DEF 14A 1 nc10012900x2_def14a.htm DEF 14A

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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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Filed by a Party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12
Regis Corporation
(Name of Registrant as Specified In Its Charter)
 
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LETTER FROM THE
INCOMING BOARD CHAIR
Dear Regis shareholders, employees, franchise owners and
customers,
The medical, economic, and social trauma we are all experiencing has hit the Regis community hard. Our salons were forced to close, upending the lives of thousands of the kinds of entrepreneurs who have made the US strong. We, too, were forced to furlough the majority of our workforce and reduce pay for those of us who remained. My fellow board members and I increased our workload—meeting weekly—and decreased our pay—to zero—through our darkest months.
As you will read in the summary that follows, we and our management team moved quickly to protect our people and continue the transformation to a franchise-based model we had started under our turnaround CEO Hugh Sawyer. Hugh is now retiring and I thank him for his work during these difficult times. We recruited a new CEO—Felipe Athayde—with a track record of growing franchise-based companies, and advanced our cutting-edge digital platform in a sector not known as a technological hotbed.
While our volumes are, of course, down, our scale confers benefits not shared by most operators in our sector—we are, for example, offering employment to stylists who lost their jobs elsewhere and evaluating interesting new real estate opportunities. We are willing to bet long on human beings’ interest in good grooming and our ability to deliver it in a changed world.
We are also willing to bet on the basic humanity of our culture: while the world only recently focused on strong diversity rhetoric, we have been steadily creating jobs and futures for a workforce the vast majority of whom are diverse by orientation, race, ethnicity, gender, or a combination of these and other protected categories. Not only that, our franchise model has always been the gateway that immigrants, minorities, women, and other entrepreneurs who have a hard time accessing traditional career paths, have used to build futures. As soon as it was legal for our salons to open, I got a haircut at one so I could personally thank our franchisees’ front-line stylists and reinforce our commitment to them—the economic front lines of diversity matter as much as the social.
Finally, we continue to build our governance leadership. We elected Virginia Gambale as our Lead Independent Director to partner with me in my role as our newly elected independent board chair.
We ask, on behalf of all of our people, that you support us with your votes on the items described in this proxy. We also ask you to visit one of our salons and let your stylists know you are a shareholder. You can help us show our appreciation and support.
Sincerely,


Daniel Beltzman
Incoming Board Chair

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LETTER FROM THE NEWLY
APPOINTED REGIS PRESIDENT
AND CEO
Dear Regis shareholders, employees, franchise owners and customers,
I am humbled and excited to be joining you as Regis’ newly appointed Chief Executive Officer. These are, of course, uncertain times, but uncertain times always open new possibilities. Possibilities we can achieve together.
If you think I am being too optimistic, let me try to convince you otherwise. To do that, let’s ignore, for the moment, all the things we can’t know right now. Let’s consider instead, some of the things we do know.
Human beings’ interest in looking their best is both powerful and endearing. We know core demand for these services is - and will always be - inherently strong. People are longing to be with other people again… and feeling good about themselves! We must use the present to make sure we are ready for them as they come out of hibernation.
Regis is fortunate to have started its strategic transformation before the pandemic. For this, I must thank our departing CEO Hugh Sawyer, whose reputation as a turnaround leader is well-earned. Regis is using the shifts taking place now to seek new talent, find new locations, increase the technological support for stylists and owners, and raise the reputation of these amazing brands more generally. As President Kennedy once famously observed, “Written in Chinese, the word crisis is comprised of two characters. One represents danger, and the other represents opportunity.” Regis has already built the foundation for us to seize today’s very real opportunities.
My credentials of working with franchise owners of multiple brands for almost a decade, my background as a colleague and leader of diverse teams, and my experiences in building value when opportunity allows, all make me excited to join the Regis team. I look forward to meeting you (both virtually and soon in-person), working with you, and learning from you.
All the best,

Felipe Athayde
Incoming CEO

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NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
To the Shareholders of Regis Corporation:
The Annual Meeting of the Shareholders (the “Annual Meeting”) of Regis Corporation (referred to as “we,” “us,” “our,” “Regis” and the “Company”) will be held on October 27, 2020 commencing at 9:00 a.m. Central Time. The Annual Meeting will be conducted completely as a virtual meeting via the Internet at www.virtualshareholdermeeting.com/RGS2020. The purposes of the meeting are:

To elect the seven directors listed in the proxy statement to serve for a one-year term and until their successors are elected and qualified;
To approve, on an advisory basis, the compensation of our named executive officers (referred to as the “Say-on-Pay” proposal);
To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2021; and
To transact such other business, if any, as may properly come before the Annual Meeting or any adjournment or postponement thereof.
Only holders of record of our common stock at the close of business on August 31, 2020 are entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. We are providing our proxy materials, which include our Notice and Proxy Statement and Annual Report, to such holders of record of our common stock beginning on or about September 16, 2020.
 
Whether or not you plan to participate in the Annual Meeting, please submit your proxy by telephone or through the Internet in accordance with the voting instructions provided to you. If you requested a paper copy of the proxy card by mail, you may also date, sign and mail the proxy card in the postage-paid envelope that is provided with your proxy card. Should you nevertheless participate in the Annual Meeting, you may revoke your proxy and vote your shares electronically during the Annual Meeting.
 
If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the record holder that you must follow in order for your shares to be voted. If you plan to vote your shares during the Annual Meeting, you will need the 16-digit control number included on your proxy card or your Notice of Internet Availability of Proxy Materials. We recommend that you log in at least fifteen minutes before the meeting to ensure that you are logged in when the meeting starts.
 
By Order of the Board of Directors,

Amanda P. Rusin
Corporate Secretary
September 16, 2020

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2020 PROXY STATEMENT  |  1

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ELECTION OF DIRECTORS
What Has Kept Us Busy
In this section, we, your Board of Directors, provide information about who we are, how we are organized, how we operate, and what we are paid. We open with a summary of what we have been doing for you, our fellow shareholders. This information is not always included in proxy statements and we believe we should provide it, since you are being asked to re-elect us.
Our Board has shaped and governed, and our management team has taken, significant actions to drive our Company forward through difficult times:

Conducted a comprehensive search for a successor CEO, resulting in the identification and appointment of Felipe Athayde as the Company’s next CEO as we transition to our next chapter of growth

Sold 1,475 Company-owned salons to franchisees, generating $91.6M in net cash proceeds as part of our conversion to a fully franchised asset-light platform

Opened over 45 new franchise locations

Completed restructuring to improve financial performance and align costs with the Company’s franchise model, removed~$28 million of annualized general and administrative expenses during fiscal 2020

Developed of our new, proprietary back office salon management system, OpenSalon Pro

Upgraded the Supercuts mobile app and launched the first Cost Cutters mobile app and mobile customer loyalty program

Re-engineered the Company’s “Franchise Resource Center materially upgrading this site and information source for franchisees

Expanded and upgraded digital education for stylists and salon managers

Launched our new private label haircare products under our Blossom brand and relaunched a repackaged and reformulated version of our successful Designline private label brand

Agreed to sell our stake in the Empire Education Group while maintaining the value we derive from our relationship with Empire through a strategic partnership

Invited shareholders to engage directly with members of our board of directors to discuss our prior year’s “say on pay” vote and other governance topics and held conversations with those who accepted the invitations

Carefully managed the Company’s operations during the COVID-19 impairment, including temporary and on-going government-mandated salon closures and limits to protect the health and safety of the Company’s customers, employees, stylists and franchisees

Executed a company-wide hibernation in May and June to preserve the Company’s cash position including furloughs and pay reductions for salaried employees

Worked with infectious disease specialists at the University of Minnesota Medical School to enhance customer and stylist safety

Initiated landlord negotiations through JLL, a real-estate brokerage firm, in response to the circumstances of the COVID-19 pandemic

Amended our revolving credit facility to remove all prior financial covenants in lieu of a minimum liquidity covenant more aligned with our transition to a fully-franchised, asset-light business

Supported our franchisees through the COVID-19 pandemic by, among other things, waiving cooperative advertising fees and refunding certain prior contributions, which also reduced our marketing spend

Promoted Kersten D. Zupfer to Executive Vice President and Chief Financial Officer

Sold our prior headquarters, resulting in a $4 million gain, and completed the relocation of our headquarters
Lastly, the health, economic, and social crises of 2020 have put a spotlight on what companies are doing not just to protect their employees’ safety and jobs, but to create cultures that enable people of all backgrounds and attributes to feel secure and valued and perform at their best.
Regis was furthering these goals well before 2020. Our first driver of diversity and inclusion is our structure: Regis is a company that supports thousands of individual small businesses—our franchisees. Strong data supports the fact that the franchise system provides exceptional opportunities for entrepreneurs who may not have connections or wealth or expensive educations or who may have faced other barriers to advancement.
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In addition, as the chart below reflects, the vast majority of Regis’s own employees are female:


Further, as the next chart shows, Regis also creates opportunities among its own employees for racial and ethnic minorities as recognized by the federal government and as counted by the national census:


Regis is examining opportunities to use its strengths as a naturally diverse company that uses the corporate structure most accessible to women, minorities, and immigrants to harness its social sustainability to drive financial sustainability.
2020 PROXY STATEMENT  |  3

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ELECTION OF DIRECTORS
The Board unanimously recommends that you vote FOR the election of each of the director nominees below.
Seven directors are to be elected at the annual meeting of shareholders to be held on October 27, 2020 (the “Annual Meeting”), each to hold office for one year until the 2021 annual meeting of shareholders and until their successors are elected and qualified. Based upon the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated the seven persons named below for election as directors. Each of the Board’s nominees are standing for re-election by the shareholders at the Annual Meeting, and each nominee has consented to serve if elected.
As previously disclosed, Hugh E. Sawyer, our Chair of the Board, President and Chief Executive Officer, is retiring from his positions with the Company when our new CEO, Felipe A. Athayde, commences his employment on October 5, 2020. Mr. Athayde has been elected by the Board to fill the vacancy created by Mr. Sawyer’s retirement and he will stand for re-election at the Annual Meeting. In addition, David P. Williams, a current member of our Board, is not standing for re-election at the Annual Meeting.
In determining to nominate Ms. Ann Rhoades for re-election, the Board considered that Ms. Rhoades was 75 years old and therefore required under our governance guidelines to offer to not stand for re-election. The Board considered Ms. Rhoades’ significant contributions to the Board, including leading the search committee for the new CEO as well as her oversight of matters relating to the culture among the Company’s workforce and her continued high level of involvement, and determined to nominate Ms. Rhoades for re-election.
Unless authority to vote is withheld, proxies submitted will be voted for the election of the Board’s nominees named herein as directors of Regis. If for any reason a nominee becomes unable to serve or for good cause will not serve if elected, the Nominating and Corporate Governance Committee may designate substitute nominees, in which event the shares represented by proxies returned to us will be voted for such substitute nominees. If the Nominating and Corporate Governance Committee designates any substitute nominees, we will file an amended proxy statement that, as applicable, identifies the substitute nominees, discloses that such nominees have consented to being named in the revised proxy statement and to serve if elected, and includes certain biographical and other information about such nominees required by Securities and Exchange Commission (“SEC”) rules.
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ELECTION OF DIRECTORS
Who We Are


Felipe A. Athayde

President, Americas, of Popeyes Louisiana Kitchen (through September 2020)

Director Nominee (term commencing October 2020)


Age: 41


Board
committees

None
Career Highlights
  President, Americas, of Popeyes Louisiana Kitchen, owned by Restaurant Brands International, a multinational quick-service restaurant holding company, from March 2019 to September 2020

  Various positions with Restaurant Brands International between July 2011 and September 2020, including President, Latin America and Caribbean for Burger King and President, US for Tim Hortons
Skills / Experience
  Leadership experience with franchise businesses, including expertise in strategy and brand
development, finance, operations, marketing and sales

  Implementation of business-wide technology upgrades
Education
BBA, Fundação Getulio Vargas in Sao Paulo, Brazil
MBA, Northwestern University Kellogg School of Management
Also...
Before joining Burger King Corporation, Mr. Athayde worked as a Business Leader in the strategy department for Visa Inc. Latin America in Miami, FL, and as a bond trader for multiple financial institutions in the United States and Singapore.
Other Public Boards
None 
2020 PROXY STATEMENT  |  5

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ELECTION OF DIRECTORS
      

  
Daniel G. Beltzman

General Partner,
Birch Run Capital Advisors, LP

Independent

Director since 2012 Chair of the Board Elect

Age: 45


Board
committees

 Compensation,
Chair

 Nominating and Corporate
Governance

 Technology
Career Highlights

  General Partner, Birch Run Capital Advisors, LP, an investment adviser, since May 2006

  Mergers and Acquisitions and Equity Research departments of Deutsche Bank Securities, Inc. and Bank of America Securities
Skills / Experience

  Financial experience and expertise

  Represents a significant shareholder
Education

BBA, Accounting/Finance, University of Michigan
MAcc, University of Michigan
ALSO...

