As explained in the "Compensation Discussion and Analysis," we drive our annual and long-term performance through our executive compensation programs. Annual incentive pay is tied to business objectives that are specific to each employee's responsibilities and encourage collaboration across the organization. Long-term equity incentives are tied to both the Company's share price and financial goals over a period of three or more years. As explained below, this combination of compensation elements is intended to help drive and promote strong, balanced, and sustainable corporate performance.

        Fiscal 2019 was another outstanding year for our Company. We achieved strong net sales gains across our business, fueled by investments in our strategic priorities, including improved data analytics that helped power our innovation and digital marketing. Our winning strategy led to continued share gains in global prestige beauty. Many engines drove our growth, including nearly every market in the Asia/Pacific region and many other important emerging markets around the world; our skin care category in every region; the travel retail and online channels globally; and compelling innovations, our hero franchises, and high-quality products, which drove strong repeat purchases.

Financial Measure


Fiscal 2019
Change over
Prior Year


3-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)





5-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)

Net Sales

$ 14.9 billion 9% 9.7% 6.3%

Net Sales as adjusted(1)

$ 14.9 billion 9% 9.7% 6.6%

Net Sales as adjusted in constant currency(1)

$ 15.2 billion 11% N/A N/A

Operating Margin

15.6% +60bp +130bp –110bp

Operating Margin as adjusted(1)

17.5% +90bp +190bp +140bp

Diluted EPS

$ 4.82 63% 17.6% 9.5%

Diluted EPS as adjusted(1)

$ 5.34 18% 18.4% 12.6%

Diluted EPS as adjusted in constant currency(1)(2)

$ 5.52 22% N/A N/A

Return on Invested Capital Return on Invested Capital as adjusted(3)

25.7% +460bp +330bp +90bp

Cash Flow from Operations

$ 2.5 billion (2)% 12.1% 10.4%

Total Stockholder Return ("TSR")

29.8% 108.9% 162.5%

TSR – S&P 500 Composite

10.4% 48.9% 66.3%

(1)
Fiscal 2019, 2018, and 2016 have been adjusted to exclude returns and charges associated with restructuring and other activities and the impact of changes in the fair value of contingent consideration. Fiscal 2019 Net Sales as adjusted in constant currency excludes the $371 million unfavorable impact of foreign currency translation. Fiscal 2019 has also been adjusted to exclude goodwill and other intangible asset impairments, and fiscal 2019 Diluted EPS as adjusted also excludes the gain on liquidation of an investment in a foreign subsidiary, net. Fiscal 2019 and 2018 Diluted EPS as adjusted also exclude the impact of the provisional charges resulting from the enactment of the Tax Cuts and Jobs Act. Fiscal 2019 Diluted EPS as adjusted in constant currency excludes the $.18 unfavorable impact of foreign currency translation. Fiscal 2014 has been adjusted for a charge to remeasure net monetary assets in Venezuela and for the impact of the accelerated orders associated with the Company's July 2014 implementation of its Strategic Modernization Initiative. See Appendix A for reconciliation and other information about these non-GAAP financial measures.


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(2)
Includes the favorable impact of $.04 related to the adoption of the new revenue recognition accounting standard (ASC 606). Excluding this impact, fiscal 2019 Diluted EPS as adjusted in constant currency was $5.48, or a change over prior year of 21%.

(3)
Excludes returns and charges associated with restructuring and other activities, goodwill and other intangible asset impairments, and the impact of changes in the fair value of contingent consideration in each period, where applicable. Fiscal 2019 and 2018 exclude the impact of the provisional charges resulting from the enactment of the Tax Cuts and Jobs Act on the effective tax rate. Fiscal 2019 also excludes the tax impact of the gain on liquidation of an investment in a foreign subsidiary, net. See Appendix A for information about this non-GAAP financial measure.

        In fiscal 2019, we increased the common stock dividend rate by 13%, repurchased 11 million shares of our Class A Common Stock for $1.6 billion, and used $744 million of cash flow from operations for capital expenditures. Over the five-year period ended June 30, 2019, the total market value of the Company increased by over 130%, or approximately $38 billion.

    Executive Compensation Highlights

        The following summarizes key executive compensation matters in connection with strong and sustained individual and Company performance:

    The Compensation Committee authorized increases in annual compensation for fiscal 2019 for the Named Executive Officers ("NEOs"). On average, fiscal 2019 annual target compensation for the NEOs increased less than 5% from the prior fiscal year.

    The annual stock-based compensation awarded to our NEOs in fiscal 2019 was based on target grant levels and an assessment of each officer's performance and expected future contributions. The annual equity mix is weighted equally among performance share units ("PSUs"), stock options, and restricted stock units ("RSUs").

    For fiscal 2019, the base salary for Fabrizio Freda, our President and Chief Executive Officer, was increased to $2.0 million (from $1.9 million), his bonus opportunity was increased to $5.0 million (from $4.9 million), and his equity target was increased to $9.15 million (from $8.88 million), resulting in target total annual compensation of $16.15 million, an increase of 3% from the prior fiscal year.

    In August 2019, the Stock Plan Subcommittee of the Compensation Committee approved the payout for the second of three tranches of the PSU that was granted to Mr. Freda in September 2015. For the second tranche Performance Period ended June 30, 2019, positive Cumulative Operating Income has been achieved, and 129,283 shares will be delivered to him on June 30, 2022, subject to the award's terms and conditions.

    Based on the Company's performance over the three-year period ended June 30, 2019, the PSUs granted to our executive officers in September 2016 resulted in an aggregate payout of 150% of target.

    Our NEOs achieved fiscal 2019 payout percentages under the Executive Annual Incentive Plan ranging from 85% to 143% out of a possible maximum of 150% of target bonus opportunities.

    In fiscal 2019, the Compensation Committee increased the stock ownership requirements for executive officers to underscore the Company's commitment to long-term alignment with stockholders.

    In fiscal 2019, the Board approved a new Hedging Policy that prohibits hedging of outstanding equity grants (e.g., PSUs, RSUs, and options) by employees, including officers, and directors.


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THE ESTÉE LAUDER COMPANIES INC.
767 Fifth Avenue
New York, New York 10153

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 15, 2019

September 27, 2019

Annual Meeting and Voting

        This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of The Estée Lauder Companies Inc. (the "Company," "we," or "us"), a Delaware corporation, to be voted at the Annual Meeting of Stockholders to be held in the Grand Salon at the JW Marriott Essex House New York, 160 Central Park South, New York, New York, 10019 on Friday, November 15, 2019, at 10:00 a.m. local time, and at any adjournment or postponement of the meeting.

Admission to the meeting will require a ticket.

        If you are a stockholder of record and plan to attend, please check the appropriate box on the proxy card, or so indicate when you vote by telephone or Internet, and an admission ticket will be mailed to you. If you want to attend the meeting, bring photo identification as well as your admission ticket. If you are a stockholder whose shares are held through an intermediary, such as a bank or broker, and you plan to attend, please request an admission ticket by writing to the Investor Relations Department at The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. Evidence of your ownership of shares of our Common Stock on September 16, 2019 (the "Record Date"), which you can obtain from your bank, broker, or other intermediary, must accompany your letter.

Who may vote?

        Only stockholders of record of shares of Class A Common Stock or Class B Common Stock at the close of business on the Record Date are entitled to vote at the Annual Meeting and at any adjournment or postponement of the meeting. Each owner of record of Class A Common Stock on the Record Date is entitled to one vote for each share of Class A Common Stock. Each owner of record of Class B Common Stock on the Record Date is entitled to ten votes for each share of Class B Common Stock. As of August 31, 2019, there were 221,860,744 shares of Class A Common Stock and 139,262,914 shares of Class B Common Stock issued and outstanding.

Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the proxy materials?

        In accordance with rules of the Securities and Exchange Commission (the "SEC"), we have elected to furnish to our stockholders this Proxy Statement and our Annual Report to Stockholders by providing access to these documents on the Internet rather than mailing printed copies. Accordingly, a Notice of Internet Availability of Proxy Materials (the "Notice") is being mailed to our stockholders of record and beneficial owners (other than those who previously requested printed copies or electronic delivery of our proxy materials), which will direct stockholders to a website where they can access our proxy materials and view instructions on how to vote online or by telephone. If you would prefer to receive a paper copy of our proxy materials, please follow the instructions included in the Notice.


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How do I cast my vote if I am a stockholder of record?

        If you are a stockholder of record (which means your shares are registered directly in your name with the Company's transfer agent, Computershare, Inc., or you have a physical stock certificate), you can vote your shares in one of two ways: either by proxy or in person at the Annual Meeting. If you choose to vote by proxy, you may do so by using the Internet or the telephone, or by requesting a printed copy of our proxy materials and completing and returning by mail the proxy card you receive in response to your request.

        Whichever method you use, each valid proxy received in time will be voted at the Annual Meeting in accordance with your instructions. To ensure that your proxy is voted, it should be received before November 15, 2019. If you submit a proxy without giving instructions, your shares will be voted as recommended by the Board of Directors.

How do I cast my vote if my shares are held in "street name?"

        If you are a beneficial owner of shares held in a stock brokerage account or by a bank or other nominee (i.e. in "street name"), you are invited to attend the Annual Meeting. However, since you are not a stockholder of record, you may not vote these shares in person at the Annual Meeting unless you bring with you a legal proxy from the stockholder of record. A legal proxy may be obtained from your broker, bank, or nominee.

        If you do not wish to vote in person or you will not be attending the Annual Meeting, you may vote over the Internet or otherwise by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you will receive voting instructions from your broker, bank, or nominee describing the available processes for voting your shares.

        If your shares are held for you by a broker, your broker must vote those shares in accordance with your instructions. If you do not give voting instructions to your broker, your broker may vote your shares for you on any discretionary items of business to be voted upon at the Annual Meeting, i.e. the ratification of the appointment of KPMG LLP (Item 2).


        Important Consideration for "street name" holders:  You must instruct your broker if you want your shares to be counted in the election of directors at the Annual Meeting (Item 1), the advisory vote to approve executive compensation (Item 3), and the approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan (Item 4). New York Stock Exchange ("NYSE") rules prevent your broker from voting your shares on these matters without your instructions. Please follow the instructions provided by your broker so that your vote can be counted.

May I change my vote?

        All proxies delivered pursuant to this solicitation are revocable at any time before they are exercised, at the option of the persons submitting them, by giving written notice to the Secretary of the Company at the mailing address set forth below, by submitting a later-dated proxy (either by mail, telephone, or Internet) or by voting in person at the Annual Meeting. The mailing address of our principal executive offices is 767 Fifth Avenue, New York, New York 10153.

What constitutes a quorum?

        The holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum for the transaction of business at the Annual Meeting. Abstentions, broker non-votes, and votes withheld are included in the count to determine a quorum.


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2019 Proxy Statement     |    5

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What if a quorum is not represented at the Annual Meeting?

        In the event that a quorum does not exist, the Executive Chairman or the holders of a majority of the votes entitled to be cast by the stockholders who are present in person or by proxy may adjourn the meeting whether or not a quorum is present. At a subsequent meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

How many votes are required to approve a proposal?

        The following table notes for each proposal: (i) the vote required of Class A Common Stock and Class B Common Stock (voting together) for approval; (ii) whether abstentions count as votes cast; and (iii) whether broker discretionary voting is allowed.

Proposal
Vote required
Do abstentions
count as
votes cast?



Is broker
discretionary
voting allowed?
Item 1:
Election of Class II
Directors
Plurality of Votes Cast* Not Applicable No
Item 2:
Ratify appointment of
KPMG LLP as independent auditors


Majority of Votes Cast No Yes
Item 3:
Advisory vote to approve
Executive Compensation
Majority of Votes Cast** No No
Item 4:
Approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan

Majority of Votes Cast Yes No

*
In the election of directors (Item 1), shares present at the Annual Meeting that are not voted for a particular nominee, broker non-votes, and shares present by proxy where the stockholder withholds authority to vote for the nominee will not be counted toward the nominee's achievement of a plurality.

**
The advisory vote to approve executive compensation (Item 3) is not binding on the Company. However, the Compensation Committee and the Stock Plan Subcommittee, which are responsible for designing and administering the Company's executive compensation program, value the opinions expressed by stockholders. See "Compensation Discussion and Analysis – Advisory Vote on Executive Compensation."

When a matter requires stockholder approval under NYSE rules (i.e. Item 4), it must be approved by a majority of votes cast, with abstentions treated as votes cast.

        Broker non-votes do not count as votes cast, and therefore have no effect on vote outcomes. Abstentions count as votes cast only in matters that require stockholder approval under NYSE rules; for these items, an abstention has the practical effect of a vote against a proposal. For all other matters, abstentions do not count as votes cast, and therefore do not affect the vote outcome.


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How will my shares be voted?

        All proxies properly submitted pursuant to this solicitation and not revoked will be voted at the Annual Meeting in accordance with the directions given. In the election of directors (Item 1), stockholders may vote in favor of, or withhold their votes from, each nominee. For the ratification of the appointment of KPMG LLP (Item 2); the advisory vote to approve executive compensation (Item 3); and the approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan (Item 4); stockholders may vote in favor of the proposal, may vote against the proposal, or may abstain from voting. Stockholders should specify their choices on the proxy card or pursuant to the instructions thereon for telephone or Internet voting. If no specific choices are indicated, the shares represented by a properly submitted proxy will be voted:

    1.
    FOR the election of each nominee as director;

    2.
    FOR the ratification of the appointment of KPMG LLP as independent auditors;

    3.
    FOR the advisory resolution to approve executive compensation; and

    4.
    FOR the approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan.

        If you have returned your signed and completed proxy card, and other matters are properly presented at the Annual Meeting for consideration, the proxy holders appointed by the Board of Directors (the persons named in your proxy card if you are a stockholder of record) will have the discretion to vote on those matters for you.

Who will count the vote?

        Representatives of Computershare, Inc. will tabulate the votes and act as inspectors of election.

May I see a list of stockholders entitled to vote as of the Record Date?

        A list of registered stockholders as of the close of business on the Record Date will be available for examination by any stockholder for any purpose germane to the Annual Meeting. This list will be available during such meeting and during normal business hours from November 1, 2019 through November 14, 2019 at the office of Spencer G. Smul, Senior Vice President, Deputy General Counsel and Secretary of the Company, at 767 Fifth Avenue, New York, New York 10153.

Can I access the Notice of Annual Meeting, Proxy Statement, and Annual Report to Stockholders on the Internet?

        Our Proxy Statement (including Notice of Annual Meeting) and our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 with certain exhibits (which constitutes the "Annual Report to Stockholders") are available at www.envisionreports.com/EL.

        These materials are also available in the "Investors" section of our website at www.elcompanies.com. Instead of receiving future copies of our Proxy Statement (including Notice of Annual Meeting) and Annual Report to Stockholders by mail, stockholders can access these materials online. Opting to receive your proxy materials online will save us the cost of producing and mailing documents to you; an electronic link to the proxy voting site will be provided to you. Stockholders of record can enroll at www.computershare.com/investor for online access to future proxy materials.

        If you hold your shares in a bank or brokerage account, you also may have the opportunity to receive copies of these documents electronically. Please check the information provided in the proxy materials mailed to you by your bank or broker regarding the availability of this service.


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2019 Proxy Statement     |    7

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Election of Directors
(Item 1)

Board of Directors

        Currently, the Board of Directors (the "Board") is comprised of sixteen directors. The directors are divided into three classes, each serving for a period of three years. Class I is comprised of five directors, Class II is comprised of six directors, and Class III is comprised of five directors.

        The stockholders elect one class of the members of the Board of Directors annually. The directors whose terms will expire at the 2019 Annual Meeting of Stockholders are Ronald S. Lauder, William P. Lauder, Richard D. Parsons, Lynn Forester de Rothschild, Jennifer Tejada, and Richard F. Zannino. Each of these directors has been nominated to stand for re-election as a Class II director at the 2019 Annual Meeting, to hold office until the 2022 Annual Meeting and until his or her successor is elected and qualified. In the unanticipated event that one or more of the nominees is unable or declines to serve for any reason, the Board may reduce the number of directors or take action to fill any vacancy.

        Lauder Family Members, including related entities, who control the Company have agreed to vote their shares in favor of four individuals as directors: Jane Lauder, Leonard A. Lauder, Ronald S. Lauder, and William P. Lauder. The term "Lauder Family Members" is defined below (see "Certain Relationships and Related Transactions – Lauder Family Relationships and Compensation"). As noted above, Ronald S. Lauder and William P. Lauder are among the Class II directors standing for re-election at the 2019 Annual Meeting.


        Director Qualifications.  Our Board is comprised of individuals with diverse and complementary business experience, leadership experience, and financial experience. Many of our directors have leadership experience at major domestic and multinational companies, as well as experience on the boards of other companies and organizations, which provides an understanding of different business processes, challenges, and strategies. Other directors have government, legal, public policy, or media experience that provides insight into issues faced by public companies. The members of the Board are inquisitive and collaborative, challenging yet supportive, and demonstrate maturity and sound judgment in performing their duties. The Board believes that the above-mentioned attributes, along with the leadership skills and other experience of its Board members, some of which are described in the biographies below, provide the appropriate perspectives and judgment to guide the Company's long-term strategy, monitor progress, and oversee management.

        The Company does not have a specific policy on diversity of the Board. Instead, the Board evaluates nominees in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on the group's diversity of experience, represent stockholder interests through the exercise of sound judgment. Such diversity of experience may be enhanced by a mix of different professional and personal backgrounds and experiences. The Company is proud to have a diverse Board, including with respect to gender and race.

GRAPHIC   The Board recommends a vote FOR each nominee as a director to hold office until the 2022 Annual Meeting. Proxies received by the Board will be so voted unless a contrary choice is specified in the proxy.


