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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.          )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

CHECK THE APPROPRIATE BOX:

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Preliminary Proxy Statement

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

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under Rule 14a-12

 

ETHAN ALLEN INTERIORS INC.

(Name of Registrant as Specified in Its Charter)

 

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

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):

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No fee required.

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Fee computed on table below per Exchange Act Rules 14a6(i-)(1) and 0-11.
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Fee paid previously with preliminary materials.

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

 

 

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ETHAN ALLEN INTERIORS INC.

NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

Wednesday, November 13, 2019
10:00 A.M. (Eastern Time)
Ethan Allen International Corporate Headquarters
25 Lake Avenue Ext.
Danbury, Connecticut 06811-5286

To our Stockholders:

                You are cordially invited to attend the Ethan Allen Interiors Inc. 2019 Annual Meeting of Stockholders (the "Annual Meeting"). This meeting will be held at 10:00 A.M. (Eastern Time) on Wednesday, November 13, 2019, at the Ethan Allen International Corporate Headquarters, 25 Lake Avenue Ext., Danbury, Connecticut 06811.

                The 2019 Annual Meeting of Stockholders of Ethan Allen Interiors Inc. will be held for the purpose of considering and acting upon the following matters:

    Proposal 1.   to elect seven directors to serve until the 2020 Annual Meeting of Stockholders;

 

 

Proposal 2.

 

to approve by a non-binding advisory vote, our named executive officer compensation;

 

 

Proposal 3.

 

to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2020 fiscal year; and

                to transact such other business as may properly come before the meeting.

                You may vote if you were a stockholder of record at the close of business on September 16, 2019. Whether or not you plan to attend the Annual Meeting, we urge you to read the proxy statement carefully and to vote in accordance with the Board of Directors' recommendations. You should vote by the deadlines specified in the proxy statement, and may do so by telephone or internet, or by signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided. These proxy materials are first being made available on or around October 1, 2019.

                Following the formal business of the Annual Meeting, our Chairman and Chief Executive Officer will provide prepared remarks, followed by a question and answer session.

                Thank you for your continued support.

BY ORDER OF THE BOARD OF DIRECTORS

GRAPHIC

Eric D. Koster
Corporate Secretary
October 1, 2019

Proxy Voting

Even if you plan to attend the Annual Meeting, please vote as soon as possible using one of the following methods:

GRAPHIC   Online

www.proxyvote.com
  GRAPHIC   By Phone

1-800-690-6903
  GRAPHIC   By Mail

Completing, dating, signing and returning your proxy card

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 13, 2019:

The 2019 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com.


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PROXY STATEMENT

  1

PROXY SUMMARY

 
2

BOARD OF DIRECTORS

 
3

BOARD INDEPENDENCE

 
3

BOARD LEADERSHIP STRUCTURE

 
3

Lead Independent Director

  3

STOCKHOLDER OUTREACH & COMMUNICATION WITH DIRECTORS

 
4

BOARD OF DIRECTORS ROLE IN RISK OVERSIGHT

 
4

CORPORATE RESPONSIBILITY

 
5

Environmental Impact and Community

  5

Social Responsibility

  6

COMMITTEE CHARTERS, CODE OF CONDUCT AND CORPORATE GOVERNANCE GUIDELINES

 
6

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

 
7

Audit Committee

  7

Compensation Committee

  8

Corporate Governance & Nominations Committee

  8

PROPOSAL 1: ELECTION OF DIRECTORS

 
10

BOARD OF DIRECTORS—EXPERIENCE AND SKILLS

 
11

DIRECTOR NOMINEES FOR ELECTION

 
11

DIRECTOR COMPENSATION

 
15

SECURITY OWNERSHIP

 
16

Security Ownership of Directors and Executive Officers

  16

Security Ownership of Principal Stockholders

  17

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 
17

PROPOSAL 2: TO APPROVE, ON AN ADVISORY BASIS, NAMED EXECUTIVE OFFICER COMPENSATION

 
18

COMPENSATION DISCUSSION AND ANALYSIS

 
19

Executive Summary—Fiscal Year 2019 Performance at a Glance

  19

Compensation Practices

  20

Elements of Fiscal 2019 Executive Compensation

  22

COMPENSATION COMMITTEE REPORT

 
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ETHAN ALLEN INTERIORS INC.
25 Lake Avenue Ext., Danbury, Connecticut 06811

PROXY STATEMENT
For the 2019 Annual Meeting of Stockholders

October 1, 2019

PROXY STATEMENT

                This proxy statement (the "Proxy Statement") and the accompanying proxy or voting instruction card relate to the 2019 Annual Meeting of Stockholders (the "Annual Meeting") of Ethan Allen Interiors Inc., a Delaware corporation ("Ethan Allen") to be held at the Ethan Allen International Corporate Headquarters, 25 Lake Avenue Ext., Danbury, Connecticut 06811 at 10:00 A.M., Eastern Time, on Wednesday, November 13, 2019.

                The Board of Directors of the Company (the "Board") is soliciting proxies from stockholders in order to provide every stockholder an opportunity to vote on all matters submitted to a vote of stockholders at the Annual Meeting, whether or not such stockholder attends in person. A proxy authorizes a person other than a stockholder, called the "proxyholder," who will be present at the Annual Meeting, to cast the votes that the stockholder would be entitled to cast at the Annual Meeting if the stockholder were present in person. It is expected that this Proxy Statement and the accompanying proxy or voting instruction card will be first mailed or delivered to our stockholders beginning on or about October 1, 2019.

                When used in this Proxy Statement, "we," "us," "our," "Ethan Allen" or the "Company" refers to Ethan Allen and its subsidiaries collectively or, if the context so requires, Ethan Allen individually.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 13, 2019:

The 2019 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com.