Daniel cofounded Birch Run Capital Advisors when he was 31. Birch Run looks to invest in organizations that believe that value follows values. It looks for organizations whose people are willing to invest their time, resources, and reputations to support both.
Other Public Boards

Former
  Ditech Holding Corp. f/k/a Walter Investment Management Corp. (2015 – 2019)
Voting Support

2019: 97.0% | 2018: 97.5% | 2017: 97.3% | 2016: 86.5% | 2015: 88.0% | 2014: 99.4% | 2013: 92.8% | 2012: 99.4%

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ELECTION OF DIRECTORS
      


Virginia
Gambale

Managing Partner, Azimuth Partners LLC

Independent

Director since 2018

Independent Lead Director since
August 2020

Age: 61


Board
committees

 Compensation

 Technology, Chair
Career Highlights

  Managing Partner & Founder, Azimuth Partners LLC, a strategic advisory firm in the field of technology innovation and growth strategies for early-, mid- and late-stage companies, since 2003

  Former head of Deutsche Bank Strategic Ventures and General Partner of Deutsche Bank
Capital Partners

  Board President, Newport Music Festival

  Adjunct Faculty Member, Columbia University

  Mentor, Columbia University’s Masters in Technology Leadership

  Senior management positions at Merrill Lynch, Bankers Trust and Marsh McLennan
Skills / Experience

  Technologist - focuses on growth and innovation strategies for technology and
technology-driven services companies

  Senior management positions (including CIO) at Merrill Lynch, Bankers Trust, Deutsche
Bank and Marsh McLennan

  Deal structuring for venture and growth capital funding; led numerous M&A transactions in the tech sector
Education

BS, Mathematics & Computer Science, minor in Business, New York Institute of Technology
Also...

Virginia has extensive expertise in transformative business technology. She is also a concert pianist.
Other Public Boards

  JetBlue Airways Corporation (since 2006); Compensation Committee Chair; tenure will end
with her term limit on JetBlue board in May 2021

  First Derivatives plc (since March 2015)

  Virtu Financial, Inc. (since January 2020)

  Nutanix, Inc. (since June 2020)

Former
  Dundee Corporation (2015 – 2018)

  Piper Jaffray Companies (2009 – 2011)

  Motive, Inc. (2004 – 2008)
Voting support

2019: 99.5% | 2018: 99.1%

2020 PROXY STATEMENT  |  7

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ELECTION OF DIRECTORS
      

  
David J. Grissen

Group President, Americas, Marriott International, Inc.

Independent

Director since 2013

Age: 63


Board
committees

 Audit, ACFE

 Nominating
and Corporate
Governance, Chair

 Technology
Career Highlights
  Joined Marriott International, Inc., a global operator of hotels and related lodging facilities,
in 1986 with his most recent role being Group President, Americas since 2020

  Various positions at Marriott including Group President; Group President, Americas; President, Americas; Executive Vice President of the Eastern Region; Senior Vice President of the Mid-Atlantic Region and Senior Vice President of Finance and Business Development

  Announced plans to retire from Marriott in the first quarter of 2021 after 36 years with the company
Skills / Experience
  Leadership experience with a complex organization that includes franchised, managed and
owned operations

  Building marketing platforms with multiple portfolio brands

  Acquisitions and integration
Education
BA, Michigan State University
MBA, Loyola University Chicago
Also...
David implemented the 4 Disciplines of Execution because he saw how employees understanding how their day-to-day activities relate to the company’s overall business results made them feel they were all working towards a common goal and they make a difference and have a voice.

David, a long-time runner, served as Vice Chairman of Back On My Feet, a non-profit whose mission is helping the homeless via a structured running program.
Other Public Boards
Former
  Good Times Restaurants Inc. (2005 – 2010)
Voting Support
2019: 98.4% | 2018: 98.3% | 2017: 99.0% | 2016: 89.0% | 2015: 89.3% | 2014: 99.5% | 2013: 98.1%

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ELECTION OF DIRECTORS
      

  
Mark S.
Light

Former Chief
Executive Officer,
Signet Jewelers

Independent

Director since 2013

Age: 58


Board
committees

 Compensation

 Nominating and Corporate
Governance

 Technology
Career Highlights
  In 1978 joined Signet Jewelers, the world’s largest retailer of diamond jewelry (with over 3,500 stores including Kay Jewelers, Zales, Jared The Galleria of Jewelry, H. Samuel, Ernest Jones, Peoples and Piercing Pagoda) operating in North America and the United
Kingdom

  Chief Executive Officer and Director of Signet Jewelers from November 2014 until his
retirement in July 2017

  Various management positions including President and Chief Operating Officer, Executive Vice President of Operations and Division President while at Sterling Jewelers, Signet’s main US business
Skills / Experience
  Led an international sales team to deliver a superior customer experience

  Led the development of start-up retail jewelry brand, Jared the Galleria of Jewelry to over
$1 billion in annual revenue in 2017

  Led and managed many acquisitions while integrating synergies

  Led in the acquisition and integration of a large diamond-cutting factory in Botswana, Africa

  Led in the development of several exclusive international jewelry product brands such as Open Hearts by Jane Seymour, Neil Lane Bridal, and the Ever Us Two Stone collection to name a few
Education
Kent State University and Ohio University
ALSO...
When Mark became Head of Sterling, he oversaw a tripling of the unit’s sales.

In his time at Signet, he oversaw a successful acquisition and integration of Zales, expanded its outlet channel by acquiring Ultra, made significant progress on the company’s OmniChannel strategy, realigned the organization structure and re- engineered and stabilized its ecommerce platform.

Mark is the Chairman of the Board of Directors of Bedrock Manufacturing, which is the parent of two iconic American brands, Shinola and Filson.
Other Public Boards
Former
  Signet Jewelers Limited (2014 – 2017)
Voting Support
2019: 98.5% | 2018: 98.4% | 2017: 96.7% | 2016: 87.7% | 2015: 88.2% | 2014: 99.9% | 2013: 98.1%

2020 PROXY STATEMENT  |  9

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ELECTION OF DIRECTORS
      

  
Michael J. Merriman

Product Launch
Ventures, LLC
Consumer Products Consultant

Independent

Director since 2011

Age: 64


Board
committees

 Audit, ACFE, Chair

 Compensation
Career Highlights

  Operating Advisor at Resilience Capital Partners, LLC, a private equity firm (2008 – 2017)

  Chief Executive Officer, The Lamson & Sessions Co. (November 2006 until sale November
2007)

  SVP & Chief Financial Officer, American Greetings Corporation (September 2005 –
November 2006)

   President & CEO, Royal Appliance Mfg. Co. (1995 – 2004)

   Chief Financial Officer, Royal Appliance Mfg. Co. (1992 – 1995)

  Audit Partner, Arthur Anderson & Co. (1990 – 1992)
Skills / Experience

  Public company CEO leadership experience

  Consumer product sales and marketing direct to consumer, as well as to big box retailers
including Walmart

  M&A experience including the sale of both public and private companies

  Public accounting experience
EDUCATION

BS, Business Administration, John Carroll University
ALSO...

Michael was named CEO of Royal Appliance Manufacturing at 39, after joining the company as CFO three years earlier.
Other Public Boards

  Nordson Corporation (since 2008), Chairman of the Board (since February 2018), Audit
Committee Chair (until February 2018)

Former
  OMNOVA Solutions Inc. (2008 – 2020), Nominating & Corporate Governance Committee
Chair

   Invacare Corporation (2014 – 2018)

  American Greetings Corporation (2006 – 2013)

   RC2 Corporation (2004 – 2011)

VOTING SUPPORT

2019: 99.5% | 2018: 98.9% | 2017: 98.2% | 2016: 87.7% | 2015: 88.6% | 2014: 99.4% | 2013: 92.8% | 2012: 95.0% | 2011: 94.8%

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ELECTION OF DIRECTORS
      


M. Ann
Rhoades

President,
People Ink, Inc.

Independent

Director since 2015

Age: 75


Board
committees

 Audit
 Compensation
Career Highlights

  President, People Ink, Inc., a human resources consulting firm, since 1999

  Executive Vice President, People, JetBlue Airways (1999 – 2002)

  Executive Vice President, Team Services, Promus Hotel/DoubleTree Hotels Corporation
(1995 – 1999)

  Vice President, People, Southwest Airlines (1989 – 1995)

Skills / Experience

  Human resources experience

  Consumer experience

EDUCATION

MBA, The University of New Mexico
ALSO...

Ann built a hiring model to get high-performance outcomes based in hiring according to values that helped create JetBlue and Southwest Airlines’ well-regarded cultures.

Author of Built on Values, Creating an Enviable Culture That Outperforms the Competition.