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Nominees for Election to Term Expiring 2022 (Class II)

Ronald S. Lauder

PHOTO
Director since 2016
Age 75


BACKGROUND

Mr. R. Lauder has served as Chairman of Clinique Laboratories, LLC since returning from government service in 1987 and was Chairman of Estee Lauder International, Inc. from 1987 through 2002. Mr. Lauder joined the Company in 1964 and has served in various capacities. Mr. Lauder was a member of the Board of Directors of the Company from 1968 to 1986 and again from 1988 to July 2009. From 1983 to 1986, he served as Deputy Assistant Secretary of Defense for European and NATO Affairs. From 1986 to 1987, he was U.S. Ambassador to Austria. Mr. Lauder is an Honorary Chairman of the Board of Trustees of the Museum of Modern Art and President of the Neue Galerie. He is also Chairman of the Board of Governors of the Joseph H. Lauder Institute of Management and International Studies at The Wharton School at the University of Pennsylvania, the co-founder and Co-Chairman of the Alzheimer's Drug Discovery Foundation, and a member of the Board of Trustees of the J. Paul Getty Trust.



QUALIFICATIONS

Global business, marketing, and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc.

Affiliation with leading business, civic, and government associations

Board experience at Central European Media Enterprises Ltd.

Significant stockholder and party to Stockholders' Agreement


 


 


 
William P. Lauder

PHOTO
Director since 1996
Age 59

Committee:

Nominating and Governance Committee


BACKGROUND

Mr. W. Lauder is Executive Chairman of the Company and, in such role, he is Chairman of the Board of Directors. He was Chief Executive Officer of the Company from March 2008 through June 2009 and President and Chief Executive Officer from July 2004 through February 2008. From January 2003 through June 2004, he was Chief Operating Officer. From July 2001 through 2002, Mr. Lauder was Group President, responsible for the worldwide business of the Clinique and Origins brands and the Company's retail store and online operations. From 1998 to 2001, he was President of Clinique Laboratories, LLC. Prior to 1998, he was President of Origins Natural Resources Inc., and he had been the senior officer of that division since its inception in 1990. Prior thereto, he served in various positions since joining the Company in 1986. Within the past five years, Mr. Lauder served as a director of Jarden Corporation. He currently serves as Chairman of the Board of the Fresh Air Fund, as a member of the boards of trustees of the University of Pennsylvania and The Trinity School in New York City, and as a member of the boards of directors of the 92nd Street Y and the Partnership for New York City, and he is on the Advisory Board of Zelnick Media. Mr. Lauder is also Co-Chairman of the Breast Cancer Research Foundation.



QUALIFICATIONS

Global business, marketing, Internet, retail, and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc.

Experience leading successful creative organizations with innovation programs based on research and development

Board experience at GLG Partners, Inc., Jarden Corporation, and True Temper Sports, Inc.

Trustee of the University of Pennsylvania and lecturer at The Wharton School

Financial experience

Significant stockholder and party to Stockholders' Agreement


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Richard D. Parsons

PHOTO
Director since 1999
Age 71

Committees:

Compensation Committee

Nominating and Governance Committee


BACKGROUND

Mr. Parsons has been a senior advisor to Providence Equity Partners LLC, a global private equity and investment firm, since 2009, and he is a co-founder and partner of Imagination Capital LLC, a venture capital firm. From 1996 until 2012, he was a director of Citigroup Inc. and served as its Chairman from February 2009 to April 2012. From May 2003 until his retirement in December 2008, Mr. Parsons served as Chairman of the Board of Time Warner Inc. From May 2002 until December 2007, he served as Chief Executive Officer of Time Warner Inc. From January 2001 until May 2002, Mr. Parsons was Co-Chief Operating Officer of AOL Time Warner. From 1995 until the merger with America On-Line Inc., he was President of Time Warner Inc. From 1990 through 1994, he was Chairman and Chief Executive Officer of Dime Bancorp, Inc. Mr. Parsons is on the boards of directors of Lazard Ltd. and The Madison Square Garden Company. Additionally, within the past five years, he served as a director of CBS Corporation. Among his numerous community activities, he is Chairman of the Apollo Theatre Foundation and the Jazz Foundation of America.



QUALIFICATIONS

Global business, marketing, media, Internet, banking, and other business and consumer brand experience through leadership roles at Time Warner Inc. and Dime Bancorp, Inc.

Board experience at CBS Corporation, Citigroup Inc., Lazard Ltd., The Madison Square Garden Company, and Time Warner Inc.

Private equity experience at Providence Equity Partners LLC

Legal and government experience

Financial experience


 


 


 
Lynn Forester de Rothschild

PHOTO
Director since 2000
Age 65

Committee:

Nominating and Governance Committee


BACKGROUND

Lady de Rothschild is the Chair of E.L. Rothschild LLC, a private investment company with investments in media, information technology, agriculture, financial services, and real estate worldwide, and she was the Chief Executive of E.L. Rothschild LLC from 2002 to 2016. Holdings of E.L. Rothschild LLC include The Economist Group (UK). Lady de Rothschild has been a director of The Economist Newspaper Limited since October 2002. From 1989 to 2002, she was President and Chief Executive Officer of FirstMark Holdings, Inc. She serves on the Board and Executive Committee of The Peterson Institute for International Economics. Lady de Rothschild is a trustee of the Eranda Foundation and a board member of the International Advisory Board of Columbia University School of Law and the Alzheimer Drug Discovery Foundation. She is a member of the Council on Foreign Relations (USA), Chatham House (UK), the International Advisory Council of Asia House (UK), the International Institute of Strategic Studies (UK), and the Foreign Policy Association (USA).



QUALIFICATIONS

Global business and investment experience as former Chief Executive of E.L. Rothschild LLC and CEO of FirstMark Holdings, Inc.

Board and media experience as director of The Economist Newspaper Limited

Affiliation with leading business and public policy associations (Council on Foreign Relations)

Experience working abroad

Legal and government expertise

Financial experience


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Jennifer Tejada

PHOTO
Director since 2018
Age 48

Committee:

Audit Committee


BACKGROUND

Ms. Tejada is Chief Executive Officer and Chair of the Board of PagerDuty, Inc., a digital operations management platform for businesses. Prior to joining PagerDuty in July 2016, she was President and Chief Executive Officer of Keynote Systems Corporation, a software company specializing in digital performance analytics and web and mobile testing, from 2013 to 2015. Ms. Tejada was Executive Vice President and Chief Strategy Officer of Mincom, an enterprise software company, from 2008 to 2011. She has also previously held senior positions at Merivale Group, The Procter & Gamble Company, and i2 Technologies.



QUALIFICATIONS

Management experience at PagerDuty, Inc., Keynote Systems Corporation, and Mincom

Digital, mobile, cyber, and software experience

Consumer goods experience

Experience working abroad

Board experience at PagerDuty, Inc., Keynote Systems Corporation, and Puppet Labs, Inc.

Financial experience


 


 


 
Richard F. Zannino

PHOTO
Director since 2010
Age 60

Committee:

Audit Committee (Chair)


BACKGROUND

Mr. Zannino is a Managing Director at the private equity firm CCMP Capital Advisors,  LLC, a position he has held since July 2009. He is a partner on the firm's Investment Committee and co-heads the consumer retail practice. Prior to joining CCMP Capital, Mr. Zannino was an independent retail and media advisor from February 2008 to June 2009. He was Chief Executive Officer and a member of the Board of Directors of Dow Jones & Company, Inc. from February 2006 until January 2008, shortly after its acquisition by News Corp. Mr. Zannino joined Dow Jones as Executive Vice President and Chief Financial Officer in February 2001 and was promoted to Chief Operating Officer in July 2002. From 1998 to 2001, he was Executive Vice President of Liz Claiborne, Inc., where he oversaw the finance, administration, retail, fragrance, and licensing divisions. From 1993 to 1998, Mr. Zannino was with Saks Fifth Avenue, serving as Vice President and Treasurer, Senior Vice President, Finance and Merchandise Planning, and then Executive Vice President and Chief Financial Officer. He is on the boards of directors of IAC/InterActiveCorp and Ollie's Bargain Outlet Holdings, Inc. Additionally, within the past five years, Mr. Zannino served as a director of Francesca's Holdings Corporation. He currently serves as Vice Chairman of the Board of Trustees of Pace University.



QUALIFICATIONS

Management, media, finance, retail, and consumer brand industry experience in various positions at Dow Jones & Company, Inc., Liz Claiborne, Inc., and Saks Fifth Avenue

Consumer, retail, media, and private equity experience at CCMP Capital Advisors, LLC

Board experience at Dow Jones & Company, Inc., Francesca's Holdings Corporation, IAC/InterActiveCorp, and Ollie's Bargain Outlet Holdings, Inc.

Trustee of Pace University

Financial experience


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Incumbent Directors – Term Expiring 2020 (Class III)

Charlene Barshefsky

PHOTO Director since 2001
Age 69

Committees:

Compensation Committee (Chair) and Stock Plan Subcommittee


BACKGROUND

Ambassador Barshefsky is Senior International Partner at the law firm of WilmerHale in Washington, D.C. Prior to joining the law firm in 2001, she was the United States Trade Representative from 1997 to 2001, and Deputy United States Trade Representative and Acting United States Trade Representative from 1993 to 1996. Ambassador Barshefsky is on the boards of directors of American Express Company and MDC Partners Inc. Additionally, within the past five years, she served as a director of Intel Corporation and Starwood Hotels & Resorts Worldwide, Inc. Ambassador Barshefsky is a member of the Council on Foreign Relations and a trustee of the Howard Hughes Medical Institute.



QUALIFICATIONS

International, government, and public policy experience as United States Trade Representative

Legal experience, including current role as Senior International Partner at WilmerHale

Board experience at American Express Company, Intel Corporation, MDC Partners Inc., and Starwood Hotels & Resorts Worldwide, Inc.

Trustee of the Howard Hughes Medical Institute


 


 


 
Wei Sun Christianson

PHOTO Director since 2011
Age 63

Committee:

Nominating and Governance Committee


BACKGROUND

Ms. Christianson is a Managing Director and Co-Chief Executive Officer of Asia Pacific and Chief Executive Officer of China at Morgan Stanley, a global financial services firm. She is based in Beijing, and in addition to her regional role, Ms. Christianson is responsible for all aspects of Morgan Stanley's operations in China and is a member of Morgan Stanley's Management Committee. Prior to rejoining Morgan Stanley in 2006, she was the Chairman of China for Citigroup Global Markets (Asia Ltd.) and previously served as Chairman of China and Country Manager for Credit Suisse First Boston. Ms. Christianson held an earlier position at Morgan Stanley beginning in 1998 as Executive Director and Beijing Representative.



QUALIFICATIONS

Global management and investment banking experience as Managing Director and Co-Chief Executive Officer of Asia Pacific and Chief Executive Officer of China at Morgan Stanley based in Beijing

Experience working abroad, particularly in China

Financial experience

Government experience (in Hong Kong)


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Fabrizio Freda

PHOTO Director since 2009
Age 62


BACKGROUND

Mr. Freda has served as President and Chief Executive Officer of the Company since July 2009. From March 2008 through June 2009, he was President and Chief Operating Officer where he oversaw the Clinique, Bobbi Brown, La Mer, Jo Malone London, Aveda, and Bumble and bumble brands, and the Aramis and Designer Fragrances division. He also was responsible for the Company's International Division, as well as Global Operations, Research and Development, Packaging, Quality Assurance, Merchandise Design, Corporate Store Design, and Retail Store Operations. Prior to joining the Company, Mr. Freda served in a number of positions of increasing responsibility at The Procter & Gamble Company ("P&G"), where he was responsible for various operating, marketing, and key strategic efforts for over 20 years. From 2001 through 2007, Mr. Freda was President, Global Snacks, at P&G. He also spent more than a decade in the Health and Beauty Care division at P&G. From 1986 to 1988, Mr. Freda directed marketing and strategic planning for Gucci SpA. He is currently a member of the Board of Directors of BlackRock, Inc., a global asset management company.



QUALIFICATIONS

Global management, marketing, and other business, consumer and luxury brand industry experience as President and Chief Executive Officer of The Estée Lauder Companies Inc.

Similar experience, including developing and leading global organizations, in leadership positions at P&G and Gucci SpA

Experience leading successful, creative organizations with innovation programs based on research and development

Board experience at BlackRock, Inc.

Experience living and working in several countries

Financial experience


 


 


 
Jane Lauder

PHOTO
Director since 2009
Age 46


BACKGROUND

Ms. Lauder has served as Global Brand President, Clinique, since April 2014. Immediately prior to that, she was Global President, General Manager of the Origins, Ojon, and Darphin brands. From July 2008 until July 2010, she was Senior Vice President/General Manager of the Origins brand. Ms. Lauder began her career with the Company in 1996 at Clinique and served in various positions throughout the Company until July 2006, when she became Senior Vice President, Global Marketing for Clinique. She is a member of the Board of Directors of Eventbrite,  Inc.



QUALIFICATIONS

Management, marketing, and other industry experience through leadership roles at The Estée Lauder Companies Inc.

Board experience at Eventbrite, Inc.

Significant stockholder and party to Stockholders' Agreement (solely as trustee of one or more trusts)


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Leonard A. Lauder

PHOTO Director since 1958
Age 86


BACKGROUND

Mr. L. Lauder is Chairman Emeritus of the Company. He was Chairman of the Board of Directors from 1995 through June 2009 and served as the Company's Chief Executive Officer from 1982 through 1999 and President from 1972 until 1995. Mr. Lauder has held various positions since formally joining the Company in 1958 after serving as an officer in the United States Navy. He is Chairman Emeritus of the Board of Trustees of the Whitney Museum of American Art, a Charter Trustee of the University of Pennsylvania, a Trustee of The Aspen Institute, and the co-founder and Co-Chairman of the Alzheimer's Drug Discovery Foundation. Mr. Lauder is Honorary Chairman of the Breast Cancer Research Foundation. He served as a member of the White House Advisory Committee on Trade Policy and Negotiations under President Reagan.



QUALIFICATIONS

Global business, marketing, and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc.

Experience leading successful creative organizations with innovation programs based on research and development

Affiliation with leading business, civic, and public policy associations

Charter Trustee of the University of Pennsylvania

Significant stockholder and party to Stockholders' Agreement

Incumbent Directors – Term Expiring 2021 (Class I)

Rose Marie Bravo, CBE

PHOTO Director since 2003
Age 68

Committees:

Compensation Committee and Stock Plan Subcommittee


BACKGROUND

Ms. Bravo is a retail and marketing consultant. She was Vice Chairman of Burberry Group plc from July 2006 to July 2007. Prior to that, she was Burberry's Chief Executive Officer from 1997 to July 2006. Prior to her appointment at Burberry, Ms. Bravo was President of Saks Fifth Avenue since 1992, with responsibility for merchandising, marketing, and product development. From 1974 to 1992, Ms. Bravo held a number of positions at R.H. Macy & Co., culminating as Chairman and Chief Executive Officer of the U.S. retailer I. Magnin from 1987 to 1992. Ms. Bravo is a member of the Board of Directors of Tiffany & Co. Additionally, within the past five years, she served as a director of Williams-Sonoma, Inc.



QUALIFICATIONS

Global management, marketing, retail, and consumer and luxury brand industry experience as former Chief Executive Officer of Burberry, in various leadership positions at Saks Fifth Avenue and Macy's, and in senior roles related to merchandising in the beauty category

Board experience at Burberry, Tiffany & Co., and Williams-Sonoma, Inc.

Experience working abroad

Merchandise and product development expertise


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Paul J. Fribourg

PHOTO Director since 2006
Age 65

Committees:

Audit Committee

Compensation Committee and Stock Plan Subcommittee


BACKGROUND

Mr. Fribourg has been the Chairman and Chief Executive Officer of Continental Grain Company, an international agribusiness and investment company, since July 1997. He joined Continental Grain Company in 1976 and worked in various positions there with increasing responsibility in both the United States and Europe. Mr. Fribourg is on the boards of directors of Bunge Limited, Loews Corporation, and Restaurant Brands International Inc. Additionally, within the past five years, he served as a director of Apollo Global Management, LLC. He also serves as a member of Rabobank's International North American Agribusiness Advisory Board, Temasek Americas Advisory Panel, and the International Business Leaders' Advisory Council for The Mayor of Shanghai. Mr. Fribourg also serves as a board member and Executive Committee member of Castleton Commodities International LLC. He has been a member of the Council on Foreign Relations since 1985.



QUALIFICATIONS

Global management, marketing, and other business experience as Chairman and Chief Executive Officer of Continental Grain Company

Board experience at Apollo Global Management, LLC, Bunge Limited, Loews Corporation, and Restaurant Brands International Inc.

Affiliation with leading business and public policy associations (Council on Foreign Relations)

Financial experience


 


 


 
Irvine O. Hockaday, Jr.

PHOTO Director since 2001
Age 83

Presiding Director

Committee:

Nominating and Governance Committee (Chair)


BACKGROUND

Mr. Hockaday is the former President and Chief Executive Officer of Hallmark Cards,  Inc. He retired in December 2001. Prior to joining Hallmark in 1983, he was President and Chief Executive Officer of Kansas City Southern Industries, Inc. Mr. Hockaday was a member of the Hallmark Board of Directors from 1978 until January 2002. He is currently a member of the Board of Directors of Aratana Therapeutics, Inc.



QUALIFICATIONS

Global business experience and consumer brand industry experience as former CEO of Hallmark Cards, Inc.

Board experience at Aratana Therapeutics, Inc., Crown Media Holdings, Inc., Ford Motor Company, and Sprint Nextel

Financial experience

Legal experience


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Jennifer Hyman

PHOTO
Director since 2018
Age 39

Committee:

Audit Committee


BACKGROUND

Ms. Hyman is Co-founder and Chief Executive Officer of Rent the Runway, Inc., which rents designer apparel and accessories to women both on-demand and through its subscription service. Prior to co-founding Rent the Runway, Inc. in November 2009, she was Director of Business Management at IMG, a global talent management company, from 2006 to 2007. Ms. Hyman was Senior Manager, Sales, at the WeddingChannel.com from 2005 to 2006. From 2002 to 2005, she was Senior Manager, Leisure Program Development, at Starwood Hotels & Resorts Worldwide,  Inc.



QUALIFICATIONS

Management and entrepreneurial experience as Co-founder and Chief Executive Officer of Rent the Runway, Inc.