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PROXY SUMMARY

Proposals and Voting Recommendations

                Stockholders are being asked to vote on the following matters at the 2019 Annual Stockholder Meeting:

  Our Board's Recommendation
    ITEM 1. Election of Directors
    The Board and the Corporate Governance & Nominations Committee believe that the seven director nominees possess the necessary qualifications and experiences to provide quality advice and counsel to the Company's management and effectively oversee the business and the long-term interests of stockholders.       FOR each
Director Nominee
   
    ITEM 2. Advisory Vote to Approve Executive Compensation  
    The Company seeks a non-binding advisory vote to approve the compensation of its Named Executive Officers as described in the Compensation Discussion and Analysis and the Compensation Tables in this Proxy Statement. Although the vote is non-binding, the Board values stockholders' opinions, and the Compensation Committee will take into account the outcome of the advisory vote when making future executive compensation decisions. This advisory vote will serve as an additional tool to guide the Board and the Compensation Committee in continuing to improve the alignment of the Company's executive compensation program with the interests of Ethan Allen and its stockholders and is consistent with our commitment to high standards of corporate governance and stockholder engagement.       FOR    
    ITEM 3. Ratification of the Appointment of KPMG LLP as our Independent Registered Public Accounting Firm  
    The Audit Committee and the Board believe that the retention of KPMG LLP to serve as the independent registered public accounting firm for the 2020 fiscal year is in the best interests of the Company and its stockholders. As a matter of good corporate governance, stockholders are being asked to ratify the Audit Committee's selection of KPMG LLP as its independent registered public accounting firm.       FOR    

                The Board believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders and to enhance the creation of long-term stockholder value. The Board has adopted Corporate Governance Guidelines that support and reflect this belief, strengthen Board and management accountability, and comply with the requirements of the New York Stock Exchange (the "NYSE").

GOVERNANCE HIGHLIGHTS

Board Practices
ü
Lead Independent Director, elected by independent directors

ü
Annual election of all directors with majority voting standard

ü
Director term and tenure limits

ü
Strategy and risk oversight by full Board and committees

ü
Independent executive sessions at every Board meeting

ü
Regular Board, committee and director evaluations

ü
Independent Audit, Compensation and Governance & Nominations Committees

ü
Refreshed Board; independent director average tenure 5 years

ü
Robust director nominee selection process

Stockholder Matters
ü
Long-standing active stockholder engagement

ü
Annual advisory vote on executive compensation

ü
Stockholder proxy access

ü
Stockholder right to call special meetings

ü
No poison pill in place

ü
Robust stockholder outreach

Other Best Practices
ü
Long-standing commitment to environmental stewardship

ü
Long-standing commitment to social responsibility

ü
Published Corporate Governance Guidelines

ü
Stock Ownership Guidelines for directors and executives

ü
Prohibit our directors and executive officers from hedging or pledging the Company's stock

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BOARD OF DIRECTORS

                Ethan Allen Interiors Inc. is a vertically integrated interior design and home furnishings company, serving consumers around the world. To effectively manage our enterprise requires a strong governance foundation, as well as leadership with an understanding of the diverse needs of our consumers and associates. The composition of the Board reflects an appropriate mix of skill sets, experience, and qualifications that are relevant to the business and governance of the Company. Each individual director epitomizes the Company's Leadership Principles, possesses the highest ethics and integrity, and demonstrates ongoing commitment to representing the long-term interests of the Company's stockholders. Each director possesses individual experiences that provide practical wisdom and foster mature judgment in the boardroom. Collectively, the directors bring business, international, government, technology, marketing, retail operations, and other experiences that are relevant to the Company's vertical operations. The Board has general oversight responsibility for the Company's affairs and is deeply involved in the Company's strategic planning process, leadership development, succession planning, and oversight of risk management. In exercising its fiduciary duties, the Board represents and acts on behalf of the Company's stockholders and is committed to strong corporate governance, as reflected through its policies and practices.

BOARD INDEPENDENCE

                The Board determined that James B. Carlson, John J. Dooner, Jr., Domenick J. Esposito, Mary Garrett, James W. Schmotter and Tara I. Stacom (six nominees for the Board) are independent directors within the meaning of the listing standards of the NYSE. The Board determined that these director nominees not only met all "bright-line" criteria under the NYSE rules, but also that, based on all known relevant facts and circumstances, there did not exist any relationship that would compromise the independence of these directors. In order to be considered independent, a director must be free of any relationship that, applying the rules of the NYSE, would preclude a finding of independence and not have any material relationship (either directly or as a partner, stockholder or officer of an organization) with us or any of our affiliates or any of our executive officers or any of our affiliates' executive officers.

Snapshot of our 2019 Independent Director Nominees

GRAPHIC

BOARD LEADERSHIP STRUCTURE

                The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management. The Board believes that, given the dynamic and competitive environment in which we operate, the optimal Board leadership structure may vary as circumstances warrant.

                At present, the Board has chosen to continue combining the two roles of Chairman and Chief Executive Officer. The Board believes that the best interests of the Company are served by Mr. Kathwari serving in both roles taking account of his unique long-standing tenure with, and investment in, the Company and also the Board's utilization of a strong Lead Independent Director. The Board believes that this governance structure provides the basis for clear, efficient executive authority in the Company, especially considering the Company's flat management structure, while balancing appropriate oversight by the Board.

Lead Independent Director

                Our Corporate Governance Guidelines provide that if the Chairman is not an independent director, the Board shall select a Lead Independent Director from among the members of the Board who are determined by the Board to be independent. The selection of the Lead Independent Director occurs at the annual planning meeting of the Board. The Lead Independent Director has such clearly delineated duties and responsibilities as set forth in our Corporate Governance Guidelines. While the Board has chosen to continue combining the two roles of Chairman and Chief Executive Officer, it believes that a suitably empowered Lead independent director who is expressly authorized

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to exert de facto control of the Company by asserting independent leadership of the Board, further promotes the Board's independence from management. The Board formally designated Dr. James W. Schmotter, an independent, non-executive director, as its Lead Independent Director through the Annual Meeting. He organizes and chairs meetings of the independent directors and organizes, facilitates and communicates observations of the independent directors to the Chief Executive Officer, although each director is free to communicate directly with the Chief Executive Officer. The duties and responsibilities of our Lead Independent Director are set forth in our Corporate Governance Guidelines and include, among others:

    presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the non-management or independent directors;

    serving as liaison between the Chairman and the independent directors;

    having the authority to call meetings of the independent directors;

    if requested by a major stockholder, ensuring that he or she is available for consultation and direct communication; and

    performing such other duties as the Board may from time to time delegate to assist the Board in the fulfillment of its duties.