Flew in an F-16 at 9.1Gs.
Other Public Boards

  Nexphase Capital (since 2015)

Former
  JetBlue Airways (2001 – 2015), Compensation Committee Chair

  P.F. Chang’s China Bistro, Inc. (2003 – 2012), Compensation Committee Chair

  Restoration Hardware (1999 – 2001, 2005 – 2009)

VOTING SUPPORT

2019: 99.5% | 2018: 99.0% | 2017: 98.9% | 2016: 98.8% | 2015: 99.2%

2020 PROXY STATEMENT  |  11

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How We Govern the Company
How We Govern the Company
We believe that how we govern ourselves is as important as the corporate governance that sets guidance and parameters for the Company more generally. This is a summary of some of our key board governance provisions. More information can be found on our website, www.regiscorp.com, and in the next section summarizing some of the key provisions that apply more broadly to the Company. Our compensation governance provisions can be found in our Compensation Discussion and Analysis.
All of our directors except our President and CEO are independent. We provide in our User’s Guide at the end of this proxy statement a description of our Board’s independence standards. Under these standards the Board has determined that each director, with the exception of Mr. Sawyer, our President and CEO, is independent. The Board has also determined that the independence of Mr. Williams, Chief Financial Officer of the parent company of Roto-Rooter, and Mr. Grissen, Group President of Marriott International, Inc., is not impaired by the fact that the Company pays Roto-Rooter and Marriott for plumbing and hotel services, respectively. Accordingly, a supermajority of our Board is independent. Upon joining the Board in connection with his commencement as CEO, Mr. Athayde will not be independent.
We recently appointed an independent Chair of our Board. In connection with our CEO succession, Mr. Beltzman, an independent director who has served on the Board for the last eight years, will become Chair of the Board upon Mr. Sawyer’s retirement and the commencement of Mr. Athayde’s employment as our CEO. Currently, Mr. Sawyer, our President and CEO, serves as Chair of the Board, a position he has held since February 2020. Mr. Sawyer succeeded Mr. Williams as Chair of the Board, at which time Mr. Williams became our independent Lead Director. In August 2020, the independent directors of the Board appointed Ms. Gambale as our independent Lead Director in anticipation of Mr. Williams’ retirement from the Board when his term ends at the Annual Meeting.
As Chair, Mr. Beltzman will lead the Board and be actively engaged in ensuring a smooth CEO transition. As independent Lead Director, Ms. Gambale will continue to coordinate matters regarding the Board’s processes and governance of the Company.
All of our directors stand for election every year.
Special meetings. Shareholders holding 10% or more of our outstanding stock have the right to call a special meeting of shareholders.
Board and committee meeting attendance. Each of our then-serving directors attended, in person or by teleconference, at least 75% of the 21 meetings of our Board and the meetings of the board committees on which each director served during the fiscal year ended June 30, 2020.
Annual meeting attendance. Our Board does not have a formal policy relating to Board members’ attendance at annual shareholders meetings. Directors are, however, encouraged to attend these meetings and all but one of our then-serving directors attended our 2019 annual shareholders meeting in person and the other then-serving director participated telephonically.
Our Board has a majority voting standard. Incumbent directors who do not receive a majority of votes cast must tender their resignation for the Board to review. The Company’s governance guidelines further provide that if the Board decides not to accept a director’s resignation in such circumstances, it will disclose its reasons.
Director stock ownership. Our directors are required to hold all common stock they receive as part of their board compensation until they cease to serve as directors.
Age and tenure limits. The Company’s corporate governance guidelines contain both age and tenure limit provisions.
Over-boarding. The Company’s corporate governance guidelines contain provisions related to limiting its directors’ service on other boards of directors. We approved an exception for Ms. Gambale to join a fifth public company board in fiscal 2020 on a temporary basis in recognition that her term on one of her other public company boards would end in 2021.
Director evaluations. The Company’s corporate governance guidelines contain provisions requiring annual board evaluations.
Director orientation and education. Directors receive orientation overseen by the Board and the Nominating and Corporate Governance Committee and are supported in obtaining continuing director education.
Executive sessions. Our board has a policy of conducting executive sessions of the independent directors in connection with each regularly scheduled Board meeting.
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How We Govern the Company
Communicating with the Board. Our directors value, and seek, input from a wide variety of sources to inform their work. Our directors especially value input from shareholders who have a financial stake in the caliber of their input and who work in settings likely to provide them access to interesting insights. Our directors therefore provide a number of means to obtain shareholder input including in connection with our annual meeting and through our IR process and our engagement activities. Our directors have also made it a practice to proactively engage with shareholders.
Board’s Role in Risk Oversight. One of the key responsibilities of the Board is to develop a strategic direction for the Company and provide management oversight for the execution of that strategy. The Board regularly reviews information regarding our financial, strategic and operational issues, as well as the risks associated with each. While the Board has overall responsibility for risk management, each of the Board committees has supporting responsibility for risk management and makes periodic updates to the full Board. Their specific areas of responsibility are:
The Audit Committee discusses and approves policies with respect to risk assessment and risk management. The Audit Committee oversees the management of financial risks and monitors management’s responsibility to identify, assess and manage risks.
The Compensation Committee is responsible for overseeing our executive compensation programs and reviewing risks relating to our overall compensation plans and arrangements.
The Nominating and Corporate Governance Committee manages risks associated with potential conflicts of interest pursuant to our Code of Business Conduct and Ethics and reviews governance and compliance issues with a view to managing associated risks.
The Technology Committee is responsible for reviewing risks associated with significant technology investment and/or deployment.
While each committee is responsible for regularly reviewing, evaluating and overseeing the management of such risks, the Board is regularly informed through committee reports about such risks. In addition, the Board and the committees receive regular reports from our Chief Financial Officer, General Counsel, Executive and Senior Vice Presidents and other Company officers and personnel with roles in managing risks. The Compensation Committee is also advised by its compensation consultant, which periodically reviews the risks relating to the Company’s compensation practices. Our leadership team meets with our General Counsel and head of Internal Audit to discuss and evaluate risks applicable to our Company.
Director Nomination Process. The Nominating and Corporate Governance Committee is responsible for screening and recommending director candidates to the full Board for nomination. The Nominating and Corporate Governance Committee will consider nominations received from our shareholders, provided that proposed candidates meet the requisite director qualification standards discussed below. When appropriate, the Committee will also engage an independent third-party search firm. The Committee will then evaluate the resumes of any qualified candidates recommended by shareholders and search firms, as well as by members of the Board. Generally, in order to be considered for nomination, a candidate must have:
High professional and personal ethics and values;
A strong record of significant leadership and meaningful accomplishments in his or her field;
Broad experience;
The ability to think strategically;
Sufficient time to carry out the duties of Board membership; and
A commitment to enhancing shareholder value and representing the interests of all shareholders.
Candidates are evaluated based on these qualification standards and the current needs of the Board, with due consideration of the requirement of our Corporate Governance Guidelines and New York Stock Exchange (“NYSE”) and SEC regulations that at least a majority of the board consist of independent directors. In addition, when considering nominees to the Board and in evaluating the composition of the Board as a whole, the Nominating and Corporate Governance Committee considers the value of diversity.
Regis’ policies for, and commitments to, diversity are contained within its Code of Business Conduct and Ethics (the “Code of Ethics”). The Code of Ethics explicitly provides that Regis will not discriminate against anyone on the basis of race, color, gender, sexual orientation or identity, religion, age, national origin, disability or any other classification protected by law. The Code of Ethics explicitly extends these protections to customers as well. The Code of Ethics further provides that Regis strives to foster an environment of respect, inclusiveness, humanity and humility.
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How We, the Directors, Are Governed
Consistent with this, the Nominating and Corporate Governance Committee, when seeking new director candidates, considers and values diversity in all of the attributes covered in the Code of Ethics, as well as diverse skills and experiences such as an understanding of the retail industry, the hair-care market, finance, accounting, marketing, technology and international experience. The Nominating and Corporate Governance Committee expects every member of the Board and every director candidate to be able to act effectively on behalf of shareholders and stakeholders.
All shareholder nominations must be accompanied by a candidate resume that addresses the extent to which the nominee meets the director qualification standards. Nominations will be considered only if we are currently seeking to fill an open director position. All nominations by shareholders should be sent to the Chair of the Nominating and Corporate Governance Committee, c/o the Corporate Secretary, Regis Corporation, 3701 Wayzata Boulevard, Suite 500, Minneapolis, Minnesota 55416.
How We, the Directors, Are Governed
Our corporate governance provisions that relate to our board of directors are summarized in the preceding section. Our compensation governance provisions are summarized in the Compensation Discussion and Analysis section of this proxy statement. Our corporate governance guidelines are posted on our website, www.regiscorp.com. This information is also available in printed form free of charge to any shareholder who requests it by writing to our Corporate Secretary at Regis Corporation, 3701 Wayzata Boulevard, Suite 500, Minneapolis, Minnesota 55416.
Code of Business Conduct and Ethics. The Board has adopted a Code of Ethics that applies to all of our employees, directors and officers, including our President and Chief Executive Officer, Chief Financial Officer, principal accounting officer or controller and other senior financial officers. The Code of Ethics, as applied to our principal financial officers, constitutes our “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act and is our “code of business conduct and ethics” within the meaning of the listing standards of the NYSE. The Code of Ethics is posted on our website at www.regiscorp.com. You may request copies, which will be provided free of charge, by writing to our Corporate Secretary, Regis Corporation, 3701 Wayzata Boulevard, Suite 500, Minneapolis, Minnesota 55416. We intend to promptly disclose future amendments to certain provisions of our Code of Ethics, and any waivers of provisions of the Code of Ethics that are required to be disclosed under the rules of the SEC or under the listing standards of the NYSE, at the same location on our website.
Related Party Transactions. Our Board has adopted a Related Party Transaction Approval Policy requiring approval of all related party transactions for amounts exceeding $10,000 for the fiscal year. We did not have any related party transactions during fiscal 2020.
Complaint/hotline procedures. The Company’s Audit Committee Complaint Procedures, which are posted on our website at www.regiscorp.com, provide for the publication of a toll-free number and mailing address for complaints to be submitted to the Audit Committee.
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Our Board’s Committees
Our Board’s Committees
The Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Technology Committee. The composition of these committees at fiscal year-end is set forth below.
Our Board’s Committees
Director Name
Audit
Compensation
Nominating and
Corporate Governance
Technology
Daniel G. Beltzman
CHAIR
Virginia Gambale
CHAIR
David J. Grissen
1
CHAIR
Mark S. Light
Michael J. Merriman
1CHAIR
M. Ann Rhoades
Hugh E. Sawyer
David P. Williams
1
Meetings during fiscal 2020
4
5
4
4
1
Denotes Audit Committee Financial Expert
The Board has determined that all members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee qualify as independent directors as defined under the NYSE corporate governance rules.
The charters of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Technology Committee may be viewed on our website at www.regiscorp.com under “Corporate Governance” on the “Investor Relations” page. The charters are also available in printed form free of charge to any shareholder who requests them by writing to our Corporate Secretary at 3701 Wayzata Boulevard, Suite 500, Minneapolis, Minnesota 55416. The charters include information regarding the committees’ composition, purpose and responsibilities.
Audit Committee
The Audit Committee assists the Board in discharging its oversight responsibility to the shareholders and investment community regarding: (i) the integrity of our financial statements and financial reporting processes; (ii) our internal accounting systems and financial and operational controls; (iii) our audit, accounting and financial reporting processes; (iv) the engagement, qualifications and independence of the independent auditor; (v) the performance of our internal audit activities; and (vi) compliance with our ethics programs, including the Code of Ethics, our whistle-blower policy and legal and regulatory requirements.
In carrying out these duties, the Audit Committee maintains free and open communication between the Board, the independent auditor and our management. The Audit Committee meets with management and the independent auditor at least quarterly, generally prior to our earnings releases to discuss the results of the independent auditor’s quarterly reviews and fiscal year-end audit.
The Board has determined that all members of the Audit Committee meet the NYSE definitions of independence and financial literacy for Audit Committee members. In addition, the Board has determined that each of Mr. Williams, Mr. Merriman and Mr. Grissen, all whom are independent directors, is an audit committee financial expert (ACFE) for purposes of the SEC rules and possesses accounting or related financial management expertise required by the NYSE. Members serving on the Audit Committee do not currently serve on the audit committees of more than three public companies.
Compensation Committee
The primary responsibilities of the Compensation Committee are to determine and approve, or make recommendations to the Board with respect to, the compensation and benefits packages of the executive officers and to consider and recommend incentive compensation and equity-based plans. The Compensation Committee also reviews director compensation, oversees
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Our Board’s Committees
the evaluation of the CEO, and evaluates its own performance on an annual basis. Additional information about the responsibilities of the Compensation Committee is provided below in our Compensation Discussion and Analysis. The Board has determined that all members of the Compensation Committee also meet the NYSE definition of independence applicable to Compensation Committee members.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee discharges the Board’s responsibilities related to general corporate governance, including Board organization, membership and evaluation. It monitors Board education and orientation of new directors and manages the annual CEO evaluation. In addition, the Nominating and Corporate Governance Committee assists the Board in the development of and compliance with the Company’s Corporate Governance Guidelines. It also reviews and resolves any director conflicts of interest and presents qualified individuals for election to the Board. Finally, this committee oversees the evaluation of the performance of the Board and each standing committee of the Board. For further information regarding our director nomination process, see “Director Nomination Process” above.
Technology Committee