Deep knowledge about millennials and other consumers

Omnichannel, disruptive technology, and social-digital experience

Board experience at Rent the Runway, Inc.

Financial experience


 


 


 
Barry S. Sternlicht

PHOTO Director since 2004
Age 58

Committee:

Nominating and Governance Committee


BACKGROUND

Mr. Sternlicht is Chairman and Chief Executive Officer of Starwood Capital Group, a privately-held global investment firm with a primary focus on global real estate, which he formed in 1991. He also serves as Chairman and CEO of Starwood Property Trust, Inc., a commercial mortgage REIT. Mr. Sternlicht is the Chairman of the Board of Starwood Real Estate Income Trust, Inc. and is on the boards of directors of A.S. Roma and Invitation Homes, Inc. Additionally, within the past five years, he served as a director of Baccarat S.A., Restoration Hardware Holdings, Inc., Riviera Holdings Corporation, and TRI Pointe Group, Inc. From 1995 through early 2005, Mr. Sternlicht was Chairman and CEO of Starwood Hotels & Resorts Worldwide, Inc., a company he founded in 1995. He currently serves as a member of the board of The Robin Hood Foundation, and he is on the board of the Dreamland Film & Performing Arts Center and the Executive Advisory Board of Americans for the Arts.



QUALIFICATIONS

Global business, investment, real estate, financial, private equity, entrepreneurial, and consumer brand and luxury industry expertise at Starwood Capital Group, as Chairman of Starwood Property Trust, Inc., as Chairman of the Board of Starwood Real Estate Trust, Inc., and as founder and former Chief Executive of Starwood Hotels & Resorts Worldwide, Inc.

Board experience at A.S. Roma, Baccarat S.A., Invitation Homes, Inc., Restoration Hardware Holdings, Inc., Riviera Holdings Corporation, Starwood Property Trust, Inc., and TRI Pointe Group, Inc.

Financial experience


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Additional Information Regarding the Board of Directors

        Stockholders' Agreement and Lauder Family Control.  All Lauder Family Members who are party to a stockholders' agreement with the Company (the "Stockholders' Agreement") have agreed to vote shares beneficially owned by them for Leonard A. Lauder (or for one of his sons), Ronald S. Lauder (or for one of his daughters), and one person, if any, designated by each as a director of the Company. Aerin Lauder and Jane Lauder are parties to the Stockholders' Agreement solely as trustees of certain trusts. The term "Lauder Family Members" is defined below (see "Certain Relationships and Related Transactions – Lauder Family Relationships and Compensation"). Shares subject to the Stockholders' Agreement represent approximately 85% of the voting power of the Company as of the Record Date. The right of each of Leonard A. Lauder (or his sons) and Ronald S. Lauder (or his daughters) to designate a nominee exists only when he (including his descendants) beneficially owns (other than by reason of the Stockholders' Agreement) shares of Common Stock with at least 10% of the total voting power of the Company. Currently, William P. Lauder is the nominee of Leonard A. Lauder, and Jane Lauder is the nominee of Ronald S. Lauder. The right of each of Leonard A. Lauder (or one of his sons) and Ronald S. Lauder (or one of his daughters) to be nominated will exist so long as he (including his descendants) beneficially owns shares of Common Stock with at least 5% of the total voting power of the Company. In the event that Leonard A. Lauder ceases to be a member of the Board of Directors by reason of his death or disability, then his sons, William P. Lauder and Gary M. Lauder, will succeed to his rights to be nominated as a director and to designate one nominee. If either son is unable to serve by reason of his death or disability, the other son will have the right to designate a nominee. Similarly, Aerin Lauder and Jane Lauder, Ronald S. Lauder's daughters, will succeed to their father's rights upon his death or disability. If either daughter is unable to serve by reason of her death or disability, the other daughter will have the right to designate a nominee. In the event none of Leonard A. Lauder and his sons and Ronald S. Lauder and his daughters are able to serve as directors by reason of death or disability, then the rights under the Stockholders' Agreement to be a nominee and to designate a nominee will cease. The Stockholders' Agreement will terminate upon the occurrence of certain specified events, including the transfer of shares of Common Stock by a party to the Stockholders' Agreement that causes all parties thereto immediately after such transaction to own beneficially in the aggregate shares having less than 10% of the total voting power of the Company.

        The Lauder family has direct and indirect holdings of approximately 86% of the voting power of the Company as of the Record Date. The Company is a "controlled company" under the rules of the New York Stock Exchange (the "NYSE") because the Lauder family and their related entities hold more than 50% of the voting power of the outstanding voting stock. As such, the Company may avail itself of exemptions relating to the Board and certain Board committees. Despite the availability of such exemptions, the Board of Directors has determined that it will have a majority of independent directors and that both the Nominating and Governance Committee and the Compensation Committee will have otherwise required provisions in their charters. As permitted by the NYSE rules for "controlled companies," our Board does not require that the Nominating and Governance Committee and the Compensation Committee be comprised solely of independent directors.


        Board Committees.  The Board of Directors has established the following standing committees: the Audit Committee; the Compensation Committee (which includes the Stock Plan Subcommittee); and the Nominating and Governance Committee (formerly known as the "Nominating and Board Affairs Committee"). Each director on these committees is an independent director except for William P. Lauder and Richard D. Parsons. Each committee reports regularly to the Board and has the authority to engage its own advisors. From time to time, the Board considers the composition of our Board committees. In early fiscal 2019, Mr. Hockaday left the Audit Committee, and Mr. Zannino became Chair of the Audit Committee; Ambassador Barshefsky joined the Compensation Committee and the Stock Plan Subcommittee and became Chair of the Compensation Committee, and Mr. Zannino left the Compensation Committee and the Stock Plan Subcommittee; and


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Mr. Hockaday joined the Nominating and Governance Committee as Chair, and Ambassador Barshefsky left the Nominating and Governance Committee.

        The members of the committees as of the Record Date are set forth in the following table:

Director
Audit
Committee


Compensation
Committee


Nominating and
Governance
Committee
Charlene Barshefsky   GRAPHIC  
Rose Marie Bravo GRAPHIC
Wei Sun Christianson     GRAPHIC
Paul J. Fribourg GRAPHIC GRAPHIC
Jennifer Hyman GRAPHIC    
Irvine O. Hockaday, Jr.* GRAPHIC
William P. Lauder     GRAPHIC
Richard D. Parsons GRAPHIC GRAPHIC
Lynn Forester de Rothschild     GRAPHIC
Barry S. Sternlicht GRAPHIC
Jennifer Tejada GRAPHIC    
Richard F. Zannino GRAPHIC

GRAPHIC     Chair         GRAPHIC     Member


Also member of Stock Plan Subcommittee

*
Presiding Director

        Copies of the charters adopted by the Board of Directors for each committee may be found in the "Investors" section of the Company's website, www.elcompanies.com, under "Corporate Governance."

Audit

Richard F. Zannino (Chair)


Jennifer Hyman

Committee

Paul J. Fribourg


Jennifer Tejada

        The Audit Committee, among other things, appoints the independent auditors; reviews the independence of such auditors; approves the scope of the annual audit activities of the independent auditors and the Company's Internal Audit department; reviews audit results; reviews and discusses the Company's financial statements with management and the independent auditors; reviews and discusses with the Board the Company's policies for risk assessment and risk management; and is responsible for our related person transactions policy. The committee's scope of oversight responsibilities includes information technology, cybersecurity, taxes, treasury, and legal matters. The committee meets periodically with the Chief Financial Officer, the head of internal audit, and representatives of the independent auditors. The Board of Directors has determined that each of Mr. Fribourg and Mr. Zannino qualifies as an "Audit Committee Financial Expert" in accordance with SEC rules.


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Compensation

Charlene Barshefsky (Chair)


Paul J. Fribourg

Committee

Rose Marie Bravo


Richard D. Parsons

        The Compensation Committee establishes and approves compensation plans and arrangements with respect to the Company's executive officers and administers the Company's Executive Annual Incentive Plan. The Stock Plan Subcommittee has authority over all decisions regarding awards to executive officers under the Company's share incentive plans and authority to administer the Company's share incentive plans under which executive officers and other employees may receive equity grants. The Company also has an Employee Equity Award Committee, the sole member of which is Mr. Freda; the purpose of this committee is to make limited grants of equity awards under the share incentive plan to employees who are not executive officers. In fiscal 2019, the Employee Equity Award Committee made a number of such grants.


        Compensation Committee Interlocks and Insider Participation.  During fiscal 2019, Ambassador Barshefsky, Ms. Bravo, Mr. Fribourg, Mr. Parsons, and Mr. Zannino served on the Compensation Committee. None of these directors is a former or current officer or employee of the Company or any of its subsidiaries. During fiscal 2019, none of our executive officers served as a member of the compensation committee (or other committee performing similar functions) or as a director of any other entity of which an executive officer served on our Board or Compensation Committee. None of the directors who served on our Compensation Committee during fiscal 2019 has any relationship requiring disclosure under this caption under SEC rules.

Nominating and

Irvine O. Hockaday, Jr. (Chair)


Richard D. Parsons

Governance

Wei Sun Christianson


Lynn Forester de Rothschild

Committee

William P. Lauder


Barry S. Sternlicht

        The Nominating and Governance Committee's responsibility for corporate governance matters includes oversight of the Company's environmental, social, and governance ("ESG") activities and practices, including citizenship and sustainability matters. Among other things, the committee proposes candidates to fill vacancies on the Board and recommends nominees for election as members of the Board; oversees CEO succession planning; considers and makes recommendations regarding Board practices and procedures; considers corporate governance issues that arise from time to time and makes appropriate recommendations for the Board regarding such matters; and reviews the compensation for service as a Board member.


        Board and Board Committee Meetings; Annual Meeting Attendance; and Executive Sessions.  Directors are expected to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. In furtherance of the Board's role, directors are expected to attend all scheduled Board and Board committee meetings and all meetings of stockholders. In fiscal 2019, the Board of Directors met five times, the Audit Committee met eight times, the Compensation Committee (and the Stock Plan Subcommittee) met five times, and the Nominating and Governance Committee met three times. The total combined attendance for all Board and committee meetings in fiscal 2019 was approximately 95%. No director attended less than 75% of Board and committee meetings in fiscal 2019. The non-employee directors met five times in executive session in fiscal 2019. Directors are expected to attend the Annual Meeting of Stockholders, and all of the directors who were on the Board attended the Annual Meeting of Stockholders in November 2018.


        Board Leadership Structure.  Our Board is currently led by our Executive Chairman, who is a member of the Lauder family. In addition, we have an independent director who serves as our Presiding Director. A majority of the directors on our Board are independent. At present, there are 16 directors on our Board, comprised of: (i) our President and Chief Executive Officer ("CEO");


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(ii) 11 non-employee directors (10 of whom are independent); and (iii) 4 directors who are members of the Lauder family, including our Executive Chairman. The Presiding Director presides at all meetings or executive sessions of non-employee or independent directors. The Board of Directors considers this structure appropriate in view of the Lauder family's significant investment in the Company. The structure also comports with the Stockholders' Agreement among various members of the Lauder family and the Company. See "Additional Information Regarding the Board of Directors – Stockholders' Agreement and Lauder Family Control."

        In addition to his responsibilities as Chairman of the Board, Mr. W. Lauder, as Executive Chairman, works with the President and CEO to set overall vision, strategy, financial objectives, and investment priorities for the business. Mr. W. Lauder also continues to provide high-level leadership in areas that are important to the Company, including marketing, trade relations, global communications, and regulatory affairs.

        As provided in our Corporate Governance Guidelines, an independent director serves as our Presiding Director. The Presiding Director serves a one-year term beginning with the meeting of the Board immediately following the Annual Meeting of Stockholders. Mr. Hockaday served as the Presiding Director for all executive sessions of the Board of Directors in fiscal 2019, and he has been appointed by the Board to serve for an additional one-year term beginning after the 2019 Annual Meeting.


        Board Role in Risk Oversight.  Our Board of Directors regularly receives reports from our President and CEO and other members of senior management regarding areas of significant risk to us, including strategic, operational, financial, legal and regulatory, cybersecurity, and reputational risks. However, senior management is responsible for assessing and managing the Company's various risk exposures on a day-to-day basis. In this regard, various management functions within the Company, such as Legal, Finance, Treasury, Internal Audit, Information Technology, Global Supply Chain, Research & Development, and Environmental Affairs and Safety, focus on particular risks. Management has a systemic and integrated approach to overall risk management that includes the identification of risks and mitigation plans in the strategic planning process. The Board's role is one of oversight, assessing major risks facing the Company and reviewing options for their mitigation with management. In addition, the Audit Committee reviews and discusses with management our enterprise risk management processes.


        Risk in Compensation Programs.  The Company has a framework for evaluating incentive plan design features that may encourage or help mitigate risk, such as a mix of compensation elements, metrics, leverage, caps, and time horizons, in order to determine whether the risks arising from our compensation programs (in addition to those applicable only to executive officers) are reasonably likely to have a material adverse effect on the Company. Using this framework in fiscal 2019, we concluded that our compensation programs are not reasonably likely to have a material adverse effect on the Company. The results were reviewed with senior management and the Compensation Committee.


        Board Membership Criteria.  The Nominating and Governance Committee works with the Board on an annual basis to determine the appropriate characteristics, skills, and experience for the Board as a whole and its individual members. All directors should possess the highest personal and professional ethics as well as an inquisitive and objective perspective, practical wisdom, and mature judgment. In evaluating the suitability of individual Board members, the Board takes into account many factors, including general understanding of marketing, finance, and other disciplines relevant to the success of a large publicly traded company in today's business environment; understanding of the Company's business on a technical level; and educational and professional background. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on its diversity of experience, represent stockholder interests through the exercise of sound judgment. In determining whether to recommend a director for re-election, the Nominating and Governance


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Committee also considers the director's past attendance at meetings and participation in and contributions to the activities of the Board.

        Upon determining the need for a new director candidate, the Nominating and Governance Committee will identify one or more director candidates and evaluate each candidate under the criteria described above based on the information it receives with a recommendation or that it otherwise possesses, which information may be supplemented by additional inquiries. Application of these criteria involves the exercise of judgment and cannot be measured in any mathematical or routine way. Based on its assessment of each candidate's independence, skills, and qualifications and the criteria described above, the Committee will make recommendations regarding potential director candidates to the Board. The Committee may engage third parties to assist in the search for director candidates or to assist in gathering information regarding a candidate's background and experience. The Committee will evaluate stockholder-recommended candidates in the same manner as other candidates. Candidates may also be designated pursuant to the Stockholders' Agreement. See "Additional Information Regarding the Board of Directors – Stockholders' Agreement and Lauder Family Control."


        Board Independence Standards for Directors.  To be considered "independent" for purposes of membership on the Company's Board of Directors, the Board must determine that a director has no material relationship with the Company, including any of its subsidiaries, other than as a director. For each director, the Board broadly considers all relevant facts and circumstances. In making its determination, the Board considers the following categories of relationships to be material, thus precluding a determination that a director is "independent:"

(i)
the director is an employee of the Company, or an immediate family member of the director is an executive officer of the Company, or was so employed during the last three years.

(ii)
the director receives, or an immediate family member of the director receives, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).

(iii)
(A) the director is a current partner or employee of a firm that is the Company's internal or external auditor, (B) the director has an immediate family member who is a current partner of such a firm, (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company's audit, or (D) the director or an immediate family member of the director was within the last three years a partner or employee of such a firm and personally worked on the Company's audit within that time.

(iv)
the director or an immediate family member of the director is, or has been within the last three years, employed as an executive officer of another company where any of the Company's present executive officers at the same time serves or served on that company's compensation committee.

(v)
the director is a current employee, or an immediate family member of the director is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues.


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        Additionally, the following relationships will not be considered to be "material" relationships that would impair a director's independence:

(i)
any of the relationships described in (i)-(v) above, if such relationships occurred more than three years ago, or

(ii)
if a director is a current employee, or an immediate family member of a director is a current executive officer of another company that does business with the Company and such other company, during the current or last fiscal year, made payments to, or received payments from, the Company of less than $1 million or 2% of such other company's consolidated gross revenues, whichever is greater.

        Contributions to tax exempt organizations shall not be considered payments for purposes of these independence standards. An "immediate family member" includes a director's spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers-and sisters-in-law, and anyone (other than domestic employees) who shares such person's home.

        The Board reviews at least annually whether directors meet these Director Independence Standards. The following directors have been determined by the Board to be "independent" pursuant to NYSE rules and the Company's Independent Director Standards described above: Charlene Barshefsky, Rose Marie Bravo, Wei Sun Christianson, Paul J. Fribourg, Irvine O. Hockaday, Jr., Jennifer Hyman, Lynn Forester de Rothschild, Barry S. Sternlicht, Jennifer Tejada, and Richard F. Zannino.

        In addition to the foregoing, in order to be considered "independent" under NYSE rules for purposes of serving on the Company's Audit Committee or Compensation Committee, a director also may not accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company, other than as a director, and may not be an "affiliated person" of the Company. Audit Committee members may receive directors' fees and fixed payments for prior service with the Company. The Board has determined that each member of the Audit Committee and each independent member of the Compensation Committee meets these additional independence requirements.


        Communications with the Board.  A stockholder or any other interested party who wishes to communicate with the Board, any Committee thereof, the non-management directors as a group, or any individual director, including the Presiding Director for the executive sessions of the Board, may do so by addressing the correspondence to that individual or group, c/o General Counsel, The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. The General Counsel or a designee will review all such correspondence to determine if the substance of the correspondence relates to the duties and responsibilities of the Board or individual Board member before forwarding the correspondence to the intended recipient. Spam, junk mail, solicitations, and hostile, threatening, illegal, or similarly unsuitable material will not be forwarded to the intended recipient and, if circumstances warrant, may be forwarded to the Company's security staff. Any communication that is not forwarded may be made available to the intended recipient upon request.