STOCKHOLDER OUTREACH & COMMUNICATION WITH DIRECTORS

                During fiscal 2019, the Board and management held one investor conference to allow direct interaction and communication amongst the Company and its stockholders and the investment community. The Company also engages in extensive investor relations outreach efforts whereby members of senior management routinely meet with major investors to review Company strategies, financial and operating performance, capital allocation priorities, and near-term outlook. Stockholders or interested parties may communicate with the Chairman, the Lead Independent Director, the full Board, any Board committee, individual committee members or individual directors by sending communications to the Office of the Secretary, Ethan Allen Interiors Inc., 25 Lake Avenue Ext., Danbury, Connecticut 06811-5286 for forwarding to the appropriate director(s). Please specify to whom your correspondence should be directed and the nature of your interest in the Company. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company's internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters.

                The Secretary shall review any such correspondence and forward to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or committees thereof or that the Secretary otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Typically, the Secretary would not forward to the Board communications of a personal nature or not related to the duties and responsibilities of the Board, including junk mail, mass mailings, advertisements, magazines, solicitations, job inquiries, opinion surveys or polls.

                Additional investor information is available at www.ethanallen.com/investors. Stockholders may also electronically submit their communications to the following e-mail address: ETHBoard@ethanallen.com.

BOARD OF DIRECTORS ROLE IN RISK OVERSIGHT

                While risk management is primarily the responsibility of our management, the Board provides overall risk oversight focusing on the most significant enterprise risks. The Board oversees an enterprise-wide approach to risk management, designed to identify risk areas and provide oversight of the Company's risk management, to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance stockholder value. A fundamental part of the Board's risk management is to understand the risks the Company faces and what steps management is taking to mitigate those risks. The Board participates in discussions with management concerning the Company's overall level of risk, the Company's business strategy and organizational objectives which are all integral components of its assessment of management's tolerance for risk.

                The Company has implemented a Company-wide enterprise risk management process to identify and assess the major risks and develop strategies for controlling, mitigating and monitoring such risks. As part of this process, information is gathered throughout the Company to identify and prioritize major risks. The identified risks and risk mitigation strategies are validated with management and discussed with the Audit Committee on an ongoing basis.

                The Audit Committee reviews our risk management programs and regularly reports on these items to the full Board. Our Internal Audit group is responsible for monitoring the enterprise risk management process and in that role reports directly to the Audit Committee. Other members of senior management who have responsibility for designing and implementing various aspects of our risk management process also regularly meet with the Audit Committee. The Audit Committee discusses financial and operational risks with our Chief Executive Officer and Chief Financial Officer and receives reports from other members of senior management regarding identified risks.

                The Compensation Committee is responsible for overseeing any risks relating to our compensation policies and practices. Specifically, the Compensation Committee oversees the design of incentive compensation arrangements of our executive officers to

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implement our pay-for-performance philosophy without encouraging or rewarding excessive or inappropriate risk-taking by our executive officers.

                Finally, cybersecurity is a critical part of risk management for the Company. The Board appreciates the rapidly evolving nature of threats presented by cybersecurity incidents and is committed to the prevention, timely detection, and mitigation of the effects of any such incidents on the Company. With respect to cybersecurity, the Board receives regular reports from management, including updates on the internal and external cybersecurity threat landscape, incident response, assessment and training activities, and relevant legislative, regulatory, and technical developments.

                Our management regularly conducts additional reviews of risks, as needed, or as requested by the Board or the Audit Committee.

CORPORATE RESPONSIBILITY

                Sustainability practices are a fundamental part of our Company's operations. Our Board, along with our clients, investors, employees and other stakeholders, understand that a modern approach to running our Company must be aligned with a commitment to sustainability. We believe that integrating our social and environmental values into our business as part of that commitment generates long-term value for our business, our stockholders and the global community at large. In addition to our overall dedication to ethical and accountable business practices, our corporate social responsibility commitments include the areas of environmental sustainability and community connections. We believe that these commitments create value for our stockholders and help position us to continuously improve business performance. Our strategy focuses our efforts on those areas most significant to our business, including health and safety, environmental stewardship, community and stakeholder engagement, human rights, and transparency. As part of our commitment, the Board and its committees are actively engaged in overseeing our sustainability practices and to ensure focus on these topics starts from the top. The Board oversees policies, positions and systems for environment, health, safety and social responsibility, compliance and risk management. The Company's 2019 Corporate Responsibility Report is available at www.ethanallen.com/corporate-responsibility. The information provided on the Company's website is referenced in this Proxy Statement for information purposes only. Neither the information on the Company's website, nor the information in the Company's 2019 Corporate Responsibility Report, shall be deemed to be a part of or incorporated by reference into this Proxy Statement or any other filings we make with the SEC.

Environmental Impact and Community

                The Carbon Footprint Calculator is the core tool that Ethan Allen uses across every location, from Design Centers to manufacturing plants to our Corporate headquarters, to record and analyze environmental data. It is based on the United States Environmental Protection Agency's Waste Reduction Model (WARM), which was designed to help businesses quantify how smarter materials use, recycling, and other activities affect greenhouse gas emissions, create energy savings, and impact economic activities.

                We have updated the calculator several times over the past decade to reflect a better understanding of our environmental profile: how our company's unique mix of air emissions and waste products add carbon and other greenhouse gases to our atmosphere. For example, to measure CO2e (carbon dioxide equivalent), we multiply the emissions of six greenhouse gases, plus other fuel emissions (such as emissions from the type of fuel our local electrical supplier uses to generate power) by each compound's global warming potential (GWP), or carbon factor.

                Environmental measures the Company has taken include the expanded use of responsibly harvested Appalachian hardwoods, water-based finishes, organic cotton textiles, and recycled materials. In addition, the Company uses only CertiPUR-US® certified foams in its mattresses and custom upholstery.

                Every facility at Ethan Allen has its own environmental goals, targets, and responsibilities related to emissions, waste disposal, and electricity and water usage. A designee at each location records the data in the Carbon Footprint Calculator and submits it quarterly. The data is then reviewed annually by Ethan Allen's corporate Environmental, Health and Safety (EH&S) team, who compare it to data from the appropriate baseline year to measure our progress toward environmental goals.