The Technology Committee assists the Board by overseeing the Company’s technology strategy and planning; investments; the prioritization, degree and pace of innovation; and related business purposes. It monitors the continuous flow of innovative, differentiated, leadership products in the markets currently served by the Company, and plans for the insertion of new technology into the Company’s long-range strategic plan. It also reviews and recommends disruptive products and technologies and reviews the Company’s cybersecurity measures and response plans. In addition, it reviews the adequacy of processes, tools, facilities and technology leadership connected with product and technology development, and it reviews and recommends the costs, benefits, risks and prioritization associated with significant technology investments and deployments.
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How Our Directors Are Paid
How Our Directors Are Paid
This section describes our director compensation provisions created for fiscal 2020. However, when the pandemic forced the closures of substantially all of our salons and we had to lead the Company into a multi-month ‘hibernation’ we, the Board of Directors, unanimously agreed to serve without compensation during this period1 while meeting weekly during the key months of the crisis.
For the year, however, we designed our director compensation program to address the time, effort, expertise, and accountability required of active board membership, with consideration given to industry comparisons of directors’ compensation. Our Board believes that annual compensation for non-employee directors should consist of both cash to compensate members for their service on the Board and its committees, and equity to align the interests of directors and our shareholders. By vesting over time, equity awards also create an incentive for continued service on our Board.
Compensation of our directors is reviewed and determined by the Board on an annual basis. Employee directors do not receive any cash or other compensation for their services as directors. Each of the cash compensation and the equity compensation for non-employee directors who serve during only a portion of a fiscal year is pro-rated. In August 2019, the Board reviewed our director compensation and determined to maintain the compensation program for fiscal 2020, which is described below:
An annual cash retainer of $70,000 that is paid quarterly;
Annual cash retainers of $20,000, $15,000, $12,500 and $20,000 for the chairs of the Audit Committee, Compensation Committee, the Nominating and Corporate Governance Committee and the Technology Committee, respectively;
An annual grant of restricted stock units valued at $110,000, which vest monthly over a period of one year and pay out when the director leaves the Board, generally granted on the date of the director’s election or re-election at the annual meeting of shareholders; and
An additional payment of $90,000 for our independent Chair of the Board. For Mr. Williams, this amount was paid in the form of an annual grant of restricted stock units valued at $90,000 payable that vest monthly over a period of one year and pay out when he leaves the Board, which was granted on the date of our last annual meeting of shareholders. Mr. Williams received the full value of this restricted stock unit for his service as independent Chair and then as our independent Lead Director during fiscal 2020. As described below, Mr. Beltzman will receive his independent Chair compensation in the form of cash, and there will be no additional cash or equity award for our independent Lead Director.
In October 2015, the Compensation Committee provided that Mr. Beltzman would henceforth receive cash in lieu of a director equity grant due to his beneficial ownership of greater than 20% of our outstanding common stock. Therefore, for his term ending October 27, 2020, he was entitled to receive an additional $110,000 in cash and no equity grant. For the same reasons, he will receive the $90,000 annual payment for serving as independent Chair of the Board in the form of cash paid quarterly.
The following table shows, for each of the non-employee directors who served during the fiscal year ended June 30, 2020, information concerning their annual and long-term compensation earned during such fiscal year.
1
In connection with certain actions taken by the Company to mitigate the impacts of COVID-19, including employee furloughs and reductions in employee compensation, the Board members waived the cash fees for the third quarter of fiscal 2020.
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Fiscal 2020 Director Compensation Table
Fiscal 2020 Director Compensation Table
Director Name
Fees Earned or Paid
in Cash ($)1
Stock Awards2
($)
Total($)
Daniel G. Beltzman
146,250
146,250
Virginia Gambale
67,500
109,996
177,496
David J. Grissen
61,875
109,996
171,871
Mark S. Light
52,500
109,996
162,496
Michael J. Merriman
67,500
109,996
177,496
M. Ann Rhoades
52,500
109,996
162,496
David P. Williams
67,500
199,996
267,496
1
Cash fees earned or paid are less than the annual cash fees under our director compensation program due to directors waiving the fees for the third quarter of fiscal 2020 in connection with the Company’s actions to address the impacts of the COVID-19 pandemic.
2
Values expressed represent the aggregate grant date fair value of restricted stock units granted during fiscal 2020, as computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. See Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for a description of the assumptions used in calculating these amounts.
The following table shows, for each of our current non-employee directors, the aggregate number of stock and option awards beneficially owned by them as of June 30, 2020:
Director Name
Aggregate Stock Awards
Outstanding as of 06/30/20 (#)
Aggregate Option Awards
Outstanding as of 06/30/20 (#)
Daniel G. Beltzman
17,535
Virginia Gambale
14,314
David J. Grissen
42,336
Mark S. Light
42,336
Michael J. Merriman
52,730
M. Ann Rhoades
30,840
David P. Williams
74,004
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APPROVAL OF ADVISORY VOTE
ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
As required by SEC rules, we are providing shareholders with an annual, non-binding advisory vote to approve the executive compensation as disclosed in our Compensation Discussion and Analysis (“CD&A”). At the Annual Meeting, shareholders will vote on the following advisory resolution regarding the compensation of our Named Executive Officers as described in this proxy statement (commonly referred to as “Say-on-Pay”):
“RESOLVED, that the shareholders of Regis Corporation approve, on an advisory basis, the compensation paid to the Company’s Named Executive Officers as disclosed in the ‘Compensation Discussion and Analysis’ section, and compensation tables and narrative discussion contained in the ‘Executive Compensation’ section in this Proxy Statement.”
Our executive compensation programs are based on our belief that attracting, retaining and motivating talented executives is critical to the maintenance of our competitive advantage in the haircare industry and to the achievement of the business goals set by the Board. Accordingly, our executive compensation programs are designed to reward executives for achievement of our financial and business goals, while also aligning our executives’ interests with those of our shareholders. We believe that we best achieve these goals by providing our executives with a mix of compensation elements that incorporate cash and equity, as well as short-term and long-term components, and that are tied to our business goals, all as described in the following CD&A section of this proxy statement.
As described in the CD&A, we believe that our fiscal 2020 results continue to yield the pay-for-performance alignment that the Compensation Committee is seeking for our shareholders. Importantly, we made significant progress in our transformational strategy to convert to a fully-franchise asset-light platform, and to align the financial and operational aspects of our business with this model. We accomplished these objectives while navigating a global pandemic that particularly impacted the salon business and resulted in the temporary closure of nearly all of our and our franchisees’ salons for some period of time.
For a comprehensive description of our executive compensation program, philosophy and objectives, including the specific elements of executive compensation that comprised the program in fiscal 2020, please refer to the CD&A, as well as the Summary Compensation Table and other executive compensation tables (and accompanying narrative disclosures) that follow the CD&A.
This advisory vote will not affect any compensation already paid or awarded to our Named Executive Officers and will not be binding on the Board or the Compensation Committee. However, the Compensation Committee will review and carefully consider the outcome of the vote. If there are a significant number of negative votes, the Compensation Committee will seek to understand the concerns that influenced the vote and consider them in making future executive compensation decisions.
Upon the recommendation of the Compensation Committee of the Board, the Board unanimously recommends a vote FOR the approval of the compensation of our Named Executive Officers.
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Background
Our Company
This year, how many times have you heard, “I really need a haircut!”
Hair care is what we do - including haircutting, styling (including shampooing and conditioning), and hair coloring, as well as selling hair care and other beauty products. You’ve probably heard of our brands, which include Supercuts, SmartStyle, Cost Cutters, Roosters, and First Choice Haircutters. As of June 30, 2020, the Company franchised, owned or held ownership interests in 6,923 locations worldwide.
At Regis, we believe in creating the right culture for our 9,000 corporate employees, and extending that culture to our affiliates. We enable hundreds of people to become small business owners through our franchise system. Our ownership culture reflects our belief that leadership should be enabled throughout the Company and owners have reason to be leaders. And that culture is also diverse and inclusive; more than 92.3% of our employees and affiliates identify as women, and 38% of our employees self-identify as racial and ethnic minorities.
We acknowledge that many shareholders continued to have questions about our unique pay plans. These affected our 2019 ‘say on pay’ vote in which shareholders holding 75% of the shares voted on the proposal voted in favor of our executive compensation. Both before and after this vote our directors—not accompanied by members of management—reached out to the stewardship teams of all of our large index-fund shareholders and a number of the stewardship teams of other large shareholders to seek their input. We continue to seek—and value—shareholder input and understand that non-standard approaches to compensation won’t fit within proxy advisers standing parameters—if we aren’t doing at least some things that have yet to achieve broad-based acceptance, we may worry that we aren’t being the leaders we want to be.
Our Leaders
Our Compensation Discussion & Analysis (CD&A) will provide you with information concerning the basic objectives, principles, decisions, material elements, processes, amounts and rationale underlying the compensation of our Named Executive Officers (“NEOs”). For fiscal 2020 our NEOs are:
Name
Title
Period of Employment
Hugh E. Sawyer
Chair of the Board, President and Chief Executive Officer
April 2017 - present
Kersten D. Zupfer
Executive Vice President and Chief Financial Officer
February 2007 - present
Eric A. Bakken
Executive Vice President and President - Franchise
January 1994 - present
Chad Kapadia
Executive Vice President and Chief Technology Officer
June 2018 - present
James A. Townsend
Executive Vice President and Chief Marketing Officer
April 2019 - present
Andrew H. Lacko
Former Executive Vice President and Chief Financial Officer
July 2017 - November 2019
Our Strategic Transformation
The Company is in the process of a multi-year strategic transformation in which we seek to accelerate the growth of our franchise model while at the same time improve the performance of our portfolio of company-owned salons. As part of our strategic transformation, we:
executed on initiatives to accelerate the growth of our franchise business and significantly reduce costs to better align costs with our transition to a fully franchised business model;
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
implemented safety strategies to respond to the global pandemic that we believe will allow us to thrive once the pandemic has passed;
developed a proprietary cloud-based store management and point of commerce solutions, OpenSalon Pro, which recently launched; and
launched an all-new Cost Cutters mobile app, overhauled the Supercuts mobile app and partnered with Google to improve and streamline the salon discovery and customer booking experience.
Executive Summary
Our Executive Pay Plan
Our reported compensation for continuing executives declined significantly in fiscal 2020 compared to fiscal 2019; this was by design. For example, our CEO’s total Summary Compensation Table pay fell by more than 85 percent. The reason for the drop is that in 2019, our executive compensation program was redesigned to encourage our executives to take a long-term view and to support our strategic transformation.
Under our updated pay plan, executives did not receive an annual long-term equity grant in fiscal 2020. Instead, in fiscal 2019, each eligible executive received an equity grant designed to motivate performance across a five-year period. 75% of the fiscal 2019 equity grant was in the form of performance shares (PSUs), which require our achievement of a three-year stock price performance goal, after which award recipients must wait an additional two years (until the fifth anniversary of the grant) to achieve vesting. The stock price goal is rigorous. The remaining 25% of the fiscal 2019 equity grant was in the form of restricted stock units (RSUs) that will cliff-vest after three years. The only equity awards granted in fiscal 2020 were related to promotions or to create particular incentives, and they are described in more detail below.
Our Annual Incentive program was adjusted for fiscal 2020 by changing the metrics and weightings in the program to better reinforce the actions that the Board felt were most critical at this stage of the multi-year strategic transformation, as well as reflect feedback gathered from shareholders through our engagement process. Specifically, the weighting of Individual NEO Performance Goals was reduced by half, from 40 percent to 20 percent, the Franchise Openings goal was extended to also cover the closure or sale of underperforming locations, and the two EBITDA-related metrics in the fiscal 2019 program were replaced with a more focused Annualized run-rate G&A optimization metric.
The cash elements of our fiscal 2020 compensation plan include:
Element
Form
Metric
Performance Period
Objective
Base Salary
Cash
Fixed
N/A
Provide a base level of compensation for executive talent.
Annual Incentive (“AIC” or “Bonus”)
Cash
Annualized Run-Rate G&A Optimization (40%)
1 year
Motivate executives to meet and exceed objectives aligned with our annual strategic plan; executives able to elect to contribute up to half of their earned fiscal 2020 Bonus to purchase shares of the Company’s common stock and have such purchase matched at a rate of up to 200%, dependent on the employee’s underlying contribution under our matching share program.
Franchise Openings Plus Closure or Sale of Underperforming Salons (40%)
Individual NEO Performance Goals (20%)
COVID-19 Related Impacts on Executive Compensation
COVID-19 was an important factor for the Compensation Committee to consider in fiscal 2020. The Board monitored the situation closely, meeting with executives weekly since the beginning of the pandemic to ensure that impacts to the business were well understood and risks to our people, our communities, and our company were being managed effectively. The Committee carefully considered the impact on the business, as well as the executives’ response to the pandemic, when making decisions regarding fiscal 2020 pay outcomes.
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
COVID-19 was factored into the Committee’s decisions and actions in two ways during fiscal 2020:
The Committee reduced executive officer base salary payments for a portion of fiscal 2020 while many of our salons were closed and while many of our employees were on furlough as part of our company-wide hibernation in May and June. Our CEO’s pay was reduced by 60% and the other NEOs’ pay was reduced by 30% initially, and then by 25% for an additional period. Our directors also waived their cash fees for the third quarter of fiscal 2020.
The Committee approved payouts of annual cash incentives for our NEOs, other than our CEO who declined a bonus opportunity for fiscal 2020, based on exceeding the financial metrics we set for fiscal 2020. The financial metrics under our short-term incentive plan (STIP or bonus) were aligned with two key business imperatives — converting to a fully franchise asset-light platform and optimizing our G&A expense to align with this business model.
The Committee believe that these actions best serve the interests of our shareholders, employees, franchisees, customers and communities.
Shareholder Engagement and Our 2019 Say-on-Pay Vote Result
Many shareholders continued to have questions and viewpoints on our unique pay plan, which impacted our 2019 say-on-pay vote at which more than 75% of the shares voted on the proposal were voted in favor of our executive compensation.