        Director Nominees Recommended by Stockholders.  The Nominating and Governance Committee will consider stockholder recommendations of nominees in the same manner as and pursuant to the same criteria by which it considers all other nominees, except for nominations received pursuant to the Stockholders' Agreement. Stockholders who wish to suggest qualified candidates should send their written recommendation to the Nominating and Governance Committee, c/o General Counsel, The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. The following information must accompany any such recommendation by a stockholder: (i) the name and address of the stockholder making the recommendation; (ii) the name, address, telephone number, and social security number of the proposed nominee; (iii) the class or series and number of shares of the Company that are beneficially owned by the stockholder


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making the recommendation; (iv) a description of all arrangements or understandings between the stockholder and the candidate, and an executed written consent of the proposed nominee to serve as a director of the Company if so elected; (v) a copy of the proposed nominee's resume and references; and (vi) an analysis of the candidate's qualifications to serve on the Board of Directors and on each of the Board's committees in light of the criteria for Board membership established by the Board. See "Board Membership Criteria." For stockholders intending to nominate an individual for election as a director directly, there are specific procedures set forth in our bylaws. See "Stockholder Proposals and Director Nominations for the 2020 Annual Meeting" below.

Corporate Governance Guidelines and Code of Conduct

        The Board of Directors has developed corporate governance practices to help it fulfill its responsibilities to stockholders in providing general direction and oversight of management of the Company. These practices are set forth in the Company's Corporate Governance Guidelines. The Company also has a Code of Conduct (the "Code") applicable to all employees, officers, and directors of the Company including the Chief Executive Officer and the Chief Financial Officer. These documents, as well as any waiver of a provision of the Code granted to any senior officer or director or any material amendment to the Code, may be found in the "Investors" section of the Company's website: www.elcompanies.com under "Corporate Governance."

Related Person Transactions Policy and Procedures

        We have a written policy (the "Related Person Transactions Policy") that sets forth procedures for the review, approval, and ratification of transactions involving "Related Persons." Such persons consist of any director, director nominee, executive officer, any beneficial owner of more than 5% of the Company's Common Stock, any immediate family member of such persons, and any other person deemed to be a Related Person under the rules of the SEC. Under the Related Person Transactions Policy, a "Transaction" includes any financial transaction, arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements, or relationships where the Company and a Related Person are participants. The Audit Committee is responsible for administering this policy.

        When a potential Related Person Transaction is identified, our policy requires that it be promptly reported to either the General Counsel or the Secretary to review. If it is determined that such Transaction is not within the scope of the Related Person Transactions Policy, then no further action is necessary. Otherwise, the Transaction shall be presented to the Audit Committee to make an assessment and determination. The information presented to the Audit Committee in connection with its assessment may include the following: (i) the Related Person's relationship to the Company; (ii) a description of the Transaction, including the material terms, the approximate aggregate value, and the identities of other parties; (iii) the benefits of the Transaction to the Company and the Related Person; (iv) the availability of other sources of comparable products or services; and (v) any other relevant information. If the Audit Committee determines that the Related Person has a direct or indirect material interest in any Transaction, the Transaction shall be disclosed in the Company's proxy statement. If the Related Person at issue is a director of the Company, or an immediate family member of a director, then such director shall not participate in the assessment or determination of the Transaction being reviewed.

Certain Relationships and Related Transactions

        Lauder Family Relationships and Compensation.  Leonard A. Lauder is Chairman Emeritus, and his brother Ronald S. Lauder is Chairman of Clinique Laboratories, LLC. Leonard A. Lauder and Ronald S. Lauder are also directors of the Company. Leonard A. Lauder has two sons, William P. Lauder and Gary M. Lauder. William P. Lauder is Executive Chairman and in such role is Chairman of the Board of Directors. Gary M. Lauder is not an employee of the Company. Ronald S. Lauder and his wife, Jo Carole Lauder, have two daughters, Aerin Lauder and Jane Lauder.


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Aerin Lauder is not an employee of the Company. She is the Style and Image Director for the Estée Lauder brand (see "Agreements with Aerin Lauder" below for additional information). Jane Lauder is Global Brand President, Clinique and is a director of the Company.

        For fiscal 2019, the following Lauder Family Members received the following amounts from the Company as compensation: Leonard A. Lauder received an aggregate of $1,800,000 for his services (comprised of base salary); Ronald S. Lauder received $650,000 in salary and a bonus of $492,150; and Jane Lauder received $810,000 in salary, a bonus of $829,500, performance share units with a target payout of 3,009 shares of Class A Common Stock, stock options for 10,052 shares of Class A Common Stock, and restricted stock units for 3,009 shares of Class A Common Stock. Each of these Lauder Family Members is entitled to participate in standard benefit plans, such as the Company's pension and medical plans. For information regarding fiscal 2019 compensation for William P. Lauder, see "Executive Compensation."

        For fiscal 2020, Leonard A. Lauder has a base salary of $1,800,000, and Ronald S. Lauder has a base salary of $650,000 and bonus opportunities with a target payout of $350,000. For fiscal 2020, Jane Lauder has a base salary of $855,000, a target incentive bonus opportunity of $713,000, and a target equity opportunity of $1,140,000. In September 2019, Jane Lauder was granted equity-based compensation with an aggregate value of approximately $1.32 million, comprised of performance share units with a target payout of 2,210 shares of Class A Common Stock, stock options for 8,039 shares of Class A Common Stock, and restricted stock units for 2,210 shares of Class A Common Stock, in each case for fiscal 2020. The grants were consistent with those made to employees at her level. For information regarding fiscal 2020 compensation for William P. Lauder, see "Compensation Discussion and Analysis."

        Leonard A. Lauder's current employment agreement (the "LAL Agreement") provides for his employment as Chairman Emeritus until such time as he resigns, retires, or is terminated. Mr. L. Lauder is entitled to participate in standard benefit plans, such as the Company's pension and medical plans. He is also entitled to participate in the Amended and Restated Fiscal 2002 Share Incentive Plan, but no grants have been made to him under the plan to date. If Mr. L. Lauder retires, the Company will continue to provide him with the office he currently occupies (or a comparable office if the Company relocates) and a full-time executive assistant. The Company may terminate Mr. L. Lauder's employment at any time if he becomes "permanently disabled," in which event he will be entitled to (i) receive his base salary for a period of two years after termination, (ii) receive bonus compensation during such salary continuation period at an annual rate equal to the average of the actual bonuses paid to him prior to such termination under the LAL Agreement (the "Leonard Lauder Bonus Compensation"), and (iii) participate in the Company's benefit plans for two years. In the event of Mr. L. Lauder's death during the term of his employment, for a period of one year from the date of Mr. L. Lauder's death, his beneficiary or legal representative will be entitled to receive Mr. L. Lauder's base salary and the Leonard Lauder Bonus Compensation. Mr. L. Lauder may terminate his employment at any time upon six months' written notice to the Company, in which event he will be entitled to receive his base salary and the Leonard Lauder Bonus Compensation for the six-month period following termination. In addition, the Company may terminate Mr. L. Lauder's employment for any reason upon 60 days' written notice. In the event of termination of his employment by the Company (other than for cause, disability, or death) or a termination by Mr. L. Lauder for good reason after a change of control, (a) Mr. L. Lauder, for a period of three years from the date of termination, will be entitled to (i) receive his base salary in effect at the time of termination, (ii) receive the Leonard Lauder Bonus Compensation, (iii) participate in the Company's benefit plans and (b) in the case of termination by the Company (other than for cause, disability, or death), Mr. L. Lauder will not be subject to the non-competition covenant contained in the LAL Agreement. Upon termination for any reason, any options previously granted to Mr. L. Lauder will remain exercisable for the remainder of their respective terms, subject to certain non-competition and good conduct provisions.


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        As used in this Proxy Statement, the term "Lauder Family Members" includes only the following persons: (i) the estate of Mrs. Estée Lauder; (ii) each descendant of Mrs. Estée Lauder (a "Lauder Descendant") and their respective estates, guardians, conservators, or committees; (iii) each "Family Controlled Entity" (as defined below); and (iv) the trustees, in their respective capacities as such, of each "Family Controlled Trust" (as defined below). The term "Family Controlled Entity" means: (i) any not-for-profit corporation if at least 80% of its board of directors is composed of Lauder Descendants; (ii) any other corporation if at least 80% of the value of its outstanding equity is owned by Lauder Family Members; (iii) any partnership if at least 80% of the value of its partnership interests are owned by Lauder Family Members; and (iv) any limited liability or similar company if at least 80% of the value of the company is owned by Lauder Family Members. The term "Family Controlled Trust" includes certain trusts existing on November 16, 1995 and trusts the primary beneficiaries of which are Lauder Descendants, spouses of Lauder Descendants, and/or charitable organizations, provided that if the trust is a wholly charitable trust, at least 80% of the trustees of such trust consist of Lauder Descendants.


        Registration Rights Agreement.  Leonard A. Lauder, Ronald S. Lauder, The Estée Lauder 1994 Trust, William P. Lauder, Gary M. Lauder, Aerin Lauder, Jane Lauder, certain Family Controlled Entities and other Family Controlled Trusts, Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), and the Company are parties to a Registration Rights Agreement (the "Registration Rights Agreement"), pursuant to which each of Leonard A. Lauder, Ronald S. Lauder, and Morgan Guaranty has three demand registration rights and The Estée Lauder 1994 Trust has six demand registration rights in respect of shares of Class A Common Stock (including Class A Common Stock issued upon conversion of Class B Common Stock) held by them. Three of the demand rights granted to The Estée Lauder 1994 Trust may be used only by a pledgee of The Estée Lauder 1994 Trust's shares of Common Stock. All the parties to the Registration Rights Agreement (other than the Company) also have an unlimited number of piggyback registration rights in respect of their shares. The rights of Morgan Guaranty and any other pledgee of The Estée Lauder 1994 Trust under the Registration Rights Agreement will be exercisable only in the event of a default under certain loan arrangements. Leonard A. Lauder and Ronald S. Lauder may assign their demand registration rights to Lauder Family Members. The Company is not required to effect more than one registration of Class A Common Stock in any consecutive twelve-month period. The piggyback registration rights allow the holders to include their shares of Class A Common Stock in any registration statement filed by the Company, subject to certain limitations. The Company is required to pay all expenses (other than underwriting discounts and commissions of the selling stockholders, taxes payable by the selling stockholders, and the fees and expenses of the selling stockholders' counsel) in connection with any demand registrations, as well as any registrations pursuant to the exercise of piggyback rights. The Company has agreed to indemnify the selling stockholders against certain liabilities, including liabilities arising under the Securities Act of 1933.


        Stockholders' Agreement.  All Lauder Family Members who are party to the Stockholders' Agreement have agreed to vote shares beneficially owned by them for Leonard A. Lauder (or for one of his sons), Ronald S. Lauder (or for one of his daughters), and one person, if any, designated by each as a director of the Company. Aerin Lauder and Jane Lauder are parties to the Stockholders' Agreement solely as trustees of certain trusts. Shares subject to the Stockholders' Agreement represent a substantial majority of the voting power of the Company as of the Record Date. See "Additional Information Regarding the Board of Directors – Stockholders' Agreement and Lauder Family Control."

        Parties to the Stockholders' Agreement may, without restriction under the agreement, sell their shares in a widely distributed underwritten public offering, in sales made in compliance with Rule 144 under the Securities Act of 1933, or to other Lauder Family Members. In addition, each party to the Stockholders' Agreement may freely donate shares in an amount not to exceed 1% of the outstanding shares of Common Stock in any 90-day period. In the case of other private sales, each stockholder who is a party to the Stockholders' Agreement (the "Offering Stockholder") has


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granted to each other party (the "Offeree") a right of first offer to purchase shares of Class A Common Stock that the Offering Stockholder intends to sell to a person (or group of persons) who is not a Lauder Family Member. Each Offeree has the opportunity to purchase the Offeree's pro rata portion of the shares to be offered by the Offering Stockholder, as well as additional shares not purchased by other Offerees. Any shares not purchased pursuant to the right of first offer may be sold at or above 95% of the price offered to the Offerees. The Stockholders' Agreement also includes provisions for bona fide pledges of shares of Common Stock and procedures related to such pledges. The Stockholders' Agreement will terminate upon the occurrence of certain specified events, including the transfer of shares of Common Stock by a party to the Stockholders' Agreement that causes all parties thereto immediately after such transaction to own beneficially in the aggregate shares having less than 10% of the total voting power of the Company.


        Agreements with Aerin Lauder.  Estee Lauder Inc. ("ELI"), a subsidiary of the Company, is party to (i) a creative consultant agreement with Aerin Lauder (the "Creative Consultant Agreement") and (ii) a brand license agreement with Ms. Lauder and Aerin LLC, a limited liability company wholly owned by Ms. Lauder (the "License Agreement").

        Under the Creative Consultant Agreement, Aerin Lauder is a spokesperson for the Estée Lauder brand and collaborates with the Estée Lauder Creative Director on creative aspects of the brand as Style and Image Director. The current term of this agreement expires June 30, 2021. For fiscal 2019, Ms. Lauder received approximately $628,600 for her services under the agreement. For fiscal 2020, she will receive approximately $654,000 for such services. During the term of the Creative Consultant Agreement, the Company has the exclusive right to use Ms. Lauder's name and image to market beauty products and related services of the Estée Lauder brand, and Ms. Lauder has agreed to no more than 25 days of personal appearances per year for the brand, the Company, or its subsidiaries, after which ELI is required to pay her an additional amount per day (for fiscal 2019, $27,000; and for fiscal 2020, $28,000). No additional amount per day was paid in fiscal 2019. An office and access to an assistant are also provided to Ms. Lauder in connection with her services.

        Separately, in fiscal 2017, the Company agreed to make payments (the "Marketing Contribution") totaling $500,000 to Aerin LLC in each of fiscal 2017 through and including fiscal 2021 in connection with brand-building activities for AERIN Beauty and the AERIN lifestyle brand, provided that the then current Aerin LLC management remained in place. The Marketing Contribution ceased as of February 2018 due to changes in Aerin LLC management, and the Company did not make any Marketing Contribution in fiscal 2019.

        Under the License Agreement, Aerin LLC has granted ELI a worldwide license to use the "Aerin" trademark and "A" logo (and related marks) and Ms. Lauder's name and image (i) exclusively in connection with "Core Beauty Products" (cosmetics, fragrances, toiletries, skin care, hair care, value sets, and beauty accessories) and (ii) non-exclusively in connection with "Non-Core Beauty Products" (cosmetics bags, tote bags, and fragranced candles). The License Agreement covers the name "Aerin" and not the name "Lauder," for which the Company and its subsidiaries retain sole ownership. The initial license term expired on June 30, 2017, at which time the agreement automatically renewed for an additional 5-year period through June 30, 2022. The License Agreement provides for two additional 5-year renewal terms if ELI does not give notice of non-renewal and net sales hit certain performance targets (or if ELI cures a sales shortfall, in certain circumstances).

        ELI launched AERIN Beauty in September 2012 with several products, and additional products have been introduced since then. ELI may launch additional Aerin-branded products in its reasonable commercial judgment. Ms. Lauder has agreed to provide at least ten personal appearances under the License Agreement during each fiscal year, for which she will not be compensated, and which are in addition to those appearances covered by the Creative Consultant Agreement. ELI will be responsible for Ms. Lauder's reasonable travel expenses in connection with such appearances. Aerin LLC may terminate the License Agreement if an unaffiliated third party


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obtains more than 50% of the voting power or equity of ELI. ELI may terminate the License Agreement if control of Aerin LLC (or substantially all of its assets) is transferred to a competitor of ELI or to certain categories of retailers not engaged in prestige distribution. Either side may terminate the License Agreement for an uncured material breach.

        Under the License Agreement, Aerin LLC receives the following royalties: (i) for all products other than fragrances, 4% of annual net sales up to $40 million and 5% of annual net sales in excess thereof; and (ii) for fragrances, 5% of annual net sales. For fiscal 2019, Aerin LLC was paid approximately $547,000 in royalties. Under the agreement, ELI must spend the following minimum amounts to promote Aerin-branded products: 15% of ELI's net sales each annual period (July 1 – June 30) in the remaining term of the agreement, with such requirement capped each year at 50% of Aerin LLC's similar expenditures, either directly or through other licensees, on Aerin-branded products. Both ELI and Aerin LLC will distribute Aerin-branded products only through prestige retailers. In addition, in fiscal 2019, in connection with the License Agreement, the Company received approximately $157,000 from Aerin LLC for AERIN products provided for sale in Aerin retail locations and on Aerin LLC's website.

        The License Agreement was amended twice in fiscal 2019. The first amendment, dated January 22, 2019, provided that the Company will invest in the AERIN Beauty business an additional $300,000 each year during the remaining term of the License Agreement for incremental advertising and promotion. In addition, the Company also agreed to hire an individual for the brand's creative team. The second amendment, dated February 22, 2019, concerned a sublicense to a third party to use certain licensed intellectual property solely in connection with amenity-size licensed products. Under the terms of the amendment, the Company has agreed to pay Aerin LLC 50% of any royalty obtained from the third party. No such payments were made in fiscal 2019.


        Other Arrangements.  The Company has subleased certain of its office space in New York to an affiliate of Ronald S. Lauder. For fiscal 2019, the rent paid or accrued was approximately $930,000, which equals the Company's lease payments for that space. The Company also has agreed to provide such affiliate with certain services, such as phone systems, payroll service, and office and administrative services, which are reimbursed at a rate approximating the Company's incremental cost thereof. For fiscal 2019, such affiliate paid approximately $11.7 million pursuant to such agreement. At June 30, 2019, such affiliate had deposited with the Company approximately $1.18 million to cover expenses. The Company has similar arrangements for space and services with an affiliate of Leonard A. Lauder and his family. For fiscal 2019, that affiliate paid the Company approximately $8.4 million for office space and certain services, such as phone systems, payroll service, and office and administrative services. At June 30, 2019, that affiliate had deposited with the Company approximately $623,000 to cover expenses. The payments by the affiliates approximated the Company's incremental cost of the relevant space and services.