Electricity

                To reduce the amount of electricity we use to heat our work spaces and dry our lumber, the wood-fired boilers in our plants use scrap wood to make steam. At some locations, we also use that same steam to cogenerate the electricity, heat, and air pressure needed to run our production equipment. We also use energy-efficient lighting, and we have implemented coordinated startups of our heavy equipment to reduce peak electrical demand. In 2018, we reduced electrical usage by 2.6 million kilowatt-hours compared to our 2010 baseline year.

Water

                To control and reduce water use, we have installed low-flow restroom fixtures in our facilities. We also use flow restrictors to limit water use in certain operations. Logs for example, must be kept moist until milled to prevent cracks or splits; flow restrictors ensure logs are

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sprinkled with just the right amount of water. Additionally, steam leak surveys have helped us reduce the escape of steam into the air, further reducing water waste. In 2018, we decreased our water usage by almost 11 million gallons compared to our 2010 baseline year.

Greenhouse Gas (GHG) Emissions

                To meet our carbon footprint reduction goals, we continually review and investigate ways to reduce our carbon dioxide emissions in our operations. We set annual carbon footprint reduction goals for our domestic manufacturing division, based on data compiled from each manufacturing facility. In 2018, we reduced CO2 emissions by over 10.5 million pounds compared to our 2010 baseline year.

Recycling

                Recycling is embraced by our management and employees alike and implemented through corporate initiatives and grassroots efforts. All locations work to minimize landfill waste, and our operations focus on recycling paper, glass, cardboard, plastics, and metals. Our goal is to reuse and recycle materials, including glass, paper, metal, plastic, foams, and textiles, as much as we can. In 2018, we increased recycling by almost 60,000 pounds of materials, and reduced our landfill waste disposal by over 1 million pounds compared to our 2010 baseline year.

Social Responsibility

                Ethan Allen's Manufacturing Code of Conduct is the standard against which Ethan Allen, in partnership with independent auditors, measures vendor compliance related to ethical business practices and the fair treatment of workers. We are committed to working with and educating our supplier network as a way of improving labor conditions worldwide. Our business partners are also subject to our Manufacturing Code of Conduct.

                To assess vendor compliance at individual production facilities, Ethan Allen partners with industry-recognized third-party auditing companies known for their professionalism, consistency, and credibility. These vendors, including Bureau Veritas and Elevate Limited, have conducted over 120 labor compliance audits in eleven countries on our behalf since 2016.

                Independent auditors also offer continuing education opportunities, in the vendor's country and in the vendor's own language. These include the following:

    yearly seminars, conducted by training staff from the third-party company in the vendor's own language; and

    additional compliance training for factory managers that explains the need for transparency, capacity building, and improvement in their labor compliance systems.

                The Company's goal is to obtain 100% compliance. As it works to meet that goal, the Company consistently addresses the root causes of noncompliance within each facility. Our teams also attend labor compliance seminars and meetings, where they collaborate across international and industry lines to address labor compliance topics throughout the global supply chain.

COMMITTEE CHARTERS, CODE OF CONDUCT AND CORPORATE GOVERNANCE GUIDELINES

                The Company's Code of Business Conduct and Ethics (the "Code of Conduct"), Corporate Governance Guidelines and the charters of its Audit Committee, Compensation Committee and Corporate Governance & Nominations Committee are available on the Company's website at www.ethanallen.com/governance. You may also request printed copies of the Code of Conduct, the Governance Guidelines or the committee charter(s), free of charge, by sending a written request to our Corporate Secretary at Ethan Allen Interiors Inc., 25 Lake Avenue Ext., Danbury, CT 06811-5286.

                The Board has approved a set of Corporate Governance Guidelines in accordance with rules of the NYSE. These Corporate Governance Guidelines set forth the key policies relating to corporate governance, including director qualification standards, director responsibilities and director compensation. The Corporate Governance Guidelines cover, among other things, the duties and responsibilities of and independence standards applicable to our directors. The Corporate Governance Guidelines also cover the Board's role in overseeing executive compensation, compensation and expenses of non-management directors, communications between stockholders and directors, and Board committee structures and assignments.

                Our Code of Conduct was adopted to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company; promote compliance with applicable governmental laws, rules and regulations; promote the protection of Company assets, including corporate opportunities and confidential information; promote fair dealing practices; deter wrongdoing; and ensure accountability for adherence to the provisions of the Code. It prohibits any employee, officer and director taking unfair advantage of any clients, suppliers, competitors or other officers and employees through manipulation, concealment, abuse of privileged information or misrepresentation of material facts. It imposes an express duty to act in the

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best interests of the Company and to avoid influences, interests or relationships that could give rise to an actual or apparent conflict of interest. Further, it also prohibits directors, officers and employees from taking for themselves personally, opportunities that properly belong to the Company or are discovered through the use of corporate property, information or one's position; using corporate property, information or position for personal gain; and competing directly or indirectly with the Company. This Code of Conduct may be amended, modified or waived by the Board of Directors. Waivers of the Code of Conduct must be explicit. Any waiver of the Code of Conduct for directors or executive officers may only be made by the Board or the Corporate Governance & Nominations Committee. We will disclose any future amendments to, or waivers from, provisions of the Code of Conduct affecting our executive officers or directors on our website within four business days, as may be required under applicable SEC and NYSE rules. We granted no waivers under our Code in fiscal 2019. With respect to any person other than any executive officer or director, waivers may be granted by the General Counsel.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

                During fiscal 2019, there were four regularly scheduled meetings of the Board including the meeting in connection with the 2018 Annual Meeting of Stockholders. Independent directors also met four times in executive session without management present. The Lead Independent Director, currently Dr. James W. Schmotter, chaired the executive sessions.

                All directors are expected to attend all regularly scheduled and special Board meetings, independent director meetings and committee meetings, as appropriate. The Board realizes that scheduling conflicts may arise from time to time which prevent a director from attending a particular meeting. However, it is the Board's explicit policy that each director shall give priority to his or her obligations to the Company. All directors who then held office attended the 2018 Annual Meeting of Stockholders. In fiscal year 2019, there was 100% attendance by each director at each of the four regularly scheduled Board meetings, and for directors serving on such committees, there was 100% attendance at the four regularly scheduled Audit Committee meetings, two regularly scheduled Compensation Committee meetings, and two regularly scheduled Corporate Governance & Nominations Committee meetings. As set forth in our Corporate Governance Guidelines, the Company's policy is to expect the resignation of any director who is absent from more than 25% of regularly scheduled Board meetings or committee meetings in a fiscal year.