Both before and after the 2019 annual shareholder meeting, members of our Board including the Chair of our Compensation Committee, as well as members of management, engaged with shareholders to understand, among other issues, the drivers behind the say-on-pay vote result. As part of this effort, Company representatives engaged with shareholders representing more than 50 percent of our common shares.
Investors delivered several messages regarding our executive compensation practices, including:
Shareholders appreciate the long-term, shareholder value orientation of the plan;
Shareholders understand and support the direct linkages between our short-term incentive program and our strategic transformation efforts;
Shareholders indicated that if their position in us was a relatively small portion of their portfolio they were unlikely to review the vote at their proxy committee level and would instead stay with whatever their default voting position was—a practice that we believe works against compensation innovators; and
Shareholders will hold us accountable for fulfilling our commitments.
The Committee did not make any annual long-term equity grants during fiscal 2019, and we adjusted the metrics and weightings in our Annual Incentives as described above, most notably reducing the Individual NEO Performance Goal weightings from 40 percent to 20 percent.
How We Design Executive Pay
Compensation Philosophy
Regis’ executive compensation programs are based on our belief that attracting, retaining and motivating talented executives is critical to the maintenance of our competitive advantage in the haircare industry and to the achievement of the business goals set by the Board. Accordingly, our executive compensation programs are designed to reward executives for achievement of our financial and business goals, while also aligning our executives’ interests with those of our shareholders.
The Committee has adopted a compensation philosophy that centers on the following guiding principles:
Generally target total direct compensation at market rates, with the following considerations:
Achieving our desired competitive position will occur over time and will consider not only the total program value, but also the reward vehicles that are used (i.e., performance-based incentives versus fixed benefits).
Moving toward the market median will consider our size and performance relative to peers (noted below) to ensure that targeted compensation is appropriately calibrated and that realizable compensation is consistent with absolute and relative performance.
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Align with shareholder interests by designing a compensation portfolio that pays for performance.
The PSUs granted in fiscal 2019, the first of the five-year period for our new pay program, are earned based on share-price enhancements. We set performance goals based on achieving an End-of-Period Share Price target, defined as the volume-weighted average closing price of our common stock across the 50 trading days that end on July 1, 2021. This goal aligns with our focus on creating shareholder value.
For fiscal 2020, the Committee set challenging annual incentive performance expectations related to optimizing our annualized run-rate G&A expense and opening new franchise salons while closing or selling underperforming salons, as well as individual NEO performance goal achievement.
The Committee also recognizes the need to remain flexible to address particular circumstances as they arise so that we can remain competitive in retaining talent and incentivize executives to achieve our current strategic objectives. Our ability to be flexible was crucial in our ability to navigate the impacts of the COVID-19 pandemic and retain and incentivize our management team through the unprecedented challenges they faced.
Review of External Market Data
In fiscal 2020, we did not make routine changes to base salaries or annual cash incentive opportunities for our NEOs, other than in connection with a promotion or to address particular market-driven considerations. In addition, under the long-term incentive program adopted in fiscal 2019, we also did not make any long-term equity awards to our executives. Accordingly, we did not benchmark our fiscal 2020 executive compensation against our peer group or the broader market. We view peer benchmarking as a valuable tool and plan to reassess its use once our strategic transformation is substantially complete.
For fiscal 2021, with the assistance of its independent compensation consultant, Pay Governance, the Committee selected a new set of peer companies to be used for compensation benchmarking purposes. That peer group includes the following companies:
Biglari Holdings
e.l.f. Beauty
Nature’s Sunshine
Carriage Services
El Pollo Loco Holdings
OneSpa World
Del Taco Restaurants
Franchise Group
Ruth’s Hospitality
Denny’s Corporation
Jack in the Box
Select Interior Concepts
Dine Brands Global, Inc.
LifeVantage
StoneMor
These peers were identified through a rigorous process designed to identify companies that are aligned with Regis considering dimensions including industry adjacency, business model, company market capitalization, and revenue.
The Committee selected this peer group in the belief that it represents a balanced set of comparator companies, with Regis near the peer group median on key metrics. As of June 15, 2020, the date on which the prospective peer group was reviewed and selected, Regis fell at the 62nd percentile of the peer group regarding trailing twelve month revenue (Regis at $528 million compared to peer group median $487 million), and the 51st percentile regarding market capitalization (Regis at $351 million compared to peer group median $342 million).
Role of the Compensation Committee
The Committee is charged with developing and administering the base salary, annual and long-term incentives, and benefit programs for our executive officers. Our annual cash incentive program is typically referred to as our “bonus” program, and the bonus payments are generally reported as “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table. In developing our compensation programs, a basic objective for the Committee was that the total compensation awarded to the NEOs be fair, reasonable and competitive in relation to the median compensation for similar positions within our peer group, as identified above, as well as in the broader retail market. This objective is consistent with our executive pay philosophy.
The primary purpose of the Committee is to discharge the responsibilities of the Board relating to the compensation of our executive officers. Accordingly, the primary duties and responsibilities of the Committee are:
to determine and approve, or make recommendations to the Board with respect to, the compensation of all executive officers; and
to consider and recommend the structure of, and changes to, our incentive compensation, equity-based plans and benefit programs.
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Role of Executive Officers in Compensation Decisions
Our Chief Executive Officer furnishes his input to the Committee on the compensation of the Company’s executive officers, including the other NEOs, and he may be present during deliberations and voting on the other executives’ compensation. However, our Chief Executive Officer was not present during deliberations and voting regarding his own compensation or during other executive sessions of the Committee.
Role of the Independent Compensation Consultant
Since 2018, the Committee has used Pay Governance as an independent consulting firm to provide executive compensation consulting services to the Committee. The Committee assessed Pay Governance’s independence pursuant to applicable SEC rules and concluded that no conflict of interest exists that would prevent Pay Governance from independently representing the Committee.
Throughout fiscal 2018 and fiscal 2019, Pay Governance worked with the Committee and management to establish incentive plan designs, supported the Committee with shareholder engagement efforts, and assisted the Committee on other activities in support of its responsibilities as set forth in its charter. The Chair of the Committee worked directly with Pay Governance to determine the scope of the work needed to assist the Committee in its decision-making processes. Pay Governance worked with management, at the direction of the Committee, to fully understand the future business direction and the historical, current and desired future direction of our pay policies and practices, as well as to facilitate the development of our compensation strategies, including the approach to determining compensation levels.
Elements of the Executive Compensation
Program in Fiscal 2020
Base Salary Decisions for Fiscal 2020
The Committee did not modify our NEOs’ base salaries for fiscal 2020, which were consistent with fiscal 2019 base salaries, except for the following base salary changes:
Ms. Zupfer’s base salary was increased in connection with her promotion to Chief Financial Officer to a pay level commensurate with her new role and her experience;
Mr. Kapadia’s base salary was increased at the beginning of fiscal 2020 to align with market compensation for Mr. Kapadia’s position; and
Each NEO’s base salary payments were reduced by 60% for the CEO and 30% for all other NEOs effective in April 2020 in connection with the Company’s actions to address the impacts of the COVID-19 pandemic. The reduction for the NEOs other than the CEO changed to 25% effective in mid-April 2020 in recognition of the significant efforts of the management team to manage the business during the pandemic. Full base salary payments were reinstated June 1, 2020 when the furlough of many of the Company’s employees concluded as salons began to reopen.
Base salaries for our NEOs for fiscal 2020 were as follows:
Name
Base Salary at June 30, 2019
(Annualized)
($)
Base Salary at June 30, 2020
(or Date of Termination, if earlier)
(Annualized)
($)
Increase/(Decrease)
(%)
Hugh E. Sawyer
950,000
950,000
Kersten D. Zupfer
285,000
425,000
49.1
Eric A. Bakken
495,000
495,000
Chad Kapadia
495,000
600,000
21.2
James A. Townsend
495,000
495,000
Andrew H. Lacko
495,000
495,000
The base salaries for Ms. Zupfer and Mr. Kapadia were increased during fiscal 2020 to reflect Ms. Zupfer’s promotion to CFO and a market-based adjustment for Mr. Kapadia’s position.
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Annual Incentive Decisions for Fiscal 2020
The Committee determines the annual incentive compensation (“AIC” or “bonus”) payouts each year in accordance with our Short Term Incentive Plan (“Short Term Plan”).
The Committee annually selects bonus metrics for the Short Term Plan that align executives’ incentives with our strategic objectives. The goals for our fiscal 2020 annual incentive plan were aligned with our top priorities for our business for the year - converting to a fully-franchise asset-light platform and aligning the financial and operational aspects of our business with this model. Achievement of the target annualized run-rate G&A optimization measure also served as a threshold for any payment to be made under any of the performance measures.
For fiscal 2020, Mr. Sawyer, our CEO, recommended and the Committee agreed, not to provide an AIC opportunity for him. Mr. Sawyer and the Committee made this decision acknowledging that execution of our strategy would require the restructuring of our workforce, including reductions in our employee base. Mr. Sawyer determined it was not appropriate for him to earn a bonus while these actions were affecting so many of our employees and our franchise partners were struggling with the impact of the pandemic.
Name
Target AIC (as a Percentage (%) of Salary)1
Target AIC ($)
Hugh E. Sawyer
115
1,092,500
Kersten D. Zupfer2
60
218,750
Eric A. Bakken
75
371,250
Chad Kapadia
60
349,500
James A. Townsend
60
297,000
Andrew H. Lacko
60
297,000
1
Base salaries used to calculate target AIC and AIC payouts were based on base salary rates in effect during fiscal 2020, and were not reduced by the amount of base salary payment reduction in effect for a portion of fiscal 2020 in response to the COVID-19 pandemic.
2
Ms. Zupfer’s base salary and target AIC and Mr. Kapadia’s base salary increased during fiscal 2020. The Target AIC as a percentage of salary listed above was in effect for most of, and at the end of fiscal 2020. The Target AIC in dollars amounts were calculated by pro-rating the different base salary and bonus target percentages in effect for portions of the year.
Performance Measure
Weighting
Performance Goal
Award Multiplier
G&A Reduction
40%
Target / Funding Threshold
Fourth quarter of fiscal 2020 G&A of $32.6 million
100%
Venditions and Closures
40%
Maximum
2,500 venditions + closures
300%
Target
2,000 venditions + closures
175%
Threshold
1,500 venditions + closures
50%
Individual Performance Goals
20%
Individual performance goals
As recommended by CEO
*
If the measured amount achieved is between two performance goals, the award multiplier will be determined through linear interpolation.
In setting the metrics for fiscal 2020, the Committee:
Defined G&A Reduction as the year-end annualized run-rate general and administrative expense. The target level was set to reflect a $30 million year-over-year reduction in year-end annualized run-rate G&A.
Defined Venditions and Closures as the gross number of franchise openings in addition to the closure or sale of underperforming salons.
Set objective and measurable individual goals (MBOs) for each of the CEO’s direct reports in accordance with his/her responsibilities. In each case we focused on the CEO’s evolving strategy and business transformation goals.
Individual goals for our NEOs, other than our CEO who declined a bonus opportunity for fiscal 2020, included the following:
Ms. Zupfer— design G&A reductions in support of vendition activity net of strategic investments; lead financial analytics of vendition activity; support ongoing efforts to transition salons previously transferred to The Beautiful Group to new owner or close all or a portion of the TBG salons; refinancing credit facility
Mr. Bakken—implement agreement to vendition the remaining SmartStyle salons; stabilize franchise same store product sales; increase same store service sales in franchise business; support execution of vendition activity; launch POS system for franchisees; open new franchisee salons; establish framework for measuring and allocation cross-functional value added services
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Mr. Kapadia—develop offshore capability to meet fiscal 2020 labor budget; achieve goals regarding bookings via OpenSalon; launch POS system for franchisees; launch OpenSalon application into the beauty industry; develop in-house technology solutions; complete cloud migration
Mr. Townsend—maximize Major League Baseball sponsorship relationship; launch new SmartStyle and Cost Cutter marketing campaigns
Mr. Lacko—design G&A reductions in support of vendition activity net of strategic investments; lead financial analytics of vendition activity; manage cash conversion consistent with fiscal 2020 plan; and support ongoing efforts to transition salons previously transferred to The Beautiful Group to new owner or close all or a portion of the TBG salons
In June 2020, the Committee evaluated performance against the metrics and determined that the G&A Reductions metric was achieved in excess of the target, resulting in payout at 100% of target for that metric. The Committee also determined that the 1,500 venditions and organic openings, plus the 270 closures, resulted in 1,770 venditions and closures in fiscal 2020, leading to a payout at 117.5% of target for that metric. In each case, the Committee’s determinations were subject to completion of the audit of the Company’s annual financial statements. The Committee also considered achievements of the management team during fiscal 2020, including:
Preservation of liquidity and renegotiation of the Company’s credit facility during a period market uncertainty;
Hibernation and relaunching of the Company’s salons and business during COVID-19;
Leading the industry in addressing salon safety protocols to address COVID-19 risks;
Addressing issues related to social unrest and racism;
Substantial completion of version 1.0 of OpenSalon Pro and scheduling migration to the system;
Launching the repackaged Designline private label brand and the new Blossom private label brand;
Upgrading the Supercuts mobile app and engineering the first Cost Cutters mobile app;
Re-engineering the Franchise Resource Center and upgrading the website;
Expanding and upgrading digital stylist training; and
Initiating certain landlord negotiations.
While many of these achievements were aligned with the individual performance objectives set earlier in the year, the Committee also recognized the importance of management’s ability to pivot their efforts to address unexpected issues arising out of the COVID-19 pandemic. Accordingly, the Committee determined that all executive officers earned a payout equal to at least 100% of target for the individual performance metrics. In connection with committing to a payout of each individual performance objective of at least 100% of target, the Committee determined that payouts would be deferred until December 2020 and would be conditioned upon each executive remaining employed through the payment date, subject to any rights to earlier payment under applicable employment or severance agreements. This decision was made as a retentive measure to ensure the incoming CEO had time to assess the existing management and provide them incentive to work collaboratively with him given the many sacrifices that were made by the management team during the year.
 