        The Company charters an aircraft owned indirectly by Executive Chairman William P. Lauder (the "Aircraft") for certain business travel by Mr. Lauder himself and other Company employees. For such use, the Company pays no more than market rates for comparable travel. For fiscal 2019, the Company paid approximately $65,000 for travel on the Aircraft.

        Certain members of the Lauder family (and entities affiliated with one or more of them) own numerous works of art that are displayed at the Company's offices. The Company pays no fee to the owners for displaying such works. The owners of the works pay for their maintenance. In fiscal 2019, the Company paid premiums of approximately $11,000 for insurance relating to such works.


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Director Compensation

        The following summary describes compensation for non-employee directors.


        Annual Cash Retainer for Board Service.  Each non-employee director receives an annual cash retainer of $100,000, payable quarterly, which may be deferred as explained below.


        Annual Cash Retainer for Presiding Director.  The Presiding Director receives an additional annual cash retainer of $30,000, payable quarterly, which may be deferred as explained below.


        Annual Cash Retainer for Committee Service.  Each non-employee director who serves on a committee receives an additional annual cash retainer in the following amounts: $12,000 per year for service on the Audit Committee, $8,000 per year for service on the Compensation Committee (including service on the Stock Plan Subcommittee), and $8,000 per year for service on the Nominating and Governance Committee. The Chair of the Audit Committee receives a further annual cash retainer of $25,000. The Chairs of the Compensation Committee and the Nominating and Governance Committee receive a further annual cash retainer of $15,000 each. Cash retainers for committee service are paid quarterly and may be deferred, as explained below.


        Deferral of Annual Cash Retainers.  Non-employee directors may elect to defer receipt of all or part of their cash-based compensation. Specifically, pursuant to Deferred Compensation Agreements, they may defer any or all of the above-referenced annual cash retainers into either (i) stock units (accompanied by dividend equivalent rights) or (ii) an interest-bearing cash account, in each case to be paid out in a lump sum in cash as of the first business day of the calendar year following the date on which the director ceases to be a member of the Board.


        Initial Stock Grant.  On the date of the first annual meeting of stockholders that is more than six months after a non-employee director's initial election to the Board, the director receives a grant of 2,000 shares of Class A Common Stock (plus a cash payment in an amount to cover related income taxes), pursuant to the Amended and Restated Non-Employee Director Share Incentive Plan (the "Director Share Plan").


        Annual Stock Units Retainer for Board Service.  An additional $75,000 is payable to each non-employee director by a grant of stock units (accompanied by dividend equivalent rights) as an annual stock retainer, pursuant to the Director Share Plan. This grant is made on the date of each annual meeting of stockholders. The number of stock units to be awarded is determined by dividing $75,000 by the average closing price of the Class A Common Stock on the twenty trading days preceding the date of grant. Each stock unit is convertible into one share of Class A Common Stock, and the Class A Common Stock represented by the stock units is distributed to the director on or after the first business day of the calendar year following the date on which the director ceases to be a member of the Board.


        Annual Stock Options.  In addition to the cash and stock portion of the retainer, each non-employee director receives an annual grant of options valued at no more than $100,000 on the date of grant, pursuant to the Director Share Plan. This grant is made on the date of each annual meeting of stockholders. The exercise price of the options is equal to the closing price of the Class A Common Stock on the date of grant. The options are exercisable beginning one year after the date of grant, provided that the director continues to serve as of such date. The options generally terminate ten years after the date of grant.


        Stock Ownership Requirement.  As set forth in the Company's Corporate Governance Guidelines, the Board believes that in order to align the interests of directors and stockholders, directors should have a significant financial stake in the Company. Specifically, each director should own shares of the Company's Common Stock with a value equal to or greater than four times the annual cash retainer for Board service. Applying this guideline for fiscal 2019, each director was


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required to own shares of the Company's Common Stock with a value equal to or greater than $400,000 (i.e. $100,000 × 4). A director must be in compliance with this requirement no later than three years after initial election to the Board. Therefore, Ms. Hyman and Ms. Tejada have until April 2021 to satisfy this requirement. As of the end of fiscal 2019, each of the directors was in compliance with this stock ownership requirement.


        Company Products.  The Company provides directors with certain Company products from different brands and product categories. The Company believes that providing these products serves a business purpose by expanding the directors' knowledge of the Company's business. The Company also provides each non-employee director with the opportunity to purchase up to $1,280 worth of the Company's products each calendar year (based on suggested retail prices) at no charge; if a director chooses to take advantage of this opportunity and purchase more than $640 worth of the Company's products, the excess is imputed as taxable income to the director. For the year ended June 30, 2019, the aggregate incremental cost to the Company for products provided to the directors was substantially less than $10,000 per director. Non-employee directors may also purchase Company products with the same discount made available to employees of the Company.


        Reimbursement of Expenses.  Non-employee directors are reimbursed for their reasonable expenses (including costs of travel, food, and lodging) incurred in attending Board, committee, and stockholder meetings. Directors are also reimbursed for any other reasonable expenses relating to their service on the Board, including participating in director continuing education and Company site visits.


        Management Directors.  Directors who are also employees of the Company receive no additional compensation for service as directors. These directors are Fabrizio Freda, Jane Lauder, Leonard A. Lauder, Ronald S. Lauder, and William P. Lauder.

        The following table sets forth compensation information regarding the Company's non-employee directors in fiscal 2019.

Name


Fees
Earned or
Paid in
Cash
($)(1)(2)





Stock
Awards
($)(3)(4)



Option
Awards
($)(5)(6)



Non-Equity
Incentive Plan
Compensation
($)




Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(7)








All Other
Compensation
($)(8)



Total
($)

Charlene Barshefsky

$ 123,000 $ 74,999 $ 99,961 $ 29,410 $ 327,370

Rose Marie Bravo

108,000 74,999 99,961 282,960

Wei Sun Christianson

108,000 74,999 99,961 282,960

Paul J. Fribourg

120,000 74,999 99,961 294,960

Mellody Hobson

28,000 28,000

Irvine O. Hockaday, Jr.

145,500 74,999 99,961 320,460

Jennifer Hyman

112,000 361,779 99,961 $ 316,028 889,768

Richard D. Parsons

116,000 74,999 99,961 290,960

Lynn Forester de Rothschild

108,000 74,999 99,961 282,960

Barry S. Sternlicht

108,000 74,999 99,961 282,960

Jennifer Tejada

112,000 361,779 99,961 350,509 924,249

Richard F. Zannino

137,000 74,999 99,961 311,960

(1)
These amounts represent the Annual Cash Retainer for Board Service, the Annual Cash Retainer for Committee Service, and the Annual Cash Retainer for Presiding Director. Ms. Hobson received one


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    quarterly cash retainer for Board and committee service during fiscal 2019 because she did not stand for re-election at the 2018 Annual Meeting.

(2)
During fiscal 2019, Mr. Fribourg, Ms. Hobson, Mr. Hockaday, Lady de Rothschild, and Mr. Sternlicht deferred their Annual Cash Retainers into stock units; all earnings on the fees deferred by these directors were based on the value of a hypothetical investment in shares of Class A Common Stock made at the time of the deferral, plus the accrual of dividend equivalents on dividends paid by the Company on the Class A Common Stock. As of June 30, 2019, the directors held units in respect of the following amounts of shares of Class A Common Stock: Mr. Fribourg, 32,385; Mr. Hockaday, 77,680; Lady de Rothschild, 68,194; and Mr. Sternlicht, 38,867. Following Ms. Hobson's departure from the Board, she received a lump sum payout in cash of $4,937,341 (for approximately 36,765 stock units that included accrued dividend equivalents) in January 2019; this was the payout for the deferral of her Annual Cash Retainers for Board and Committee Service since the time she joined the Board in 2005 and included her quarterly cash retainer for fiscal 2019 shown in the "Fees Earned or Paid in Cash" column.

(3)
These amounts represent the aggregate grant date fair value of the Annual Stock Units Retainer for Board Service, (specifically, units for 562.41 shares of Class A Common Stock for each director except for Ms. Hobson who did not stand for re-election) as computed in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 718, Compensation – Stock Compensation ("FASB ASC Topic 718"). The amounts were calculated based on the closing price per share of the Class A Common Stock on the NYSE on the date of grant (November 13, 2018). In addition, the amounts shown for Ms. Hyman and Ms. Tejada also include the aggregate grant date fair value of the Initial Stock Grant ($286,780) that each received in November 2018 as computed in accordance with FASB ASC Topic 718.

(4)
These stock units convert into Class A Common Stock on or after the first business day of the calendar year following the date on which the director ceases to serve on the Board. Presented below are the aggregate number of shares of Class A Common Stock underlying Annual Stock Unit Retainers outstanding as of June 30, 2019, which include dividend equivalents.

Name


Total Number of Shares of Class A Common Stock
Underlying Stock Awards Outstanding as of
June 30, 2019



Charlene Barshefsky

18,156

Rose Marie Bravo

14,563

Wei Sun Christianson

8,219

Paul J. Fribourg

9,811

Mellody Hobson

0 *

Irvine O. Hockaday, Jr.

21,774

Jennifer Hyman

567

Richard D. Parsons

17,113 **

Lynn Forester de Rothschild

17,935

Barry S. Sternlicht

13,628

Jennifer Tejada

567

Richard F. Zannino

9,042

*
Following Ms. Hobson's departure from the Board, she received 15,865 shares of Class A Common Stock (for the conversion of approximately 15,865 stock units that included dividend equivalent rights) in January 2019; such shares of Class A Common Stock were valued at $2,093,228 as of January 2, 2019 (the date on which she received the shares). Therefore, Ms. Hobson did not hold any stock units as of June 30, 2019.

**
This includes 5,843 stock units held indirectly by Mr. Parsons as a co-trustee of a family trust.


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(5)
These amounts represent the aggregate grant date fair value of the Annual Stock Options (specifically, options for 2,329 shares of Class A Common Stock for each director except Ms. Hobson who did not stand for re-election) as computed in accordance with FASB ASC Topic 718. Amounts shown disregard estimates of forfeitures related to service-based vesting conditions. The fair-market values of stock options at the grant date (November 13, 2018) were calculated using the Black-Scholes options-pricing model, with the following assumptions: an expected volatility of 24.5% determined using a combination of both current and historical implied volatilities of the underlying Class A Common Stock obtained from public data sources; an expected term to exercise of 8 years from the date of grant; a risk-free interest rate of 2.8%; and a dividend yield of 1.1%.

(6)
Presented below are the aggregate number of shares of Class A Common Stock underlying stock options outstanding as of June 30, 2019.

Name


Total Number of Shares of Class A Common Stock
Underlying Stock Options Outstanding as of
June 30, 2019



Charlene Barshefsky

41,403 *

Rose Marie Bravo

9,932

Wei Sun Christianson

31,403

Paul J. Fribourg

2,329

Mellody Hobson

49,074

Irvine O. Hockaday, Jr.

2,329

Jennifer Hyman

2,329

Richard D. Parsons

13,904

Lynn Forester de Rothschild

41,403

Barry S. Sternlicht

54,619

Jennifer Tejada

2,329

Richard F. Zannino

22,091

*
This includes 14,576 shares of Class A Common Stock underlying stock options that are held indirectly by Ambassador Barshefsky through a family trust.
(7)
Non-employee directors do not receive pension benefits from the Company. Certain of the Company's directors in fiscal 2019 and prior years deferred their Annual Cash Retainers pursuant to applicable deferral agreements. Ambassador Barshefsky defers her Annual Cash Retainers into an interest-bearing cash account; the interest rate is the Citibank base rate at the last day of the calendar year. The amount shown for Ambassador Barshefsky is the interest that accrued above the applicable federal rate set by the Internal Revenue Service (the "AFR") in fiscal 2019, using the Citibank base rate and the AFR at December 31, 2018 as the rates for fiscal 2019.

(8)
As explained above, after a director's initial election to the Board, the director receives an Initial Stock Grant accompanied by a cash payment in an amount to cover related income taxes. Such grants made to Ms. Hyman and Ms. Tejada in November 2018 are noted in note (3), and the amounts shown in the column entitled "All Other Compensation" for Ms. Hyman and Ms. Tejada are comprised of the above-referenced cash payments to cover related income taxes.


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Ownership of Shares

        The following table sets forth certain information regarding the beneficial ownership of the Company's Class A Common Stock and Class B Common Stock as of August 5, 2019 by: (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of either Class A Common Stock or Class B Common Stock; (ii) each of the Company's directors or nominees; (iii) each of the executive officers whose names appear in the Summary Compensation Table; and (iv) all current directors and executive officers as a group. Except as set forth in the notes to the table, the business or mailing address of each 5% stockholder is 767 Fifth Avenue, New York, New York 10153. As described in the notes to the table, certain named beneficial owners share voting and/or investment power with respect to certain shares of Common Stock. Consequently, such shares are shown as beneficially owned by more than one person.

Class A
Common Stock(1)


Class B
Common Stock


Voting
Power


Name of Beneficial Owner


 Number(2)
      %
   Number
      %
%

Leonard A. Lauder(3)(4)

1,043,338 0.5 % *

LAL Family Corporation(3)(5)

88,437,628 63.4 % 54.7 %

Ronald S. Lauder(3)(6)

73,335 * 9,409,895 6.7 % 5.8 %

William P. Lauder(3)(7)

34,576 * 8,515,960 6.1 % 5.3 %

Gary M. Lauder(3)(8)

10,468 * 45,740 * *

Aerin Lauder(3)(9)

1,692 * 6,585,594 4.7 % 4.1 %

Jane Lauder(3)(10)

180,490 * 5,185,594 3.7 % 3.2 %

Joel S. Ehrenkranz, as trustee(3)(11)

1,023,338 0.5 % *

Richard D. Parsons, individually and as trustee(3)(12)

33,130 * 26,267,997 18.8 % 16.3 %

Charlene Barshefsky(13)

118,641 * *

Rose Marie Bravo(14)

30,166 * *

Wei Sun Christianson(15)

41,397 * *

Paul J. Fribourg(16)

13,811 * *

Irvine O. Hockaday, Jr.(17)

33,514 * *

Jennifer Hyman(18)

2,567 * *

Lynn Forester de Rothschild(19)

61,009 * *

Barry S. Sternlicht(20)

132,900 * *

Jennifer Tejada(21)

2,567 * *

Richard F. Zannino(22)

28,804 * *

Fabrizio Freda(23)

791,386 0.4 % *

John Demsey(24)

Cedric Prouvé(25)

317,085 0.1 % *

Tracey T. Travis(26)

324,317 0.1 % *

BlackRock, Inc.(27)

14,578,089 6.6 % 1.0 %

FMR LLC(28)

15,908,666 7.2 % 1.0 %

The Vanguard Group(29)

16,881,227 7.6 % 1.0 %

All directors and executive officers as a group (25 persons)(30)

3,602,760 1.6 % 49,379,446 35.4 % 30.7 %

Voting power represents combined voting power of Class A Common Stock (one vote per share) and Class B Common Stock (10 votes per share) owned beneficially as of August 5, 2019. On that date, there were 221,501,634 shares of Class A Common Stock and 139,537,814 shares of Class B Common Stock outstanding.

*
Less than 0.1%


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(1)
The number of shares of Class A Common Stock and percentages contained under this heading do not account for the conversion right with regard to Class B Common Stock. Each share of Class B Common Stock is convertible at the option of the holder into one share of Class A Common Stock and is automatically converted into one share of Class A Common Stock upon transfer to a person who is not a Lauder Family Member (as defined, see "Certain Relationships and Related Transactions – Lauder Family Relationships and Compensation"). In addition, as set forth in detail in the Company's Certificate of Incorporation, if on the record date for any meeting of stockholders of the Corporation, the outstanding Class B Common Stock constitutes less than 10% of the total outstanding Common Stock, then each share of Class B Common Stock shall be converted automatically as of the record date into one share of Class A Common Stock with one vote per share. As of the record date for the 2019 Annual Meeting of Stockholders, the outstanding Class B Common Stock constituted 38% of the total outstanding Common Stock.

(2)
The number of shares of Class A Common Stock includes shares owned, any shares underlying restricted stock units payable in shares that are expected to vest within 60 days after August 5, 2019 (i.e. by October 4, 2019), and any exercisable options (including options that will be exercisable as of October 4, 2019). It does not include Performance Share Units ("PSUs") that were paid out after August 5, 2019; for more information on those awards, see "Outstanding Equity Awards at June 30, 2019," as well as the Form 4s filed for the Company's executive officers after the payouts of those PSUs. The stock units included in the table that are beneficially owned by the non-employee directors represent the Annual Stock Units Retainer for Board Service (plus dividend equivalents). Such units will be settled in shares of Class A Common Stock. Amounts are rounded to the nearest whole unit.

(3)
Leonard A. Lauder, Ronald S. Lauder, William P. Lauder, and Gary M. Lauder, each individually and as trustees of various trusts, Aerin Lauder, as trustee, Jane Lauder, as trustee, Joel S. Ehrenkranz, as trustee, Richard D. Parsons, as trustee, and LAL Family Partners L.P. ("LALFP") are parties to a Stockholders' Agreement pursuant to which each has agreed to vote his or the trust's or partnership's shares for the election of Leonard A. Lauder (or one of his sons), Ronald S. Lauder (or one of his daughters), and one person, if any, designated by each as a director of the Company. See note (12) for certain exceptions. Shares underlying stock options and stock units are not subject to the Stockholders' Agreement until the stock options are exercised or the stock units are converted. For purposes of the table, shares owned by each such individual are not attributed to the others by reason of such voting arrangement.

(4)
Includes shares owned beneficially or deemed to be owned beneficially by Leonard A. Lauder as follows:

(a)
1,023,338 shares of Class A Common Stock as co-trustee of The Leonard A. Lauder 2013 Revocable Trust and with respect to which he may be deemed to have shared voting and investment power with Joel S. Ehrenkranz, as co-trustee; and

(b)
20,000 shares of Class A Common Stock held indirectly through a trust of Mr. Lauder's spouse with respect to which Mr. Lauder may be deemed to have shared voting and investment power.