                The Board has established three standing committees: the Audit Committee; the Compensation Committee; and the Corporate Governance & Nominations Committee. Committee memberships of each director nominee is set forth below:

    Name     Audit
Committee


  Corporate
Governance &
Nominations
Committee




  Compensation
Committee


  Lead
Independent
Director



    James B. Carlson       Member               Chairperson            
    John J. Dooner, Jr         Chairperson     Member      
    Domenick J. Esposito       Chairperson               Member            
    Mary Garrett     Member              
    James W. Schmotter       Member       Member               ü    
    Tara I. Stacom         Member          
                   

                Additionally, the Board determined that each of the members of the standing committees is (i) independent within the meaning of the listings standards of the NYSE, including the additional requirements applicable to members of the audit and compensation committees, as applicable, (ii) non-employee directors (within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act")) and (iii) outside directors (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")).

Audit Committee

                The Audit Committee operates under a written charter, which was adopted by the Board. Pursuant to its charter, on behalf of the Board, the Audit Committee oversees the Company's consolidated financial statements, independent auditors, financial statement audits, financial reporting process, system of internal accounting and financial controls, and internal audit function. In so doing, the Committee seeks to maintain free and open communication between the Committee and the Company's independent registered public accounting firm, the internal auditors and management. The Audit Committee is also responsible for review and approval of any related party transactions required to be disclosed pursuant to Item 404(a) of Regulation S-K. The responsibilities and activities of the Audit Committee are further described in "Audit Committee Report" and the Audit Committee charter.

                Each of the current members of the Audit Committee is an independent director within the meaning of the applicable rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") and the NYSE, including the additional independence

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requirements applicable to members of audit committees. The Board has determined that each member of the Audit Committee is financially literate within the meaning of the NYSE listing standards and that each of the four members of the Audit Committee qualifies as an "audit committee financial expert" as defined under Item 407(d)(5)(ii) of SEC Regulation S-K. The Audit Committee meets a minimum of four times each fiscal year and holds such additional meetings as it deems necessary to perform its responsibilities. The Audit Committee met five times during fiscal 2019. A report of the Audit Committee is set forth elsewhere in this Proxy Statement.

Compensation Committee

                The Compensation Committee determines our compensation policies and the level and forms of compensation provided to our Board members and executive officers, as discussed more fully under "Compensation Discussion and Analysis". In addition, the Compensation Committee reviews and approves stock-based compensation for our directors, officers and employees, and oversees the administration of our Stock Incentive Plan. Additionally, the Compensation Committee approves the "Compensation Discussion and Analysis" with respect to compensation of the Company's Named Executive Officers in accordance with applicable rules of the SEC. The Compensation Committee is authorized to retain and terminate compensation consultants, legal counsel or other advisors to the Committee and to approve the engagement of any such consultant, counsel or advisor, to the extent it deems necessary or appropriate after specifically analyzing the independence of any such consultant retained by the Committee.

                Each of the current members of the Compensation Committee is an independent director within the meaning of the applicable NYSE rules, including the additional independence requirements applicable to members of compensation committees. The Compensation Committee meets a minimum of two times a year and holds such additional meetings as it deems necessary to perform its responsibilities. The Compensation Committee held four meetings and individual Compensation Committee members communicated, when necessary, by telephone or other means during fiscal 2019. A report of the Compensation Committee is set forth elsewhere in this Proxy Statement.

Corporate Governance & Nominations Committee

                The duties of the Corporate Governance & Nominations Committee include, but are not limited to, the duty to: (i) develop qualification criteria for the members of the Board and nominate or recommend to the Board individuals to serve on the Board; (ii) review, annually, the qualifications of each member of the Board; (iii) review and monitor the Company's corporate governance policies and guidelines, including the Company's trading policy for its directors and executive officers; and (iv) make an annual assessment of the Board's performance and report to the Board.

                The Corporate Governance & Nominations Committee follows the procedure concerning nominations or consideration of director candidates recommended by stockholders set forth in our Amended and Restated By-Laws (the "By-Laws"). The By-Laws of the Company permit stockholders, as of the Record Date, to nominate director candidates at the Annual Meeting, subject to certain notification requirements. Additionally, in 2016, the Board adopted a balanced and market-standard proxy access By-Law. Our By-Laws permit a stockholder, or a group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years to nominate and include in our proxy materials up to the greater of two directors or 20% of our Board. Stockholders and nominees must satisfy the requirements set forth in the By-Laws in connection with such nominations. We believe that this by-law provision provides meaningful, effective and accessible proxy access rights to our stockholders, and balances those benefits against the risk of misuse or abuse by stockholders with special interests that are not shared by all or a significant percentage of our stockholders. See "Stockholder Proposals and Nomination of Directors" under "Questions and Answers" for information on how to submit a proposal or nominate a director.

                Each of the current members of the Corporate Governance & Nominations Committee is an independent director within the meaning of the listing standards of the NYSE. The Corporate Governance & Nominations Committee meets a minimum of two times a year and holds such additional meetings as it deems necessary to perform its responsibilities. The Corporate Governance & Nominations Committee held four meetings and individual Corporate Governance & Nominations Committee members communicated, when necessary, by telephone or other means during fiscal 2019.

                The Corporate Governance & Nominations Committee seeks candidates who demonstrate a willingness and ability to prepare for, attend and participate in all Board and committee meetings and whose experience and skill would complement the then existing mix of directors. Among the criteria used to evaluate nominees for the Board is diversity of viewpoints, background and experience, including diversity of race, gender, ethnicity, age and cultural background. The Board believes that such diversity provides varied perspectives which promote active and constructive dialogue among Board members and between the Board and management, resulting in more effective oversight. The Board believes this diversity is amply demonstrated in the varied backgrounds, experience, qualifications and skills of the current and proposed members of the Board. We are proud that one-third of our independent director nominees are women. In the Board's executive sessions and in annual performance evaluations conducted by the Board and its committees, the Board from time to time considers whether the members of the Board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.