AIC Weightings - % of Total Target
NEO
40%
G&A
Reductions
40%
Venditions and
Closures
20%
Individual
Goals
Calculated
AIC %
Total AIC
Payout ($)
Kersten D. Zupfer
100%
117.5%
100%
107%
234,062
Eric A. Bakken
100%
117.5%
100%
107%
397,238
Chad Kapadia
100%
117.5%
100%
107%
373,965
James A. Townsend
100%
117.5%
100%
107%
317,790
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Long-Term Incentive Decisions for Fiscal 2020
Payout of PSUs for 2018-2020 Performance Period
Our fiscal 2018 PSUs had a three-year performance period which ran from July 1, 2017 to June 30, 2020. The fiscal 2018 PSUs performance measure was end-of-period share price. The Committee set the performance goals based on the compound annual growth rate (CAGR) that would be achieved from a baseline of $13.28, which was the Company’s stock price on August 31, 2017, and determined that an end-of-period share price of $17.68 would entitle participants to earn the target amount of PSUs (representing a three-year CAGR of 10%) and an end-of-period share price of $22.95 would entitle participants to earn the maximum amount of PSUs (representing a three-year CAGR of 20%). The actual end-of-period share price was below the target amount and, accordingly, the NEOs who were employed by the Company when the fiscal 2018 PSUs were granted, Ms. Zupfer, Mr. Bakken and Mr. Kapadia, did not earn any payout under the PSUs.
SPMP and Matching RSU Grants in Fiscal 2020
In fiscal 2019, we adopted our SPMP, or Stock Purchase and Matching RSU Program, whereby our executives and other eligible employee participants may elect to contribute up to half of their earned annual bonus under the Short Term Plan, net of normalized tax withholding, to purchase shares of our common stock and the Company will provide a matching grant of RSUs with a value equal to up to 200% of their contribution to the plan (before deducting any related or normalized tax withholding). These RSUs are subject to a five-year cliff vesting condition and participants are also required to hold their underlying purchased shares for the same five-year period.
Beginning with fiscal 2019 earned bonuses, eligible executives were able to elect to contribute 25% of their earned bonus, net of normalized tax withholding, to purchase shares and receive a 100% match on their contribution (before deducting any related or normalized tax withholding); and executives were able to elect to contribute 50% of their earned bonuses, net of normalized tax withholding, to share purchases and receive a 200% match on their contribution (before deducting any related or normalized tax withholding). Ms. Zupfer and Mr. Lacko participated in the SPMP during fiscal 2020.
Name
% of Fiscal 2019
Bonus Payout Contributed
Kersten D. Zupfer
25
Andrew H. Lacko
50
Other Compensatory Decisions Applicable to Fiscal 2020
RSU Grant to Incentivize Mr. Kapadia’s Retention and Leadership
The Committee granted to Mr. Kapadia an award of 37,105 restricted stock units, valued at $600,000, on September 1, 2019 to incentivize him to remain with the Company and continue his leadership of the Company’s key technology initiatives. The Committee acknowledged the particularly competitive market for recruiting and retaining talent with the type of technology experience to execute on our initiatives. The award will cliff vest on the third anniversary of the grant date.
Other Outstanding Awards
From time to time, the Committee may also make equity grants in other circumstances, such as recruiting new executive talent, upon the promotion of an executive, and to retain key individuals. During the past three fiscal years, we made a significant number of new hires to our executive team and granted these individuals sign-on equity awards as an inducement. The awards described below remained outstanding as of June 30, 2020 and are also reflected in the Outstanding Equity Awards table and Option Exercises and Stock Vested table below, as applicable.
Promotion Equity Awards to Ms. Zupfer in November 2019, that were designed to align her level of equity incentives with her new position, with such awards having the same terms as the award granted to NEOs last year in connection with the first year of our new pay plan.
Sign-on Equity Awards granted to Mr. Kapadia in June 2018, and a Performance Recognition Award granted to Mr. Kapadia in June 2019 in connection with the successful completion of a key technology initiative related to a mobile application and a new partnership, which cliff vest on the third anniversary of the date of grant.
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Sign-on Equity Awards to Mr. Sawyer in April 2017, which vested in April 2019 and, in the case of SARs, became exercisable in April 2020, as detailed below under “Compensatory Arrangements with Mr. Sawyer.”
In addition, certain NEOs have outstanding equity awards that were granted prior to the adoption of our executive pay plan in fiscal 2019.
Benefits
Consistent with our current compensation philosophy, we provide minimal benefits, and these benefits align with the market median and with current market practices. The benefits we provided our NEOs in fiscal 2020 are summarized in the footnotes to the Summary Compensation Table or are otherwise reported in the accompanying tables, including footnotes. Current benefits for our NEOs include core benefits available to all full-time employees (e.g., coverage for medical, dental, prescription drugs, basic life insurance, and long-term disability coverage).
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Governance Policies and Additional
Compensation-Related Items
We believe in holding ourselves to a high standard of ethics, transparency, and accountability. Accordingly, we have adopted corporate governance practices and policies that in many cases go beyond SEC and NYSE requirements to reflect emerging best practices.
Compensation Practice
Regis Policy
Independent Compensation
Committee
Our Compensation Committee is composed solely of directors who are independent under the standards of the SEC and the NYSE, including the higher standards applicable to Compensation Committee members.
Clawback Policy
Our “clawback” policy permits us to recover certain equity as well as cash incentive payments from executive officers whose misconduct or negligence resulted in a significant financial restatement.
Limited Severance Benefits
and Perks
We have benchmarked and implemented market severance terms (generally, base salary plus bonus, or two times base plus bonus after a change in control), while retaining our “double trigger” structure.
No Tax Gross-Ups
We do not provide tax gross-ups on perquisites or “golden parachute” payments.
Frozen Supplemental
Retirement Benefit Plan
We froze the benefits under our supplemental retirement benefit plan as of June 30, 2012, as well as certain executive life insurance benefits. Mr. Bakken is the only currently employed NEO who so qualifies.
Stock Ownership Guidelines
We have meaningful stock ownership guidelines for our executives, discussed in more detail below.
Hedging Restrictions/
Prohibitions
Our insider trading policy prohibits our directors, officers, other employees and designees of the foregoing from purchasing financial instruments, including prepaid variable forward contracts, equity swaps, collars and exchange funds, or otherwise engaging in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of our common stock, including shares held directly or indirectly (however, our policy does not prohibit general portfolio diversification transactions).
Pledging Restrictions/
Prohibitions
Our insider trading policy prohibits our employees, officers and directors from holding our stock in a margin account or pledging it as collateral for a loan, except in the limited circumstance that an individual has demonstrated financial capacity to repay the loan without resort to the pledged securities and obtains General Counsel approval.
Independent Compensation
Consultant
Pay Governance has advised our independent Compensation Committee since fiscal 2018.
Risk Assessment
We consider risk in our compensation programs and periodically conduct a risk assessment, which is led by our independent compensation consultant.
Annual Say-on-Pay Vote
We offer our shareholders the opportunity to cast an advisory vote on our executive compensation every year.
No Repricing or Exchange of
Underwater Options/SARs
Our plan prohibits the repricing or exchange of underwater stock options and stock appreciation rights without shareholder approval.
Stock Ownership by Named Executive Officers
The Board believes that each of our officers who has reached the level of Senior Vice President or above should be a shareholder and should have a significant financial stake in the Company. Accordingly, the Committee adopted stock ownership requirements, which are reflected in our Corporate Governance Guidelines, requiring each officer to hold our common stock having a fair market value equal to a multiple of their base salary, as set forth below:
Chief Executive Officer—3x annual base salary
Executive Vice President—2x annual base salary
Senior Vice President—1x annual base salary
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
The current stock ownership requirements were established in April 2013. All shares beneficially owned by an officer are included in the calculation, except that shares subject to performance-based vesting conditions and shares subject to unexercised stock options and SARs are not included. For purposes of the stock ownership calculation, the shares are valued at the greater of (i) the average closing price of a share of the Company’s common stock during the most recent fiscal year and (ii) the closing price on the last day of the most recent fiscal year.
The guidelines require officers to retain at least 75% of the shares received from equity compensation awards, net of shares withheld or tendered to satisfy withholding taxes, until the stock ownership requirement is satisfied. Accordingly, Mr. Sawyer, Ms. Zupfer and Mr. Townsend remain subject to this holding requirement.
The Nominating and Corporate Governance Committee is responsible for measuring and monitoring compliance with these guidelines.
 