(5)
LAL Family Corporation is the sole general partner of LALFP and may be deemed to be the beneficial owner of 88,437,628 shares of Class B Common Stock owned directly by LALFP.

(6)
Includes shares owned beneficially or deemed to be owned beneficially by Ronald S. Lauder as follows:

(a)
9,403,531 shares of Class B Common Stock directly, over which he has (i) sole voting power for all such shares, (ii) sole investment power for 1,078,531 shares, and (iii) shared investment power for 8,325,000 shares as described below;

(b)
6,364 shares of Class A Common Stock and 6,364 shares of Class B Common Stock as sole trustee of a trust for the benefit of his children and with respect to which he has sole voting and investment power; and

(c)
66,971 shares of Class A Common Stock as a Director of The Ronald S. Lauder Foundation and with respect to which he shares voting and investment power.

 Mr. R. Lauder disclaims beneficial ownership of the shares of Class A Common Stock and Class B Common Stock owned by trusts for the benefit of one or more of his children and by The


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      Ronald S. Lauder Foundation. 6,325,000 shares of Class B Common Stock are pledged by Mr. R. Lauder to secure loans under loan facilities with certain banks as to which he has sole voting power and shares investment power with certain pledgees under the loan facilities; and 2,000,000 shares of Class B Common Stock are pledged to secure his obligations under a prepaid variable forward sale contract to an unaffiliated third-party buyer and with respect to which he has sole voting power and shares investment power with such third-party buyer.

(7)
Includes shares owned beneficially or deemed to be owned beneficially by William P. Lauder as follows:

(a)
8,515,960 shares of Class B Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
34,576 shares of Class A Common Stock underlying options.

(8)
Includes shares deemed to be owned beneficially by Gary M. Lauder as follows: 10,468 shares of Class A Common Stock and 45,740 shares of Class B Common Stock as custodian for his nieces and with respect to which he has sole voting and investment power.

 Mr. G. Lauder disclaims beneficial ownership of the shares to the extent he does not have a pecuniary interest in such shares.

(9)
Includes shares owned beneficially or deemed to be owned beneficially by Aerin Lauder as follows:

(a)
1,692 shares of Class A Common Stock and 1,675,000 shares of Class B Common Stock directly and with respect to which she has sole voting and investment power; and

(b)
4,910,594 shares of Class B Common Stock as co-trustee of the Trust under Article 2 of The Zinterhofer 2008 Descendants Trust Agreement u/a/d December 24, 2008 (the "2008 Descendants Trust") with respect to which she shares voting and investment power with Jane Lauder, as co-trustee.

 Ms. A. Lauder disclaims beneficial ownership to the extent that she does not have a pecuniary interest in the shares held by the trust. Shares held by Ms. A. Lauder directly are not subject to the Stockholders' Agreement. Richard D. Parsons is trustee of a trust for the benefit of Ms. A. Lauder that holds shares of Class B Common Stock. See note (12).

(10)
Includes shares owned beneficially or deemed to be owned beneficially by Jane Lauder as follows:

(a)
41,667 shares of Class A Common Stock and 275,000 shares of Class B Common Stock directly and with respect to which she has sole voting and investment power;

(b)
4,910,594 shares of Class B Common Stock as co-trustee of the 2008 Descendants Trust and with respect to which she shares voting and investment power with Aerin Lauder, as co-trustee; and

(c)
138,823 shares of Class A Common Stock underlying options.

 Ms. J. Lauder disclaims beneficial ownership to the extent that she does not have a pecuniary interest in the shares held by the trust. Shares held by Ms. J. Lauder directly are not subject to the Stockholders' Agreement. Richard D. Parsons is trustee of a trust for the benefit of Ms. J. Lauder that holds shares of Class B Common Stock. See note (12).

(11)
Represents shares of Class A Common Stock beneficially owned indirectly by Joel S. Ehrenkranz as co-trustee, with Leonard A. Lauder as co-trustee, of The Leonard A. Lauder 2013 Revocable Trust for the benefit of Leonard A. Lauder and with respect to which Mr. Ehrenkranz may be deemed to have shared voting and investment power. Mr. Ehrenkranz disclaims beneficial ownership of all such shares. Mr. Ehrenkranz's business address is 375 Park Avenue, New York, New York 10152.


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(12)
Includes shares owned beneficially or deemed to be owned beneficially by Richard D. Parsons as follows:

(a)
4,442 shares of Class A Common Stock held indirectly through a family foundation, with respect to which he has shared voting and investment power;

(b)
11,270 shares of Class A Common Stock underlying stock units held directly that are payable in shares, and 5,843 shares of Class A Common Stock underlying stock units held indirectly through a family trust that are payable in shares;

(c)
11,575 shares of Class A Common Stock underlying options;

(d)
8,383,916 shares of Class B Common Stock as trustee of the Aerin Lauder Zinterhofer 2000 Revocable Trust u/a/d 4/24/00 for the benefit of Aerin Lauder and with respect to which Mr. Parsons has sole voting and investment power;

(e)
17,161,020 shares of Class B Common Stock as trustee of the Jane A. Lauder 2003 Revocable Trust for the benefit of Jane Lauder and with respect to which Mr. Parsons has sole voting and investment power; and

(f)
723,061 shares of Class B Common Stock as trustee of a trust for the benefit of Ronald S. Lauder (the "4202 Trust") and with respect to which Mr. Parsons has sole voting power and sole investment power.

 The 4202 Trust owns all of the outstanding shares of The 4202 Corporation, which corporation is a Lauder Family Member and owns the shares of Class B Common Stock directly. The 4202 Corporation is not a party to the Stockholders' Agreement; therefore any shares of Class A and Class B Common Stock owned by The 4202 Corporation are not subject to that agreement. Mr. Parsons disclaims beneficial ownership of the shares held by The 4202 Corporation. Mr. Parsons's business address is 31 West 52nd Street, Suite 2400, New York, New York 10019.

(13)
Includes shares owned beneficially by Charlene Barshefsky as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
57,411 shares of Class A Common Stock indirectly through a family trust;

(c)
18,156 shares of Class A Common Stock underlying stock units payable in shares; and

(d)
39,074 shares of Class A Common Stock underlying options, including options that are held indirectly through a family trust.

(14)
Includes shares owned beneficially by Rose Marie Bravo as follows:

(a)
8,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
14,563 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
7,603 shares of Class A Common Stock underlying options.

(15)
Includes shares owned beneficially by Wei Sun Christianson as follows:

(a)
4,104 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
8,219 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
29,074 shares of Class A Common Stock underlying options.

(16)
Includes shares owned beneficially by Paul J. Fribourg as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
9,811 shares of Class A Common Stock underlying stock units payable in shares.


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(17)
Includes shares owned beneficially by Irvine O. Hockaday, Jr. as follows:

(a)
11,740 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
21,774 shares of Class A Common Stock underlying stock units payable in shares.

(18)
Includes shares owned beneficially by Jennifer Hyman as follows:

(a)
2,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power; and

(b)
567 shares of Class A Common Stock underlying stock units payable in shares.

(19)
Includes shares owned beneficially by Lynn Forester de Rothschild as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
17,935 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
39,074 shares of Class A Common Stock underlying options.

(20)
Includes shares owned beneficially or deemed to be owned beneficially by Barry S. Sternlicht as follows:

(a)
30,982 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;

(b)
36,000 shares of Class A Common Stock indirectly through three family trusts;

(c)
13,628 shares of Class A Common Stock underlying stock units payable in shares; and

(d)
52,290 shares of Class A Common Stock underlying options.

(21)
Includes shares owned beneficially by Jennifer Tejada as follows:

(a)
2,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power; and

(b)
567 shares of Class A Common Stock underlying stock units payable in shares.

(22)
Includes shares owned beneficially by Richard F. Zannino as follows:

(a)
9,042 shares of Class A Common Stock underlying stock units payable in shares; and

(b)
19,762 shares of Class A Common Stock underlying options.

(23)
Includes shares owned beneficially by Fabrizio Freda as follows:

(a)
68,174 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
723,212 shares of Class A Common Stock underlying options.

(24)
See "Outstanding Equity Awards at June 30, 2019" table for information about John Demsey's equity holdings as of June 30, 2019, which include performance share units, stock options, and restricted stock units.

(25)
Includes shares owned beneficially by Cedric Prouvé as follows:

(a)
202,951 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
114,134 shares of Class A Common Stock underlying options.

(26)
Includes shares owned beneficially by Tracey T. Travis as follows:

(a)
19,467 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power; and

(b)
304,850 shares of Class A Common Stock underlying options.


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(27)
Based on a Schedule 13G Amendment filed February 2, 2019 by BlackRock, Inc. ("BlackRock"), 55 East 52nd Street, New York, New York 10055, BlackRock may be deemed to be the beneficial owner of 14,578,089 shares of Class A Common Stock, over which it has (a) sole investment power for all such shares and (b) sole voting power for 12,305,223 shares, all of which shares are held by certain of its subsidiaries.

(28)
Based on a Schedule 13G Amendment filed February 13, 2019 by FMR LLC ("FMR"), 245 Summer Street, Boston, Massachusetts 02210, FMR may be deemed to be the beneficial owner of 15,908,666 shares of Class A Common Stock, over which it has (a) sole investment power for all such shares and (b) sole voting power for 2,372,347 shares, all of which shares are held by certain of its subsidiaries.

(29)
Based on a Schedule 13G Amendment filed February 14, 2019 by The Vanguard Group ("Vanguard"), 100 Vanguard Boulevard, Malvern, Pennsylvania 19355, Vanguard may be deemed to be the beneficial owner of 16,881,227 shares of Class A Common Stock, over which it has (a) sole investment power for 16,558,478 shares, (b) shared investment power for 322,749 shares, (c) sole voting power for 270,738 shares, and (d) shared voting power for 56,075 shares, all of which shares are held by certain of its subsidiaries.

(30)
See notes (2) through (4), (6), (7), (10), (12) through (26). Includes for executive officers not named in the table:

(a)
216,180 shares of Class A Common Stock; and

(b)
123,548 shares of Class A Common Stock underlying options.


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Executive Compensation

Compensation Discussion and Analysis

Executive Summary

        We drive our annual and long-term performance through our executive compensation programs. Annual incentive pay is tied to business objectives that are specific to each employee's responsibilities and encourage collaboration across the organization. Long-term equity incentives are tied to both the Company's share price and financial goals over a period of three or more years. As explained below, this combination of compensation elements is intended to help drive and promote strong, balanced, and sustainable corporate performance.

        Fiscal 2019 was another outstanding year for our Company. We achieved strong net sales gains across our business, fueled by investments in our strategic priorities, including improved data analytics that helped power our innovation and digital marketing. Our winning strategy led to continued share gains in global prestige beauty. Many engines drove our growth, including nearly every market in the Asia/Pacific region and many other important emerging markets around the world; our skin care category in every region; the travel retail and online channels globally; and compelling innovations, our hero franchises, and high-quality products, which drove strong repeat purchases.

Financial Measure


Fiscal 2019
Change over
Prior Year


3-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)





5-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)

Net Sales

$ 14.9 billion 9% 9.7% 6.3%

Net Sales as adjusted(1)

$ 14.9 billion 9% 9.7% 6.6%

Net Sales as adjusted in constant currency(1)

$ 15.2 billion 11% N/A N/A

Operating Margin

15.6% +60bp +130bp –110bp

Operating Margin as adjusted(1)

17.5% +90bp +190bp +140bp

Diluted EPS

$ 4.82 63% 17.6% 9.5%

Diluted EPS as adjusted(1)

$ 5.34 18% 18.4% 12.6%

Diluted EPS as adjusted in constant currency(1)(2)

$ 5.52 22% N/A N/A

Return on Invested Capital Return on Invested Capital as adjusted(3)

25.7% +460bp +330bp +90bp

Cash Flow from Operations

$ 2.5 billion (2)% 12.1% 10.4%

Total Stockholder Return ("TSR")

29.8% 108.9% 162.5%

TSR – S&P 500 Composite

10.4% 48.9% 66.3%

(1)
Fiscal 2019, 2018, and 2016 have been adjusted to exclude returns and charges associated with restructuring and other activities and the impact of changes in the fair value of contingent consideration. Fiscal 2019 Net Sales as adjusted in constant currency excludes the $371 million unfavorable impact of foreign currency translation. Fiscal 2019 has also been adjusted to exclude goodwill and other intangible asset impairments, and fiscal 2019 Diluted EPS as adjusted also excludes the gain on liquidation of an investment in a foreign subsidiary, net. Fiscal 2019 and 2018 Diluted EPS as adjusted also exclude the impact of the provisional charges resulting from the enactment of the Tax Cuts and Jobs Act (the "TCJA"). Fiscal 2019 Diluted EPS


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    as adjusted in constant currency excludes the $.18 unfavorable impact of foreign currency translation. Fiscal 2014 has been adjusted for a charge to remeasure net monetary assets in Venezuela and for the impact of the accelerated orders associated with the Company's July 2014 implementation of its Strategic Modernization Initiative ("SMI"). See Appendix A for reconciliation and other information about these non-GAAP financial measures.

(2)
Includes the favorable impact of $.04 related to the adoption of the new revenue recognition accounting standard (ASC 606). Excluding this impact, fiscal 2019 Diluted EPS as adjusted in constant currency was $5.48, or a change over prior year of 21%.

(3)
Excludes returns and charges associated with restructuring and other activities, goodwill and other intangible asset impairments, and the impact of changes in the fair value of contingent consideration in each period, where applicable. Fiscal 2019 and 2018 exclude the impact of the provisional charges resulting from the enactment of the TCJA on the effective tax rate. Fiscal 2019 also excludes the tax impact of the gain on liquidation of an investment in a foreign subsidiary, net. See Appendix A for information about this non-GAAP financial measure.

        In fiscal 2019, we increased the common stock dividend rate by 13%, repurchased 11 million shares of our Class A Common Stock for $1.6 billion, and used $744 million of cash flow from operations for capital expenditures. Over the five-year period ended June 30, 2019, the total market value of the Company increased by over 130%, or approximately $38 billion.

        The following summarizes key executive compensation matters in connection with strong and sustained individual and Company performance:

    The Compensation Committee (the "Committee") authorized increases in annual compensation for fiscal 2019 for the Named Executive Officers ("NEOs"). On average, fiscal 2019 annual target compensation for the NEOs increased less than 5% from the prior fiscal year.

    The annual stock-based compensation awarded to our NEOs in fiscal 2019 was based on target grant levels and an assessment of each officer's performance and expected future contributions. These awards were granted in September 2018 and are shown in "Grants of Plan-Based Awards in Fiscal 2019." The annual equity mix is weighted equally among performance share units ("PSUs"), stock options, and restricted stock units ("RSUs").

    For fiscal 2019, the base salary for Fabrizio Freda, our President and Chief Executive Officer, was increased to $2.0 million (from $1.9 million), his bonus opportunity was increased to $5.0 million (from $4.9 million), and his equity target was increased to $9.15 million (from $8.88 million), resulting in target total annual compensation of $16.15 million, an increase of 3% from the prior fiscal year. See additional information in "CEO Compensation" below.

    In August 2019, the Stock Plan Subcommittee of the Compensation Committee (the "Subcommittee") approved the payout for the second of three tranches of the PSU that was granted to Mr. Freda in September 2015. For the second tranche Performance Period that ended June 30, 2019, positive Cumulative Operating Income has been achieved, and 129,283 shares will be delivered to him on June 30, 2022, subject to the award's terms and conditions. For additional information, see "CEO Compensation – Additional PSU Grant in September 2015 (fiscal 2016)."

    Based on the Company's performance over the three-year period ended June 30, 2019, the PSUs granted to our executive officers in September 2016 resulted in an aggregate payout of 150% of target. Actual payouts for the NEOs are described in note (4) of the "Outstanding Equity Awards at June 30, 2019" table.

    Our NEOs achieved fiscal 2019 payout percentages under the Executive Annual Incentive Plan ("EAIP") ranging from 85% to 143% out of a possible maximum of 150% of target bonus


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      opportunities. Actual payouts were determined by applying the payout percentages to the fiscal 2019 target bonus opportunities and are shown in the "Summary Compensation Table."

    In fiscal 2019, the Compensation Committee increased the stock ownership requirements for executive officers to underscore the Company's commitment to long-term alignment with stockholders.

    In fiscal 2019, the Board approved a new Hedging Policy that prohibits hedging of outstanding equity grants (e.g., PSUs, RSUs, and options) by employees, including officers, and directors.

Advisory Vote on Executive Compensation

        At the 2018 Annual Meeting, approximately 92% of the votes cast in connection with the stockholders advisory vote on compensation of the NEOs were cast in favor of the proposal, and we have considered this voting result. As explained below, our compensation policies and decisions continue to be focused on sustainable financial performance and aligning the interests of senior management with the interests of stockholders.

Overview of Compensation Philosophy and Objectives

        Our compensation program for executive officers is designed to attract and retain world class talent and to motivate achievement of both our long-term and short-term goals. We believe that the design and governance of our program supports, and aligns executive officers with, the business strategy and the overall goal to continue sustainable growth of net sales, profitability, and return on invested capital on an annual and long-term basis. Our executive compensation program reflects our successful track record and the control by the Lauder family. Periodically, we review various aspects of our compensation program to ensure that it remains aligned with our business strategy and the above-referenced goals. From time to time, we discuss various topics, including executive compensation and corporate governance matters, with investors and other stakeholders.

        Key features of our compensation programs, policies, and practices are as follows:

  GRAPHIC   Align pay with performance and the interests of stockholders by linking a significant portion of total compensation to the achievement of Company-wide performance criteria during one- and three-year performance periods

 

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Deliver approximately one-third of the value of annual equity awards in PSUs, with failure to achieve the pre-established minimum threshold amount resulting in no payout under the PSUs

 

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Conduct an annual evaluation about risk in compensation programs to confirm that our compensation programs are not reasonably likely to have a material adverse effect on the Company

 

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Retain a compensation consultant that is free of conflicts of interest, reports directly to the Committee, and performs no other services for the Company

 

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Stock ownership guidelines and holding requirements for executive officers to further align their interests with those of our stockholders

 

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No repricing or buying out stock options

 

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Hedging policy that prohibits hedging of outstanding equity grants

 

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Policies on insider trading, clawbacks, and pledging


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        Our executive compensation program is designed to achieve our business and financial goals by providing compensation that:

    aligns executives' interests with our long-term and short-term goals and the interests of our stockholders;

    rewards performance at the Company, business unit, and individual levels;

    is competitive with the compensation practices at other leading beauty and consumer products companies; and

    is equitable among our executive officers.