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                The Corporate Governance & Nominations Committee gathers suggestions as to individuals who may be available to meet the Board's future needs from a variety of sources, such as past and present directors, stockholders, colleagues and other parties with which a member of the Corporate Governance & Nominations Committee or the Board has had business dealings and undertakes a preliminary review of the individuals suggested. Candidates recommended by stockholders will be considered in the same manner as other candidates. At such times as the Corporate Governance & Nominations Committee determines that a relatively near-term need exists and the Corporate Governance & Nominations Committee believes that an individual's qualities and skills would complement the then existing mix of directors, the Corporate Governance & Nominations Committee or its Chair will contact the individual. The Chair will, after such contact, discuss the individual with the Corporate Governance & Nominations Committee. Based on the Corporate Governance & Nominations Committee's evaluation of potential nominees and the Company's needs, the Corporate Governance & Nominations Committee determines whether to nominate the individual for election as a director. While the Corporate Governance & Nominations Committee has not, in the past, engaged any third-party firm or consultant to identify or evaluate nominees, in accordance with its charter, may do so in the future.

                The Corporate Governance & Nominations Committee unanimously recommended the nominees named in this Proxy Statement as the individuals with the experience, industry knowledge, integrity, ability to devote time and energy, and commitment to the interests of all stockholders best qualified to execute our strategic plan and create value for all of our stockholders.

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PROPOSAL 1:    ELECTION OF DIRECTORS

                At the Annual Meeting, each of the seven nominees described below will stand for re-election to serve as directors until the 2020 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified. The seven nominees were nominated by the Board in accordance with recommendations by our Corporate Governance & Nominations Committee. Each nominee has consented to being named in this Proxy Statement as a nominee for election as a director and agreed to serve if elected. All the seven nominees described below are currently members of the Board. The information set forth below includes, with respect to each nominee for election as director, his or her age, present principal occupation, specific expertise, qualifications and skills along with other business experience, directorships in other publicly held companies, membership on committees of the Board and period of service as a director of the Company. Also set forth below is a brief discussion of the specific experience, qualifications, attributes or skills that led to each nominee's nomination as a director, in light of the Company's business.

                Each director is elected annually by a majority of the votes cast. This means that the number of votes cast "FOR" a director nominee's election must exceed 50% of the number of votes cast with respect to the election of that nominee in order for the nominee to be elected. Abstentions and broker non-votes are not counted as votes cast. It is the intention of the persons named as proxies in the accompanying proxies submitted by stockholders to vote for each of the seven nominees described below unless authority to vote for the nominees or any individual nominee is withheld by a stockholder in such stockholder's proxy. If for any reason any nominee becomes unable or unwilling to serve at the time of the Annual Meeting, or for good cause will not serve as a director, the persons named as proxies will have discretionary authority to vote for the remaining nominees and for a substitute nominee(s) to fill the vacancy unless the Board reduces the number of directors to be elected at the Annual Meeting. It is not anticipated that any nominee will be unavailable or will decline to serve as a director.

The Board unanimously recommends that you vote FOR each of the seven nominees.

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BOARD OF DIRECTORS – EXPERIENCE AND SKILLS

    Ethan Allen Board Nominees     CEO or Senior
Executive
Level
Experience




  Risk
Management


  International
Experience


  Operating
Experience


  Retail and
Ecommerce
Experience



  Finance
Experience


  Real
Estate
Experience



  Marketing and
Brand Building
Expertise



    M. Farooq Kathwari       ü       ü       ü       ü       ü       ü       ü       ü    
    James B Carlson     ü     ü     ü             ü     ü      
    John J. Dooner, Jr.,       ü       ü       ü       ü               ü               ü    
    Domenick J. Esposito     ü     ü         ü         ü         ü  
    Mary Garrett       ü       ü       ü       ü       ü       ü               ü    
    James W. Schmotter     ü     ü     ü     ü         ü         ü  
    Tara I. Stacom       ü       ü               ü               ü       ü       ü    

DIRECTOR NOMINEES FOR ELECTION

    Farooq Kathwari        HOME FURNISHINGS INDUSTRY LEADER
       

 

 

GRAPHIC

 

Mr. Kathwari is the chairman, president and chief executive officer of Ethan Allen Interiors Inc. He has been president of the Company since 1985 and chairman and chief executive officer since 1988. He holds BAs in English Literature and Political Science from Kashmir University and an MBA in International Marketing from New York University. He is also the recipient of three honorary doctorate degrees.

     
Director since
1985
Age: 75
Board Committees:

Chairman of the Board

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Mr. Kathwari serves in numerous capacities at several nonprofit organizations. He is an advisory member of the New York Stock Exchange; former chairman of the National Retail Federation; a member of the Board of Overseers of the International Rescue Committee; Chairman Emeritus of Refugees International; a member of the International Advisory Council of the United States Institute of Peace; and a member of the advisory board of the Center for Strategic and International Studies.

Among his recognitions, Mr. Kathwari is a recipient of the 2018 Ellis Island Medal of Honor and has been inducted into the American Furniture Hall of Fame. He has been recognized as an Outstanding American by Choice by the U.S. government. He has received the Yale School of Management's Chief Executive Leadership Institute Lifetime of Leadership Award. He has also been recognized by Worth magazine as one of the 50 Best CEOs in the United States. He is the author of Trailblazer: from the Mountains of Kashmir to the Summit of Global Business and Beyond.

Mr. Kathwari has extensive knowledge of the history of both the Company and the furniture industry as well as extensive experience in growing and managing a business. From experience with the Company, Mr. Kathwari possesses insight into retailing, marketing, manufacturing, finance, and strategic planning. In addition, his work with both for-profit and not-for-profit organizations has given him perspectives from other industries, which have proven valuable throughout his service to the Company.

   
 

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    James B. Carlson        LEGAL AND FINANCIAL INDUSTRIES LEADER
       

 

 

GRAPHIC

 

Mr. Carlson who has been practicing law since 1981, currently is a member of the law firm Mayer Brown, LLP, where he has been a partner since 1998. From 1997 through 2004, he was the Partner-in-Charge of the firm's New York Office, and also served as the firm's Global Practice Leader from 2004 through 2008.

     
Independent

Director since 2013
Age: 64
Board Committees:

Compensation - Chair

Audit

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Mr. Carlson, serves as an Adjunct Professor at the New York University School of Law, teaching Securities and Capital Markets Regulation since 1996. From 2009 through 2011, he also taught Derivatives and Changing Regulation at the New York University School of Law, and from 2010 through 2012, he taught Microfinance and Access to Finance for the Global Poor as an Adjunct Professor at the NYU Stern School of Business. Mr. Carlson brings extensive knowledge of corporate and financial strategies to the Board and is a highly regarded member of both the legal and business communities.    
 