Stock Ownership Guideline
Current Ownership Level
Hugh E. Sawyer
3x
2.7x
Kersten D. Zupfer
2x
1.2x
Eric A. Bakken
2x
3.6x
Chad Kapadia
2x
2.3x
James A. Townsend
2x
0.5x
Employment Agreements and Post-Employment Compensation
Three of the NEOs named in this Proxy Statement, Mr. Sawyer, Ms. Zupfer and Mr. Bakken, are parties to a written employment agreement with the Company. Pursuant to their employment agreements, all of our eligible NEOs are entitled to certain compensation and other benefits if their employment terminates due to certain articulated reasons (including in connection with a change in control), as described below under “Summary of Executive Agreements.” The employment agreements with our NEOs contain covenants not to compete or solicit, as well as confidentiality provisions, that the Committee considers especially valuable in the event of an executive’s termination of employment. They provide for post-termination payments, conditioned upon signing and not rescinding a release of claims and compliance with the restrictive covenants in the employment agreement.
The Committee and the Board recognize the importance to us and our shareholders of avoiding the distraction and loss of key management personnel that may occur in connection with any rumored or actual change in control of the Company. Accordingly, the Committee and Board have structured change in control provisions to incentivize executives to remain employed while a transaction is under consideration or pending, and not to favor one transaction structure over another merely because of the impact on the executive’s compensation. These provisions are discussed in the section captioned “Summary of Executive Agreements.”
Our NEOs who do not have employment agreements are entitled to severance benefits under a senior executive severance policy adopted by the Committee in May 2020. Under the severance policy, senior vice presidents and above who are not party to an employment agreement are entitled to receive certain severance benefits if the executive’s employment is terminated without cause. In order to receive severance benefits under the policy, the executive must sign and not rescind a release of claims and comply with a one-year non-competition and non-solicitation restriction. The terms of the policy are discussed in the section captioned “Senior Executive Severance Policy.”
Changes to Severance Program
During the past few years, the Company has experienced numerous meaningful changes, which the Board and Committee believe will ultimately help position the Company for future success. Most critically, we announced a strategic shift to accelerate and expand our franchise model. In an effort to support retention of key talent in January 2017, the Committee provided that cash severance payable under any employment agreements would no longer be offset by earnings from non-competitive employment (as determined according to the terms of their employment agreement). The Committee also provided that severance payments would be paid in a lump sum upon termination, rather than as salary continuation (whenever feasible without adverse tax consequences to the employee); however, this provision for lump sum payments terminated in February 2020. These policy changes do not apply to Mr. Sawyer, as specified in his employment agreement. The changes described above and the senior executive severance policy were adopted to incentivize executives to remain with the Company through its transformation in spite of the uncertainty caused by strategic change.
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Deductibility of Executive Compensation
Code Section 162(m) precludes the Company from taking a federal income tax deduction for compensation paid in excess of $1 million to our “covered employees” (which as of fiscal 2020 includes the CEO, CFO, our three other most highly compensated executive officers and certain former employees identified as a covered employee in fiscal 2018 or any subsequent year).
The Committee continues to believe that a significant portion of our executives’ compensation should be tied to the Company’s performance and that shareholder interests are best served if the Company’s discretion and flexibility in structuring and awarding compensation is not restricted, even though some compensation awards may have resulted in the past, and are expected to result in the future, in non-deductible compensation expenses to the Company. The Committee’s ability to continue to provide a competitive compensation package to attract, motivate and retain the Company’s most senior executives is considered critical to the Company’s success and to advancing the interests of its shareholders.
Regulatory Considerations
The Committee considered (i) the accounting treatment of various types of equity-based compensation under Accounting Standards Codification (ASC) Topic 718 and (ii) the non-deductibility of excess parachute tax payments under Code Section 280G (and the related excise tax imposed on covered employees under Code Section 4999) in its design of executive compensation programs. In addition, the Committee considered other tax and accounting provisions in developing the compensation programs for our NEOs. These included the special rules applicable to non-qualified deferred compensation arrangements under Code Section 409A, as well as the overall income tax rules applicable to various forms of compensation. While the Committee strove to compensate our NEOs in a manner that produced favorable tax and accounting treatment, its main objective was to develop fair and equitable compensation arrangements that appropriately motivate, reward and retain those executives.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with the management of the Company. Based on its review and related discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Daniel G. Beltzman, Chair
Virginia Gambale
Mark S. Light
Michael J. Merriman
M. Ann Rhoades
Members of the Compensation Committee
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EXECUTIVE COMPENSATION TABLES
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table shows, for the person who served as our principal executive officer in fiscal 2020, each person who served as our principal financial officer in fiscal 2020, and the three other most highly compensated executive officers in fiscal 2020 who were still serving as such on June 30, 2020 (together referred to as the Named Executive Officers or “NEOs”), information concerning compensation earned for services in all capacities during each of the fiscal years ended June 30, 2020, 2019, and 2018.
Name and
Principal Position
Fiscal
Year
Salary1
($)
Bonus2
($)
Stock
Awards3
($)
Option
Awards3
($)
Non-Equity
Incentive Plan
Compensation4 ($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation Earnings5
($)
All Other
Compensation6 ($)
Total
($)
Hugh E. Sawyer
President and Chief
Executive Officer
2020
861,821
28,040
889,861
2019
950,000
145,802
6,588,878
715,431
26,946
8,427,057
2018
950,000
1,966,500
161,832
3,078,332
Kersten D. Zupfer
Executive Vice President
and Chief Financial Officer7
2020
393,097
43,750
553,484
190,312
430
1,181,073
Eric A. Bakken
Executive Vice President
and President - Franchise
2020
507,279
74,250
322,988
196,421
21,608
1,122,546
2019
527,000
66,825
1,313,472
300,713
151,934
33,812
2,393,756
2018
527,000
546,076
1,113,750
33,260
2,220,086
Chad Kapadia
Executive Vice President
and Chief Technology Officer8
2020
558,596
69,900
599,988
304,065
18,293
1,550,842
2019
495,000
42,768
1,262,125
204,930
13,040
2,017,863
James A. Townsend
Executive Vice President
and Chief Marketing Officer9
2020
475,279
59,400
258,390
21,728
814,797
Andrew H. Lacko
Executive Vice President
and Chief Financial Officer10
2020
197,625
294,035
9,201
284,442
2019
527,000
53,460
1,162,142
240,570
12,934
1,996,106
2018
527,000
125,000
786,851
534,600
60,992
2,034,443
1
Salary payments for fiscal 2020 were impacted by base salary reductions during a portion of the year as part of the Company’s actions to address the impact of COVID-19. Includes amounts provided to the NEOs (with the exception of Messrs. Sawyer, Kapadia and Townsend) in the form of a modest perquisite allowance of approximately $32,000 per NEO that primarily covers an automobile allowance. The entire allowance is paid to the NEOs regardless of whether they spend the entire amount on automobile expenses and, therefore, is reported as base salary; however, the allowance amount is not included as base salary for purposes of determining other compensation and benefits amounts. In connection with Mr. Lacko’s resignation November 15, 2020, his perquisite allowance was only $12,000.
2
The amounts for fiscal 2020 and 2019 represent the portion of AIC awards attributed to individual performance goals as the Committee determined that each NEO would receive a payout equal to at least 100% of his or her individual performance metric as described under “Annual Incentive Decisions for Fiscal 2020” in the CD&A. The amount for fiscal 2018 for Mr. Lacko represents a sign-on payment in connection with the commencement of his employment.
3
Values expressed represent the aggregate grant date fair value of stock or option awards granted in each fiscal year, as computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date for RSUs and PSUs with performance metrics other than market conditions, the Monte Carlo model for PSUs with market conditions and the Black-Scholes model for SARs. See Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for a description of the assumptions used in calculating these amounts.
The grant date fair values for stock awards for the fiscal year ended June 30, 2020 include:
Matching RSUs that were granted in August 2019: Ms. Zupfer—$28,508; and Mr. Lacko—$294,035.
RSUs to acquire 7,564 shares that were granted to Ms. Zupfer in November 2019 in connection with her promotion to CFO—$131,235; and PSUs to acquire 22,694 shares that were granted to Ms. Zupfer in November 2019 in connection with her promotion to CFO—$393,741.
RSUs to acquire 37,105 shares that were granted to Mr. Kapadia in September 2019 as a retention incentive—$599,988.
The grant date fair values for stock awards for the fiscal year ended June 30, 2019 include:
PSUs that were granted in August 2018: Mr. Sawyer—$4,313,880; Mr. Bakken—$829,587; Mr. Kapadia—$663,670; and Mr. Lacko—$663,670.
RSUs that were granted in August 2018: Mr. Sawyer—$2,274,998; Mr. Bakken—$437,490; Mr. Kapadia—$349,983; and Mr. Lacko—$349,983.
Matching RSUs that were granted in August 2018: Mr. Bakken—$46,395; Mr. Kapadia—$148,489; and Mr. Lacko—$148,489.
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EXECUTIVE COMPENSATION TABLES
RSUs to acquire 5,361 shares that were granted to Mr. Kapadia in June 2019 in connection with the successful completion of a key technology initiative related to a mobile application and a new partnership —$99,983.
The grant date fair values for stock awards for the fiscal year ended June 30, 2018 include:
PSUs that were granted in October 2017: Mr. Bakken—$346,079 and Mr. Lacko—$276,863. The grant date fair values of these awards assumed that the target level achievement would be attained. If the grant date fair values had been calculated assuming the maximum level of achievement, the grant date fair values would have been: Mr. Bakken—$692,158 and Mr. Lacko—$553,726.
4
Amounts for fiscal 2020 represent amounts earned pursuant to AIC awards under the Short Term Plan.
5
Amounts represent the change in the present value of benefits under the pension plans. Mr. Bakken is the only NEO eligible for such plans. The pension value for Mr. Bakken decreased by $54,403 in fiscal 2018.
6
The following table sets forth All Other Compensation amounts by type:
Name
Company Match and Profit-
Sharing Contributiona
($)
Moving / Travel Expensesb
($)
Total All Other
Compensationc
($)
Hugh E. Sawyer
22,420
28,040
Kersten D. Zupfer
430
Eric A. Bakken
12,500
21,608
Chad Kapadia
11,365
18,293
James A. Townsend
4,687
21,728
Andrew H. Lacko
9,201
a
The Company matches the NEOs’ contributions into its retirement savings plans up to $25,000 per calendar year. Amounts greater than $25,000 are due to the difference between calendar and fiscal year compensation.
b
Amount reflects reimbursements of Mr. Sawyer’s relocation of his personal residence.
c
Total All Other Compensation includes the following perquisites, which primarily relate to medical benefits, including the reimbursement of co-pay and other out-of-pocket expenses: Mr. Sawyer for Mr. Sawyer—$5,619; Ms. Zupfer—$430; Mr. Bakken—$9,108; Mr. Kapadia—$6,928; Mr. Townsend—$17,041; and Mr. Lacko—$9,201.
7
Ms. Zupfer was promoted to CFO on November 11, 2019.
8
Mr. Kapadia’s employment commenced June 18, 2018.
9
Mr. Townsend’s employment commenced April 8, 2019.
10
Mr. Lacko’s employment commenced July 1, 2017 and terminated November 15, 2019.
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EXECUTIVE COMPENSATION TABLES
Grants of Plan-Based Awards in 2020
The following table sets forth certain information concerning plan-based awards granted to the NEOs during the fiscal year ended June 30, 2020. No options were granted, repriced or materially modified during the fiscal year.
 