        Employment agreements in effect during fiscal 2019 for our NEOs are described under "Employment Agreements." Our standard employment agreements for executive officers cover termination and severance and include non-competition, confidentiality, and related provisions. They do not include specified amounts of salary, bonus opportunities, or equity-based compensation for future years. For executive officers who are recruited to join the Company, we will specify levels of salary, bonus opportunities, and equity-based compensation grants for certain initial periods or that relate to initial grants (e.g., to compensate the officer for amounts or awards that may be forfeited at a prior employer).

        The compensation program for executive officers is established and administered by the Committee and the Subcommittee. The Subcommittee approves the terms of all equity grants to executive officers under our long-term equity incentive plan (including any equity compensation-related terms of employment agreements for executive officers). The Committee approves all other aspects of executive compensation.

Elements of Compensation

Our executive compensation program for fiscal 2019 generally consisted of the following:

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        The Committee, Subcommittee, and our senior management begin their review of compensation by looking first at the components of total direct compensation, gauging, for each type of position in the executive officer group, the extent to which total direct compensation is broadly aligned with that of our executive compensation peer group. The Committee, Subcommittee, and our senior management then review the elements of compensation (i.e. base salary, annual cash incentive bonus opportunities, and long-term equity-based compensation opportunities) and determine a mix of these elements as a percentage of total direct compensation. The mix is intended to be performance based (i.e. provide a greater percentage of compensation in the form of variable annual and long-term incentive compensation) and reasonable when compared with the peer group. As shown below, the CEO annual target pay mix for fiscal 2019 was 88% performance based, and the average annual target pay mix for certain other NEOs for fiscal 2019 was 85% performance based. Executive officers with similar responsibilities generally have a similar mix of pay elements. There is internal pay equity among similarly situated executive officers, which is intended to foster a team-oriented approach to managing the business. Total direct compensation and allocations of metrics within the EAIP are determined based on the type and level of responsibility of the particular executive officer, internal pay equity, and competitive considerations.

        Generally, we believe that executive officers should have a greater percentage of their compensation based on performance in the form of annual long-term equity-based incentives ("LTI"), followed by annual cash incentives, and then by base salary.

        Based on target levels for incentive compensation for fiscal 2019, the mix of pay for executive officers is shown below:

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(1)
Includes target pay mix for Ms. Travis, Mr. Demsey, and Mr. Prouvé; does not include target pay mix for William P. Lauder. For fiscal 2019, Mr. Lauder had a target pay mix of 23% base salary, 46% target annual incentive, and 31% target LTI.

        We Align Executive Compensation with Our Business Strategy and Goals. We intend for our annual and long-term incentive plans to cover a portfolio of performance measures that balance growth, profitability, and stockholder return over both an annual and long-term period. We work to establish goals that support the long-term strategy of growing sales 1% to 2% ahead of global prestige beauty, improving operating margin, achieving competitive levels of return on invested capital, and optimizing inventory. We assess global macro-economic risks to prudently plan for markets that are currently over-attaining goals and to challenge markets that are lagging net sales and profit objectives. We carefully plan to drive sustained, profitable sales growth over the


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long-term horizon. We do this by strategically planning category and subcategory innovation and extending consumer reach to enable net sales and profit growth.

        Target levels of performance for a given fiscal year are determined based on our internal planning and forecasting processes and are benchmarked against select peer companies. The Committee and the Subcommittee consider various factors, including the expected performance of our competitors and our long-term strategy, in establishing the performance required to achieve the maximum payout under each measure for both our annual cash and long-term incentive plans.

        In addition to total direct compensation described above, we also provide competitive benefits and modest perquisites. In certain circumstances, we may pay amounts or grant equity to attract executives to work for us or move to particular locations, or we may provide additional incentives for executives to perform or remain with us. This reflects, in part, the global nature of our business and the executives that we seek to attract and retain.

    Base Salary

        We pay base salaries to provide executives with a secure base of cash compensation. In determining the amount of base salary for an executive officer, the Committee primarily considers the executive's position, current salary, tenure, and internal pay equity among executives with similar responsibilities, as well as competitiveness of the salary level in the marketplace. The Committee also considers recommendations from the Executive Chairman, the President and Chief Executive Officer, the Executive Vice President – Global Human Resources, and the Committee's outside consultant (Semler Brossy Consulting Group).

    Annual Incentive Bonus

        Annual incentives provided under the EAIP are of key importance in aligning the interests of our executives with our short-term goals and rewarding them for performance. For executive officers, the level of bonus opportunities and performance targets are based on the scope of the executive's responsibilities, internal pay equity among executives with similar responsibilities, and competitive considerations. The measures in our annual incentive program are designed to foster interdependence and collaboration among brands, regions, and functions to drive the corporate strategy by ensuring alignment of business unit performance with overall corporate performance. Annual incentives payable to our executive officers, including the NEOs, are limited to a pool set at the beginning of the fiscal year by the Committee (3% of our net operating profit in fiscal 2019). Within that limit, the Committee sets annual aggregate bonus opportunities and exercises negative discretion to determine the annual incentives to be paid. For fiscal 2019, the EAIP payout was the product of the target for each executive officer and the EAIP payout percentage ("EAIP Payout %"), which is comprised of (a) the Corporate Multiplier and (b) the Business Unit Multiplier, as described below. Total EAIP payouts were less than the amount of the bonus pool.

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        Target level performance on each of the criteria would result in multipliers at 100% and payout at 100% of the executive officer's target opportunity. Provided the minimum threshold has been achieved, payouts can range from 31.25% of target up to a maximum of 150% of target. Failure to achieve the pre-established minimum threshold level of performance would result in no credit for that particular criteria and, depending upon performance in respect of other criteria, could result in no bonus being paid. Measurement of performance, including establishment of the bonus pool, is subject to certain automatic adjustments, such as changes in accounting principles, goodwill and


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other intangible asset impairments, the impact of unplanned completed business acquisition activity, restructuring and other activities, discontinued operations, certain non-recurring income/expenses, and the impact on net sales of unplanned changes in foreign currency rates. Such automatic adjustments in fiscal 2019 include the impact of charges associated with restructuring and other activities related to the Company's Leading Beauty Forward initiatives, changes in fair value of contingent consideration, goodwill and other intangible asset impairments, the gain on liquidation of an investment in a foreign subsidiary, net, the impact of the provisional charges resulting from the enactment of the TCJA, and the impact of the adoption of ASC 606.

        The target payout, business criteria, performance levels within each multiplier, and the threshold, target, and maximum payouts associated with each criteria and performance level were set by the Committee in consultation with management and the Committee's outside consultant during the first quarter of the fiscal year. Target payouts for executive officers are largely based on the prior year's target amount and are reviewed by the Committee annually.

        Corporate Multiplier. The Corporate Multiplier is comprised of four equally weighted, Company-wide performance criteria: (1) diluted net earnings per share from continuing operations ("Diluted EPS"); (2) Operating Income Margin Percentage ("OI Margin Percent"); (3) Net Sales; and (4) return on invested capital ("ROIC"). If actual performance is between the target and the maximum, or between the threshold and the target, the payout factor is calculated mathematically using straight-line interpolation with target level of performance as a base. As an example, for Net Sales performance that is between the threshold and the target, for each 1% that performance is below target, the payout will be 31/3% below the target payout of 100%. The chart below shows the threshold, target, and maximum for each criteria making up the Corporate Multiplier as well as the results for fiscal 2019. Performance exceeded the maximum target for each of the four performance criteria resulting in a maximum payout factor of 120% of target. The Corporate Multiplier was therefore 120%. Each executive officer's incentive payment is subject to the Corporate Multiplier.

Threshold
Target
Maximum
Actual
Performance(1)

Fiscal 2019 Target
% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)

Diluted EPS

$4.71 50 % 50 % 100 % 100 % 102.0 % 120 % 112.3 % 120 %

OI Margin Percent

16.8% 50 % 50 % 100 % 100 % 101.3 % 120 % 103.5 % 120 %

Net Sales

$14.58 billion 85 % 50 % 100 % 100 % 100.7 % 120 % 104.6 % 120 %

ROIC

21.6% 50 % 50 % 100 % 100 % 101.4 % 120 % 115.3 % 120 %

Corporate Multiplier

120 %

(1)
Net Sales are calculated at budgeted exchange rates at the time the target was set. Measurement of performance for each of the metrics is subject to certain automatic adjustments described above in "Annual Incentive Bonus."

        Business Unit Multiplier. The Business Unit Multiplier works similarly, but is based on various combinations of business criteria at the business unit level, including: (1) Net Sales; (2) Net Operating Margin ("NOP Margin"); (3) inventory management; (4) productivity and other cost savings; and (5) other divisional goals tied to our long-term strategy ("Business Unit Strategic Objectives"). The weighting of the various measures is fixed for each executive officer depending upon position and responsibilities. As with the Corporate Multiplier, target level performance on all the applicable criteria leads to a Business Unit Multiplier of 100%. If the threshold level of performance is not achieved for any of the applicable criteria, then the Business Unit Multiplier would be zero for those criteria. When performance exceeds the maximum level, the payout factors are at 125% of target. In the case where the actual performance was between the target and the maximum, or between the threshold and the target, the payout factor was calculated mathematically using straight-line interpolation with target level of performance and associated payout as a base.


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        For the Business Unit Multiplier, the Functions Average is a simple average of the performance against Business Unit Strategic Objectives for six Corporate Functions (i.e. Finance; Human Resources; Legal; Global Communications; Global Research and Development, Corporate Product Innovation, Package Development; and Global Supply Chain). For Messrs. Demsey and Prouvé, the threshold, target, and maximum for each criteria making up the Business Unit Multiplier for their respective units, as well as the results for fiscal 2019, are shown in the table set forth below.

Threshold
Target
Maximum
Actual
Performance(1)

Fiscal
2019
Target



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)

Net Sales

                 

John Demsey

$7.4 billion 85 % 62.5 % 100 % 100 % 102.6 % 125 % 96.1 % 90.3 %

Cedric Prouvé

$9.4 billion 85 % 62.5 % 100 % 100 % 102.6 % 125 % 109.6 % 125.0 %

NOP Margin

                 

John Demsey

19.6% 85 % 62.5 % 100 % 100 % 102.9 % 125 % 79.1 % 0.0 %

Cedric Prouvé

35.1% 85 % 62.5 % 100 % 100 % 101.3 % 125 % 106.0 % 125.0 %

Inventory Management – Days to Sell

John Demsey

183 85 % 62.5 % 100 % 100 % 105.0 % 125 % 92.8 % 82.1 %

Cedric Prouvé

119 85 % 62.5 % 100 % 100 % 105.0 % 125 % 91.0 % 77.4 %

Productivity – Employee Costs

John Demsey

$495 million 90 % 62.5 % 100 % 100 % 103.0 % 125 % 104.8 % 125.0 %

Cedric Prouvé

$794 million 90 % 62.5 % 100 % 100 % 103.0 % 125 % 100.8 % 107.0 %

Productivity – Employee Costs as % of Net Sales

John Demsey

6.6% 90 % 62.5 % 100 % 100 % 105.0 % 125 % 98.2 % 93.3 %

Cedric Prouvé

8.2% 90 % 62.5 % 100 % 100 % 105.0 % 125 % 107.7 % 125.0 %

(1)
Net Sales and all of the income statement measures are calculated at weighted average exchange rates for the measurement period. Measurement of performance, for each of the metrics, is subject to certain automatic adjustments described above in "Annual Incentive Bonus."

        Ms. Travis, Mr. Demsey, and Mr. Prouvé were each assigned Business Unit Strategic Objectives for fiscal 2019 that accounted for the percentages of the individual's aggregate bonus opportunity target indicated below.

        These Business Unit Strategic Objectives are aligned with high-level themes, explained below, that help focus collective efforts in areas that are important to shared success across business units and drive the corporate strategy.

    (a)
    Strategy – Continue cascading the corporate strategy and its key elements throughout the organization. Translate each Business Unit's strategy into measurable and time bound action items and execute against them. Clearly track progress through key performance indicators and leverage these metrics to reinforce accountability.

    (b)
    Collaboration and Talent Development – Championing and leading collaborative, transformational behavior and the development of talent in the organization, integrating our inclusion and diversity strategy. Align our organizations for speed and efficiency.

    (c)
    Key Business Capability Building/Business Transformation – Identifying and taking action on developing capabilities for continuous improvement related to the key operational and financial building blocks that will impact sustainable growth and profitability and the effective use of resources.

        After the end of fiscal 2019, the Executive Chairman, the President and Chief Executive Officer, and the Executive Vice President – Global Human Resources, with appropriate input from other employees, reviewed the actions taken by each Group President and the Executive Vice President and Chief Financial Officer in connection with the Business Unit Strategic Objectives and, based on that assessment, recommended the payout percentages shown in the table below (with a maximum of 125%). The assessment of these achievements and payouts were confirmed by the Committee in its business judgment.


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        Calculation of EAIP Payout Percentage. As noted, the weightings of the various criteria for an executive officer's Business Unit Multiplier depend upon the officer's position and responsibilities, as shown in the calculation of the Business Unit Multiplier below.

        For each NEO, the calculation of the individual's EAIP Payout % for fiscal 2019, including both the Business Unit Multiplier (weighted accordingly) and the Corporate Multiplier is as follows:

 
 
 
 
 
 
 
 
 
 

W. P. Lauder &
F. Freda


T.T. Travis
J. Demsey
C. Prouvé
 

% of
Target


Actual
payout %


% of
Target


Actual
payout %


% of
Target


Actual
payout %


% of
Target


Actual
payout %


 

Functions Average

25.0 % 119.0 % 10.0 % 119.0 % 10.0 % 119.0 % 10.0 % 119.0 %  

Business Unit Strategic Objectives

30.0 % 125.0 % 15.0 % 100.0 % 15.0 % 125.0 %  

Division Net Sales(1)

27.5 % 125.0 % 20.0 % 125.0 % 27.5 % 90.3 % 27.5 % 125.0 %  

Division NOP Margin(1)

27.5 % 125.0 % 20.0 % 125.0 % 27.5 % 0.0 % 27.5 % 125.0 %  

Inventory Management

10.0 % 73.5 % 10.0 % 73.5 % 10.0 % 82.1 % 10.0 % 77.4 %  

Productivity

10.0 % 122.2 % 10.0 % 78.2 % 10.0 % 109.1 % 10.0 % 116.0 %  

Business Unit Payout (a)

100.0 % 118.1 % 100.0 % 114.6 % 100.0 % 70.9 % 100.0 % 118.7 %  

Corporate Multiplier (b)

120.0 % 120.0 % 120.0 % 120.0 %  

  EAIP Payout % (a) x (b)

141.7 % 137.5 % 85.0 % 142.5 %

(1)
Division Net Sales and Division NOP Margin are calculated at weighted average exchange rates at the time of measurement. Measurement of performance for each of the metrics is subject to certain automatic adjustments described above in "Annual Incentive Bonus."

        For more information about the potential bonus opportunities of our NEOs for fiscal 2019 and the actual payouts made in September 2019 in respect of fiscal 2019 performance, see "Grants of Plan-Based Awards in Fiscal 2019" and "Summary Compensation Table."

    Long-Term Equity-Based Compensation

        We consider equity-based compensation awarded under our Amended and Restated Fiscal 2002 Share Incentive Plan (the "Share Incentive Plan") to be of key importance in aligning executives with our long-term goals and rewarding them for performance. The awards also provide an incentive for continued employment with us. The Subcommittee typically makes equity-based compensation awards to our executive officers at its regularly scheduled meeting during the first quarter of each fiscal year. We grant certain executive officers a combination of PSUs, stock options, and RSUs. Since fiscal 2000, no grants of equity-based compensation have been made to Leonard A. Lauder, Chairman Emeritus, or Ronald S. Lauder, Chairman of Clinique Laboratories, LLC.

        The target and actual amounts and allocation of equity-based compensation reflect the business judgment of the Subcommittee after discussion with its outside consultant and certain members of our senior management. As with each other element of compensation, and compensation overall, the Subcommittee (or the Committee for non-equity-based compensation), its outside consultant, and management take into account the level of responsibility of the particular executive officer, recent performance and expected future contributions, internal pay equity, and competitive practice. They also consider applicable employment agreements as necessary.

        The allocation among the value of the different types of annual awards granted in fiscal 2019 is weighted equally among PSUs (at target), stock options, and RSUs – reflecting, in the business judgment of the Subcommittee, a balance among motivating and retaining executive officers, rewarding performance, mitigating risk, and helping executive officers increase their equity ownership to further align their interests with those of our stockholders. Such allocation may change depending upon any supplemental grants made to executive officers.


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        No specific weightings were used to determine the amounts of the equity-based compensation. The Subcommittee applied an individual performance factor to the target equity opportunity for each executive officer. The performance factors ranged from 105% – 125% of target. As with the amount of equity-based compensation granted, the allocation among the equity-based compensation elements are compared with practices of the peer group companies (see "Compensation Planning and the Decision Making Process – Peer Group" below) to ensure they are competitive and appropriate.

        Performance Share Units. Annual PSUs represent approximately one-third of the grant date value of the equity-based compensation granted to executive officers. PSUs are generally rights to receive shares of our Class A Common Stock if certain Company-wide performance criteria are achieved during a three-year performance period. PSUs are expressed in terms of opportunities, and each opportunity is based on a particular financial metric that is considered important in achieving our overall long-term financial goals.