 

    John J. Dooner, Jr.        MARKETING AND STRATEGIC COMMUNICATIONS LEADER
       

 

 

GRAPHIC

 

Mr. Dooner recently established The Dooner Group, a marketing communication consultancy, and serves as Chairman Emeritus of McCann Worldgroup ("McCann"), a company he formed in 1997, and of which he had been Chief Executive Officer from its founding until 2011.

     
Independent

Director since 2011
Age: 71
Board Committees:

Nominations - Chair

Compensation

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Under Mr. Dooner's leadership, McCann grew to be one of the world's largest marketing communications organizations, with operations in over 125 countries with a client roster that includes preeminent global marketers and many of the world's most famous brands. Prior to assuming that position, Mr. Dooner was Chief Executive Officer of McCann Erickson Worldwide, a post he assumed in 1992. Mr. Dooner serves on several not for profit organizations including as Chairman of St. Thomas University based in Miami, Florida. He is Past Chairman Board of Trustees and Past Brand Platform Chairman of United Way Worldwide based in Washington, DC. In April 2019 Mr. Dooner was inducted into the American Advertising Federation Hall of Fame. In May 2019 he received an Honorary Doctorate from St. Thomas University. Mr. Dooner brings extensive advertising and branding expertise to the Company.    
 

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Table of Contents

    Domenick J. Esposito        FINANCIAL SERVICES INDUSTRY LEADER
       

 

 

GRAPHIC

 

Mr. Esposito has been a practicing CPA since 1974. Currently, he is the Chief Executive Officer of ESPOSITO CEO2CEO and a board member at three privately held companies. From 2002 to 2016, Mr. Esposito was a senior partner and member of the executive board at CohnReznick LLP. From 2001 through 2002, he was Vice Chairman of BDO, and from 1979 through 2001 he served as a member of Grant Thornton LLP, where he became partner in 1981, and the firm's Chief Executive Officer in 1999.

     
Independent

Director since 2015
Age: 72
Board Committees:

Audit - Chair

Compensation

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Prior to 1979, Mr. Esposito served as a member of Price Waterhouse. He has been a member of the NASDAQ Listing and Qualifications Committee and recently served on the NASDAQ Listing and Qualifications Panel. He formerly served as the leader of the New York State Society of CPA's Committee for Large and Medium Sized Firms Practice Management, and was also an Adjunct Professor at C.W. Post / Long Island University. Mr. Esposito's extensive public accounting background strengthens the oversight of our financial controls and reporting.    
 

 

    Mary Garrett        TECHNOLOGY AND MARKETING LEADER
       

 

 

GRAPHIC

 

Ms. Garrett most recently was the CMO, Global Markets for IBM Corporation. She joined IBM as an electrical engineer and served in key positions including Vice President of Marketing Global Technology Services; and P&L owner for the $6B Small and Medium Business for Global Technology Services. She led teams across the software and services portfolios in 170 markets around the world.

     
Independent

Director since 2016
Age: 60
Board Committees:

Audit

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Ms. Garrett serves as a board member and a member of the audit committee of Hillrom Corporation, (NYSE: HRC), a global medical technology company. Recently, she joined the Danbury Hospital board and is a member of the strategic planning committee for the Nuvance Health Network. Ms. Garrett is the President of M. Power Coaching and Consulting, LLC focused on developing executive leaders and helping organizations align brand and culture, customer experience and employee engagement for positive impact on business vitality and growth. She is an active mentor in W.O.M.E.N. in America, a professional development group aimed at advancing promising professional women. Ms. Garrett has extensive experience in the technology industry, including digital transformation, big data and cognitive analytics, cybersecurity and cloud computing. She holds a patent for her work in speech recognition. Ms. Garrett's broad international background, including Europe and emerging markets in Asia and Africa, marketing expertise and business leadership experience, make her a valuable member of our Board.    
 

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    Dr. James W. Schmotter        HIGHER EDUCATION ADMINISTRATION LEADER
       

 

 

GRAPHIC

 

Dr. Schmotter is President Emeritus of Western Connecticut State University from which he retired in June 2015. He previously served as Dean of the Haworth College of Business at Western Michigan University, the Dean of the College of Business and Economics at Lehigh University in Pennsylvania, as well as Associate Dean and Director of International Studies at the Johnson Graduate School of Management at Cornell University.

     
Independent

Director since 2010
Age: 72
Board Committees:

Lead Independent Director

Nominations

Audit

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Dr. Schmotter has served as a managing director of the Southwest Michigan Innovation Center, as chair of the board of directors of the United Way of Western Connecticut and Junior Achievement of Kalamazoo (Michigan), as a corporator of the Savings Bank of Danbury, as a director of Fairfield County's Community Foundation and as a director of the Greater Danbury Chamber of Commerce and the Latino Scholarship Fund (Connecticut). He is currently a consultant with CBT University Consulting, as well as an officer on the boards of the Dunes of Naples II Condominium Association and the Naples Council on World Affairs (Florida). A recipient of the Walter F. Brady, Jr. Award for the Advancement of Higher Education in Connecticut, he has consulted for various multinational companies and universities on three continents and has, since 2011, chaired accreditation review teams for three New England universities. Dr. Schmotter's strong leadership, educational, and governmental background provides key insight and experience in strategic planning, international/global issues, and communicating with younger customers, which are assets in his service to the Company.    
 

 

    Tara I. Stacom        REAL ESTATE AND FINANCIAL INDUSTRIES LEADER
       

 

 

GRAPHIC

 

Ms. Stacom is an Executive Vice Chairman of Cushman & Wakefield, a worldwide commercial real estate firm with 43,000 employees. During her 35-year career, Ms. Stacom has been responsible for executing in excess of 40 million square feet and some of the largest and most complex leasing, sales, and corporate finance real estate transactions.