 
 
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards1
Estimated Possible Payouts
Under Equity
Incentive Plan Awards2
 
 
Name
Grant
Date
Approval
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units2
(#)
Grant Date
Fair Value of
Stock &
Option
Awards3
($)
Hugh E. Sawyer
546,250
1,092,500
2,185,000
Kersten D. Zupfer
109,375
218,750
437,500
8/30/2019
4
1,763
28,508
11/11/2019
11/7/19
7,5645
131,235
11/11/2019
11/7/19
22,6946
393,741
Eric A. Bakken
185,625
371,250
742,500
Chad Kapadia
174,750
349,500
699,000
9/1/2019
8/12/19
37,1057
599,988
James A. Townsend
148,500
297,000
594,000
Andrew H. Lacko8
148,500
297,000
594,000
8/30/2019
4
18,184
294,035
1
These amounts represent the threshold, target, and maximum non-equity incentive (bonus) amounts that could have been earned by our executives for fiscal 2020 under the Short Term Plan, as described under “Annual Incentive Decisions for Fiscal 2020” in the CD&A. The amounts for Ms. Zupfer and Mr. Kapadia were calculated by pro-rating the different base salary and bonus target percentages in effect for portions of the year. Based on fiscal 2020 results, bonus payments equal to 107% of target were earned as described in “Annual Incentive Decisions for Fiscal 2020” in the CD&A.
2
Annual grants for the fiscal year ended June 30, 2020 include:
Matching RSUs that were granted in August 2019: Ms. Zupfer—1,763; and Mr. Lacko—18,184. These awards cliff vest on the fifth anniversary of the grant date.
3
Amounts are computed in accordance with FASB ASC Topic 718.
4
Awards granted pursuant to terms of matching share program approved August 14, 2018.
5
Represents an award of RSUs to acquire 7,564 shares that were granted to Ms. Zupfer in November 2019 in connection with her promotion to CFO. This award will cliff vest on the third anniversary of the grant date.
6
These amounts represent an award of PSUs that were available to Ms. Zupfer as a result of her promotion to CFO. These awards will vest on the fifth anniversary of the grant date if she is still employed by the Company and the performance goal has been achieved.
7
Represents an award of RSUs to acquire 37,105 shares that was granted to Mr. Kapadia in September 2019 as a retention incentive. This award will cliff vest on the third anniversary of the grant date.
8
In connection with Mr. Lacko’s resignation and termination of employment on November 15, 2020, all of the awards granted to Mr. Lacko in fiscal 2020 were forfeited.
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EXECUTIVE COMPENSATION TABLES
Summary of Terms of Equity Awards
The terms of the equity awards granted as part of the current long-term incentives are summarized below:
Performance Stock Units—PSUs are grants of restricted stock units that are earned based on the achievement of an end-of-period stock price performance goal(s) established by the Compensation Committee, representing a 10% annual compound growth ground based on the 50-day moving average share price at the beginning of the performance period. PSUs were granted in fiscal 2019 as part of the first year of our five-year executive pay plan, and Ms. Zupfer received an incremental PSU in fiscal 2020 in connection with her promotion. The PSUs have a three-year performance period with performance assessed as of July 1, 2021 (or November 12, 2022 in the case of Ms. Zupfer’s incremental PSU), and will vest on the fifth anniversary of the grant date if the participant is still employed by the Company and the performance goal has been achieved, as described above in the CD&A under “Long-Term Incentive Decisions for Fiscal 2020.” The PSUs earn dividend equivalents, but have no voting rights. The PSUs are also subject to the Company’s clawback policy.
In the event of a termination of employment, unvested PSUs are generally forfeited; provided, however:
If a participant’s employment is terminated (i) without Cause (as defined in the 2016 Long Term Plan) or for Good Reason (as defined in the award agreement), in each case within 12 months following a Change in Control (as defined in the award agreement), (ii) due to death or disability or (iii) without Cause by the Company after the one year anniversary of the Grant Date and the Board does not intend to fill the participant’s position at the Company with another person, then if the termination occurs (a) prior to the end of the performance period a pro-rated amount of the fiscal 2019 PSUs will vest or (b) on or after the end of the performance period but prior to the fifth anniversary of the grant date and the performance goal is achieved, 100% of the fiscal 2020 PSUs will vest. Clause (iii) does not apply to Mr. Sawyer.
If the performance goal is achieved and a participant’s employment is terminated on or after the third anniversary of the grant date due to (i) the participant’s retirement (which is defined to mean termination at age 62 or after age 55 with 15 years or more of continuous service), or (ii) termination without Cause by the Company then, if the termination occurs (a) on or after the third anniversary of the grant date but before the fourth anniversary of the grant date, 60% of the fiscal 2019 PSUs will vest and (b) on or after the fourth anniversary of the grant date but before the fifth anniversary of the grant date, 80% of the fiscal 2020 PSUs will vest. This termination event trigger does not apply to Mr. Sawyer.
If a participant’s employment is terminated without Cause by the Company or for Good Reason both (i) after the one year anniversary of the Grant Date and (ii) following the appointment of a successor or interim successor to Mr. Sawyer, then a greater than pro rata portion of the fiscal 2020 PSUs will vest in accordance with the formula set forth in the award agreement. This termination event trigger does not apply to Mr. Sawyer.
The terms of Mr. Sawyer’s fiscal 2019 PSUs are substantially similar to those granted to our other NEOs, provided that in the event the performance condition is achieved and he is terminated by the Company without Cause (i) on or after April 17, 2020 but before the third anniversary of the grant date, a pro-rated amount of the fiscal 2019 PSUs will vest, (ii) on or after the third anniversary of the grant date but before the fourth anniversary of the grant date, 60% of the fiscal 2019 PSUs will vest and (iii) on or after the fourth anniversary of the grant date but before the fifth anniversary of the grant date, 80% of the fiscal 2019 PSUs will vest. Mr. Sawyer’s vesting under the applicable termination event triggers will not occur until the performance goal is achieved and the later of (A) the first to occur of (1) a Change in Control and (2) July 1, 2021 and (B) the date of his termination.
Restricted Stock Units—The RSUs granted as part of our fiscal 2019 executive pay plan cliff vest on the third anniversary of the grant date if the participant is still employed by the Company. The RSUs earn dividend equivalents, but have no voting rights. The RSUs are also subject to the Company’s clawback policy.
In the event of a termination of employment, unvested RSUs are generally forfeited; provided, however:
If a participant’s employment is terminated (i) without Cause (as defined in the 2016 Long Term Plan) or for Good Reason (as defined in the award agreement), in each case within 12 months following a Change in Control (as defined in the award agreement), (ii) due to death or disability or (iii) without Cause by the Company after the one year anniversary of the grant date and the Board does not intend to fill the participant’s position at the Company with another person, then a pro-rated amount of the fiscal 2020 RSUs will vest.
If a participant’s employment is terminated without Cause by the Company or for Good Reason both (i) after the one year anniversary of the grant date and (ii) following the appointment of a successor or interim successor to Mr. Sawyer, then a greater than pro rata portion of the fiscal 2020 RSUs will vest in accordance with the formula set forth in the award agreement.
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EXECUTIVE COMPENSATION TABLES
The terms of Mr. Sawyer’s fiscal 2019 RSUs are substantially similar to those granted to our other NEOs provided that if his employment is terminated (i) without Cause (as defined in the 2016 Long Term Plan) or for Good Reason (as defined in the award agreement), in each case within 12 months following a Change in Control (as defined in the award agreement) (ii) due to death or disability or (iii) without Cause by the Company after the Initial Term (as defined in his employment agreement), then a pro-rated amount of the fiscal 2019 RSUs will vest.
Matching Share Program – Restricted Stock Units
Matching RSUs granted as part of our SPMP are subject to a five-year continued service and cliff vesting conditions and participants are also required to hold their underlying purchased shares for the same five-year period. The matching RSUs earn dividend equivalents, but have no voting rights. If a participant’s employment is terminated (i) without Cause (as defined in the 2018 Long Term Incentive Plan) or for Good Reason (as defined in the award agreement), in each case within 12 months following a Change in Control (as defined in the 2018 Long Term Incentive Plan) or (ii) due to death or disability, if the termination occurs (a) prior to the third anniversary of the grant date, a pro-rated amount of the matching RSUs will vest or (b) on or after the third anniversary of the grant date, 100% of the matching RSUs will vest.
If a participant’s employment is terminated on or after the second anniversary of the grant date due to (i) the participant’s retirement (which is defined to mean termination at age 62 or after age 55 with 15 years or more of continuous service) or (ii) termination without Cause by the Company, then a pro-rated amount of the matching RSUs will vest.
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EXECUTIVE COMPENSATION TABLES
Outstanding Equity Awards at 2020 Fiscal Year-End
The following table sets forth certain information concerning outstanding equity awards held by the Named Executive Officers at June 30, 2020.
 
Option Awards
Stock Awards1
Name
Number of
Securities
underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($)
Option
Expiration
Date2
Number
of Shares
or Units of
Stock That
Have Not Vested
(#)
Market Value
of Shares
or Units of
Stock That
Have Not
Vested3
($)
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares or
Other Rights
That Have
Not Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares or
Other Rights
That Have Not
Vested3
($)
Hugh E. Sawyer
1,000,0004
11.15
4/17/2027
106,3585
870,008
319,0746
2,610,025
Kersten D. Zupfer
11,396
10.84
8/31/2025
1,0047
8,213
10,2265
83,649
8328
6,806
1,7639
14,421
7,56410
61,874