        For the annual grant of PSUs, the Subcommittee approves the performance target for each metric during the first quarter of the three-year performance period. Each opportunity is expressed in shares to be paid out if performance equals 100% of the target. PSUs are accompanied by dividend equivalents that are accrued and paid in cash after the end of the performance period. To the extent shares are paid out on a PSU award, the cash amount paid is equal to the dividends declared per share over the performance period times the number of shares paid out. The target amount of a PSU award represents the aggregate payout if the performance of all opportunities equal 100% of the related target performances. An above-target payout can be achieved under a particular opportunity if the performance associated with such opportunity exceeds 100% of the target, up to a maximum of 150% of target. Failure to achieve the pre-established minimum threshold amount would result in no payout being made under the opportunity.

        Measurement of performance is subject to certain automatic adjustments such as changes in accounting principles, goodwill and other intangible asset impairments, the impact of unplanned completed business acquisition activity, restructuring and other activities, discontinued operations, certain non-recurring income/expenses, and the impact on net sales of unplanned changes in foreign currency rates. Payout of PSUs is contingent on the Company achieving positive Net Earnings for the fiscal year in which the grant is made. Because the Company achieved positive Net Earnings for fiscal 2019, the payout of the PSUs granted in September 2018 is based solely on achievement of the financial measures described below in "Fiscal 2019 PSU Grants."

        Fiscal 2017 PSU Grants. The PSU targets for the three-year period ended June 30, 2019 were based on compound annual growth rates ("CAGR") in Company-wide Net Sales, Diluted EPS, and ROIC, weighted equally. Each 1% increase in performance over the threshold results in a 5% increase in associated payout for Net Sales and 31/3% increases in associated payouts for Diluted EPS and ROIC up to the target performance levels. Each 1% increase in performance above target results in 55.3%, 25.9%, and 32.3% increases in associated payouts for Net Sales, Diluted EPS, and ROIC, respectively. Performance above maximum results in a payout of 150% of target opportunity.

        For the PSUs that were paid out after the end of fiscal 2019 (specifically, in September 2019), the aggregate payout of the three measures, weighted equally, was 150% because all measures exceeded the maximum results. The table below summarizes the measures and corresponding payouts.


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Fiscal
2017
through



Threshold
Target
Maximum
Actual
Performance(2)


Fiscal
2019
Target



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



Net Sales (CAGR)(1)

6.8 % 90.0 % 50.0 % 100.0 % 100.0 % 100.9 % 150.0 % 107.1 % 150.0 %

Diluted EPS (CAGR)

9.2 % 85.0 % 50.0 % 100.0 % 100.0 % 101.9 % 150.0 % 135.3 % 150.0 %

ROIC (CAGR)

–4.6 % 85.0 % 50.0 % 100.0 % 100.0 % 101.5 % 150.0 % 164.9 % 150.0 %

Aggregate Payout

                150.0 %

(1)
Net Sales are calculated at budgeted exchange rates at the time the target was set.

(2)
Measurement of performance is subject to certain automatic adjustments. For the fiscal 2017 grants, these include charges associated with restructuring and other activities related to the Company's Leading Beauty Forward initiatives, goodwill and other intangible asset impairments, the gain on liquidation of an investment in a foreign subsidiary, net, changes in the fair value of contingent consideration, the impact of the provisional charges resulting from the enactment of the TCJA, and the impact of the adoption of ASC 606.

        Fiscal 2019 PSU Grants. The targets for the PSU opportunities and corresponding payouts for PSUs granted in fiscal 2019 for the three-year period ending June 30, 2021 are based on CAGR in Company-wide Net Sales, Diluted EPS, and ROIC, weighted equally, as follows:

Fiscal
2019
through



Threshold(2)
Target
Maximum

Fiscal
2021
Target



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



Net Sales (CAGR)(1)

6.6 % 90.0 % 50.0 % 100.0 % 100.0 % 102.1 % 150.0 %

Diluted EPS (CAGR)

9.6 % 85.0 % 50.0 % 100.0 % 100.0 % 103.9 % 150.0 %

ROIC (CAGR)

3.2 % 85.0 % 50.0 % 100.0 % 100.0 % 103.7 % 150.0 %

(1)
Net Sales are calculated at budgeted exchange rates at the time the target was set. Measurement of performance for each of the metrics is subject to certain automatic adjustments described above in "Performance Share Units."

(2)
Payouts for an opportunity will be made only if performance exceeds the pre-established minimum threshold for such opportunity.

        The goals above were based on the long-term strategic plan and the conditions that existed at the start of fiscal 2019. We believe the targets when set were reasonably aggressive.

        Additional (non-annual) PSU Grants. From time to time, the Subcommittee makes grants of additional PSUs to executive officers. For information relating to the additional PSUs granted to Mr. Freda in fiscal 2018 and in fiscal 2016, see "CEO Compensation" below and "Outstanding Equity Awards at June 30, 2019." The additional PSU granted to John Demsey, Executive Group President, on January 28, 2016 (fiscal 2016) is reflected in "Outstanding Equity Awards at June 30, 2019."

        Stock Options. Annual stock options represent approximately one-third of the grant date value of the equity-based compensation granted to executive officers. We believe that stock options are performance-based because the exercise price is equal to the closing price of the underlying Class A Common Stock on the date the option is granted. Under our Share Incentive Plan, the exercise price of options cannot be lower than such closing price. Despite the value attributed on the date of


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grant for accounting purposes, value is realized by the executive officer only to the extent that the stock price exceeds such price during the period in which the executive officer is entitled to exercise the options and the officer exercises them. Options granted to our executive officers generally become exercisable in three equal installments approximately 16 months, 28 months, and 40 months after the date of grant, and expire ten years from the grant date.

        Restricted Stock Units. Annual RSUs represent approximately one-third of the grant date value of the equity-based compensation granted to executive officers. RSUs are the right to receive shares of our Class A Common Stock over a period of time. RSUs are granted to executive officers to serve as a retention mechanism and to help them build their equity ownership. RSUs are accompanied by dividend equivalents that are paid in cash; at the time an RSU vests, the cash amount paid to the executive officer is equal to the dividends declared per share between the grant date and the vesting date multiplied by the number of shares paid out. RSUs granted to our executive officers generally vest in three equal installments approximately 14 months, 26 months, and 38 months from the date of grant.

        Additional (non-annual) RSU Grants. From time to time, the Subcommittee makes grants of additional (non-annual) RSUs to executive officers. For example, on September 6, 2016 (fiscal 2017), the Subcommittee granted Tracey T. Travis, Executive Vice President and Chief Financial Officer, an additional RSU award that is reflected in "Outstanding Equity Awards at June 30, 2019." Also, see "Fiscal 2020 Compensation Decisions for Other NEOs" below for information about an additional RSU award to Ms. Travis in fiscal 2020.

        Equity-Based Compensation Granted in Fiscal 2019. As noted above, target award levels and actual grants of equity made to executive officers are determined by taking into account many factors, including an assessment of recent performance and expected future contributions. For the Executive Chairman and the President and Chief Executive Officer, this determination is made by the Subcommittee; for the remaining executive officers, a recommendation is made by the executive officer's immediate manager, and the actual grant is approved by the Subcommittee. Fiscal 2019 annual equity grants were awarded in September 2018; the resulting equity grant percentages awarded to our NEOs in fiscal 2019 were based on target grant levels and an assessment of each officer's performance and expected future contributions. See "Grants of Plan-Based Awards in Fiscal 2019" and "Summary Compensation Table."

CEO Compensation

        Mr. Freda has continued to extend his track record of outstanding performance and leadership as our Chief Executive Officer. Some highlights of our fiscal 2019 results are noted in the "Executive Summary" above. Since becoming President and Chief Executive Officer in July 2009, Mr. Freda has led the development and implementation of our long-term strategy. Between that time and June 30, 2019, (i) we have achieved TSR of 1,166%, placing us just outside the top 5% of S&P 500 companies (the TSR of the S&P 500 Index was 294%); and (ii) our market capitalization has increased by $60 billion to $66 billion.

        In recognition of Mr. Freda's leadership and expected future contributions, as well as our strong multi-year performance, the Committee and the Subcommittee increased Mr. Freda's total direct annual compensation for fiscal 2019 by 3% to $16.15 million. For fiscal 2019, Mr. Freda's base salary increased to $2.0 million (from $1.9 million), his target bonus opportunity increased to $5.0 million (from $4.9 million), and his annual equity target increased to $9.15 million (from $8.88 million).

        Additional PSU Grant in February 2018 (fiscal 2018). On February 14, 2018, the Stock Plan Subcommittee, with input from members of the Board of Directors, granted a PSU award (the "February 2018 PSU") to Mr. Freda to further align his interests with those of our stockholders and motivate his continued stewardship of the Company's brands, talent base, and reputation over the longer term. The shares of Class A Common Stock subject to this award are not intended to be


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delivered fully to Mr. Freda until after the end of fiscal 2024, which reflects the Company's desire to further align his interests with those of our stockholders over that extended period of time. The award covers an aggregate of 195,940 shares divided in two equal tranches (i.e. 97,970 shares per tranche) and was valued at approximately $27.4 million on the date of grant. The service periods, performance periods, and share payment dates for the February 2018 PSU are as follows:

Service Period


Performance Period


Share
Payment Date(1)

First Tranche (97,970 shares)

January 1, 2018 – June 30, 2021 July 1, 2018 – June 30, 2021 September 3, 2024

Second Tranche (97,970 shares)

January 1, 2018 – June 30, 2022 July 1, 2018 – June 30, 2022 September 3, 2024

(1)
Payment, if any, and the timing of payment are subject to achievement of the performance goal and other terms and conditions described below.

        In its consideration of the appropriate size and structure for the February 2018 PSU grant, the Subcommittee considered the input from its consultant and other Board members, as well as the feedback and concerns received from some institutional investors following the September 2015 differentiated long-term award to Mr. Freda. Ultimately, the Subcommittee determined that the February 2018 grant was appropriate and consistent with the Company's long-term business and compensation strategy, providing an incentive for sustainable and effective stewardship of the Company's brands, talent base, and reputation over an extended period of time. In setting the performance goal for this award, the Stock Plan Subcommittee determined that any absolute or relative goals would become meaningless or counterproductive in light of a rapidly evolving competitive environment. The performance goal is intended to prevent this award from vesting if our performance were to suffer a substantial reversal during the vesting period and is accompanied by carefully considered payout restrictions around termination scenarios as described below.

        The February 2018 PSU covers a period of about six-and-a-half years in total and involves two separate tranches that vest after three-and-a-half and four-and-a-half years based on Mr. Freda's continued employment and achievement of the performance goal described above. If the performance goal for a tranche is achieved, the shares of common stock underlying such tranche would be paid out to Mr. Freda in September 2024, a period of time that is much longer than typical grants. The delayed distribution feature is a key component of the award, intended to ensure that Mr. Freda is further incentivized to drive long-term performance. By separating award vesting from delivery of the underlying common stock, we continue to tie a portion of Mr. Freda's wealth to share value over an extended time horizon (i.e. six-and-a-half years, through the delivery in September 2024). The Company notes that between February 14, 2018 (the grant date of the February 2018 PSU) and June 30, 2019, (i) we have achieved TSR of 33% (the TSR of the S&P 500 Index was 12%); and (ii) our market capitalization increased from approximately $51 billion to $66 billion.

        This award generally provides that the vesting of each tranche is contingent on the Company achieving positive Cumulative Operating Income during the relevant Performance Period. For purposes of this award, "Cumulative Operating Income" means the sum of the operating income for each fiscal year in such Performance Period, subject to certain automatic adjustments set forth in the award agreement.

        If Mr. Freda's employment is terminated for cause, as defined in the February 2018 PSU award agreement, prior to the delivery of the shares associated with any tranche, regardless of whether that tranche has been otherwise earned or vested, he will receive no shares. If (a) Mr. Freda is no longer employed by us for any reason, (b) payment of a tranche has not previously been made, and (c) it is determined that his behavior while he was employed would have constituted cause, then


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each tranche not previously paid will be forfeited, regardless of whether such tranche has been otherwise earned and vested. In addition, payouts of the award after termination of Mr. Freda's employment are subject to Mr. Freda not (x) competing with the Company during the lesser of (i) the remaining term of his award or (ii) a period of 24 months, nor (y) conducting himself in a manner adversely affecting the Company. If he voluntarily resigns or retires prior to the end of the Service Period, any unearned, unvested tranches will be forfeited. If Mr. Freda's employment is terminated without cause, then for each Performance Period that has not yet concluded and subject to actual achievement of the performance goal for such tranche, he will earn and vest in the pro rata portion of such tranche inclusive of credit for an additional 12 months of service (up to a maximum of 100% of the Service Period for that tranche). However, instead of a pro rata portion, Mr. Freda would earn and vest fully in such tranche if the Company also has achieved Company-wide performance criteria (currently known as the "corporate multiplier") under the Company's Executive Annual Incentive Plan of at least 90% for each of the Company's two fiscal years preceding the year of Mr. Freda's termination, as determined by the Compensation Committee. If Mr. Freda dies or becomes disabled, then for each Performance Period that has not yet concluded, he will earn and vest in a pro rata portion of such tranche, and the share payment would be made shortly thereafter. Upon a Change in Control, the performance goal will be deemed to be met, and the award will be paid on the earliest of the original payment date, shortly after a qualifying "double trigger" termination of employment, or a date determined by the Stock Plan Subcommittee in accordance with the Share Incentive Plan. Dividend equivalents will be paid out in cash in connection with shares that are earned.

        Additional PSU Grant in September 2015 (fiscal 2016).    The size and structure of the February 2018 PSU described above, as well as the reasons for the grant, are similar to the differentiated long-term grant to Mr. Freda on September 4, 2015 (the "September 2015 PSU"), which is discussed below. The September 2015 PSU award reflected the Company's strong performance, the importance of ensuring the sustainability of the Company's performance and its longer term success, and the desire to retain Mr. Freda and further align his interests with the interests of our stockholders. The Subcommittee also wanted to recognize and provide an incentive for sustainable and effective stewardship of the Company's brands, talent base, and reputation over that extended period of time. The final performance period for the September 2015 grant ends on June 30, 2020, with a payment date of June 30, 2023; the performance periods for the February 2018 PSU end on June 30, 2021 and June 30, 2022, each with a payment date of September 3, 2024. The Company notes that between September 4, 2015 (the grant date of the September 2015 PSU) and June 30, 2019, (i) we have achieved TSR of 148% (the TSR of the S&P 500 Index was 66%); and (ii) our market capitalization increased from $29 billion to $66 billion.

        The September 2015 PSU is a long-term equity award that is designed to not be delivered fully to Mr. Freda until the end of fiscal 2023. This PSU grant has a target payout of 387,848 shares and was valued at $30 million on the date of grant. The award is designed to be earned in tranches at the end of certain fiscal years with no shares being delivered to Mr. Freda until the end of subsequent fiscal years as reflected below.


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        The September 2015 PSU is divided into three tranches with service periods, performance periods, and payment dates, if any, as follows:

Service Period


Performance Period


Share
Payment Date(1)

First Tranche (129,282 shares)

July 1, 2015 – June 30, 2018 July 1, 2015 – June 30, 2018 June 30, 2021

Second Tranche (129,283 shares)

July 1, 2015 – June 30, 2019 July 1, 2016 – June 30, 2019 June 30, 2022

Third Tranche (129,283 shares)

July 1, 2015 – June 30, 2020 July 1, 2017 – June 30, 2020 June 30, 2023

(1)
Payment, if any, and the timing of payment are subject to achievement of performance goals and other conditions described below.

        This award provides that the vesting of each of the three tranches is contingent on the Company achieving (i) positive Cumulative Operating Income during the relevant Performance Periods as well as (ii) positive Net Earnings, as defined in the agreement, for the fiscal year ended June 30, 2016. Because the Company achieved positive Net Earnings for the fiscal year ended June 30, 2016, the vesting of each of the three tranches is now based solely on the Company achieving positive Cumulative Operating Income during the relevant Performance Periods. For the first tranche Performance Period ended June 30, 2018, because the Company achieved positive Cumulative Operating Income, 129,282 shares will be delivered on June 30, 2021 to Mr. Freda, subject to the terms and conditions of the September 2015 PSU. For the second tranche Performance Period ended June 30, 2019, because the Company achieved positive Cumulative Operating Income, 129,283 shares will be delivered on June 30, 2022 to Mr. Freda, subject to the terms and conditions of the September 2015 PSU.

        For purposes of this award, "Cumulative Operating Income" means the sum of the operating income for each fiscal year in such Performance Period, subject to certain automatic adjustments including changes in accounting principles; impairment of intangibles; the impact of discontinued operations; non-recurring operating income and expenses; and the impact of unplanned acquisitions. Dividend equivalents will be paid out in cash in connection with shares that are earned under this award.

        CEO Compensation on Annualized Basis. Mr. Freda's total compensation, as disclosed in the "Summary Compensation Table," shows significant fluctuations year-over-year due to the value and timing of additional (non-annual) equity awards he has received in the past in addition to his annual equity grants. These fluctuations are attributable to applicable disclosure rules, which require that we report the total value of equity grants on the grant date rather than over the life of the award. When the additional (non-annual) equity awards were granted, the Subcommittee considered the impact of those awards on an annualized basis. The table below reflects the amounts shown for Mr. Freda for each year in the "Stock Awards" column in the Summary Compensation Table adjusted to (a) deduct the aggregate grant date fair value of the February 2018 PSU ($27.4 million) from fiscal 2018 and (b) instead include the amounts relating to that award and other non-annual awards that were expensed for accounting purposes in each fiscal year shown in the Summary Compensation Table, including the amounts expensed for such awards granted prior to fiscal 2017 as disclosed in previous proxy statements. As adjusted, the amounts


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shown for Mr. Freda for "Stock Awards" and "Total" in the Summary Compensation Table would be as follows:

Stock Awards ($000s)
Total ($000s)

Fiscal Year


Annualized
Stock Awards


Grant Date Fair
Value as Reported
in Summary
Compensation
Table





Including
Annualized
Stock Awards



As Reported
in Summary
Compensation
Table

2019

$ 19,414 $ 7,625 $ 33,225 $ 21,435

2018

19,162 35,371 32,545 48,754 ​</