     
Independent

Director since 2015
Age: 61
Board Committees:

Nominations

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Ms. Stacom served on the Board of Trustees of Lehigh University for over 15 years where she earned her Bachelor of Science degree in Finance. She is a founder of the real estate minor in the business college. In recognition of her commitment and many years of service to Lehigh University, as well as Greenwich Academy, Ms. Stacom has received prestigious Alumni Awards from both organizations. Ms. Stacom serves as a director of the Realty Foundation of New York, and is a member of the Real Estate Board of New York having served on numerous committees including Ethics and the Commercial Brokerage Division. Ms. Stacom is a "Director's Circle Member" of Girls, Inc. and a board member of Right to Dream. She is the recipient of Crain's New York Business 100 Most Influential Women in New York City Business, and is a Realty Foundation of New York honoree. She was awarded "Woman of the Year" of the New York Executives in Real Estate (WX), and Real Estate New York and Real Estate Forum's Women of Influence. She received Northwood University's Distinguished Women's Award in recognition of the enormous contribution she has made to communities, businesses, volunteer agencies, and public and private sector services worldwide. She has also been honored by the Visiting Nurse Service of New York and the New York Police Athletic League. Ms. Stacom was honored with the Real Estate Board of New York's highest achievement, the 2011 Most Ingenious Deal of the Year (First Place Henry Hart Rice Award) for the leasing of One World Trade Center. Ms. Stacom brings extensive knowledge of commercial real estate and finance to the Board.    
 

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DIRECTOR COMPENSATION

                At the start of fiscal 2019, the Board reflected on the performance of the Company for fiscal 2018, the Compensation Committee's determination not to grant annual increases to the Named Executive Officers ("NEOs") and not to issue any discretionary bonuses to the NEOs for fiscal 2018, and that no incentive bonuses were earned by the NEOs for fiscal 2017 and fiscal 2018. Based on this, the Compensation Committee together with the full Board made the determination to reduce their own cash compensation by 10% during fiscal 2019.

                For fiscal 2019, each independent director received $54,000 per annum, reflecting the Company's $60,000 per annum director fee less the 10% reduction described above, and an annual stock option award equal in value to $100,000 based on the market price of the Company's stock as of the date of grant. Additional quarterly fees are paid to the chairperson of each of the committees as follows: Audit Committee $4,000; Compensation Committee $2,000; and Corporate Governance & Nominations Committee $2,000, all of which were reduced by 10% for fiscal 2019. If a committee holds more than four meetings (either in person or telephonically) on days when the full Board does not meet, committee members will be paid an additional $1,000 for each additional meeting beginning with the fifth such meeting. Employee directors do not receive additional compensation for serving on the Board. Directors serving on committees for part of a year receive a pro rata share of fees.

    Name

  Fees earned or
paid in cash


  Option
awards
(1)


  Total

    James B. Carlson (2)       $        61,200       $        22,605       $        83,805    
    John J. Dooner, Jr. (3)     $        59,400     $        22,605     $        82,005  
    Domenick J. Esposito (4)       $        68,400       $        22,605       $        91,005    
    Mary Garrett (5)     $        54,000     $        22,605     $        76,605  
    James W. Schmotter (6)       $        61,200       $        22,605       $        83,805    
    Tara I. Stacom (7)     $        54,000     $        22,605     $        76,605  
    (1)
    The amounts shown for option awards represent the aggregate grant date fair values, computed in accordance with Accounting Standards Codification Topic 718. For financial statement reporting purposes these fair values are charged to expense over the vesting period of three years. The actual values realized, if any, will not be known until the vesting date and could differ significantly from the amounts disclosed in the table. Refer to the notes to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for valuation assumptions with respect to stock option grants. The option award reflects a grant of 4,265 options for each director serving on the grant date.
    (2)
    Mr. Carlson was awarded 4,265 stock options on July 25, 2018 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2019, Mr. Carlson held 17,531 options outstanding, of which 10,141 were vested.
    (3)
    Mr. Dooner was awarded 4,265 stock options on July 25, 2018 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2019, Mr. Dooner held 26,462 options outstanding, of which 19,072 were vested.
    (4)
    Mr. Esposito was awarded 4,265 stock options on July 25, 2018 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2019, Mr. Esposito held 13,872 stock options outstanding, of which 6,482 were vested.
    (5)
    Ms. Garrett was awarded 4,265 stock options on July 25, 2018 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2019, Ms. Garrett held 10,391 stock options outstanding, of which 3,001 were vested.
    (6)
    Mr. Schmotter was awarded 4,265 stock options on July 25, 2018 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2019, Mr. Schmotter held 26,462 stock options outstanding, of which 19,072 were vested.
    (7)
    Ms. Stacom was awarded 4,265 stock options on July 25, 2018 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2019, Ms. Stacom held 10,391 stock options outstanding, of which 3,001 were vested.

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Table of Contents

SECURITY OWNERSHIP

                The following tables sets forth, as of September 16, 2019, the record date for the Annual Meeting, information known to Ethan Allen with respect to beneficial ownership of the Company's common stock for (i) each director and nominee, (ii) each holder of more than 5% of Company common stock, (iii) the Company's Principal Executive Officer, Principal Financial Officer and the three most highly compensated executive officers (other than the Principal Executive Officer and Principal Financial Officer) named in the table entitled "Summary Compensation Table" and (iv) all executive officers and directors as a group. The Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common Stock indicated as beneficially owned by them, except as otherwise noted. Unless otherwise noted below, the address for each listed director and NEO is Ethan Allen Interiors Inc., 25 Lake Avenue Ext., Danbury, CT 06811.

Security Ownership of Directors and Executive Officers

                The following table sets forth, as of September 16, 2019, the record date for the Annual Meeting, the beneficial ownership of the Company's common stock reported to Ethan Allen by (i) each of the Company's director nominees, (ii) each NEO, and (iii) all director nominees and executive officers as a group.

    Name

           Amount and
Nature of
Beneficial
Ownership 
(1)




  Common Stock
Percentage
Ownership 
(1)



    M. Farooq Kathwari       (2)       2,590,082       9.7%    
    James B. Carlson     (3)     31,690     *      
    John J. Dooner, Jr.       (4)       33,637       *        
    Domenick J. Esposito     (5)     13,627     *      
    Mary Garrett       (6)       6,666       *        
    James W. Schmotter     (7)     25,237     *      
    Tara I. Stacom       (8)       12,766       *        
    Corey Whitely     (9)     30,827     *      
    Daniel Grow       (10)       16,832       *        
    Eric D. Koster     (11)     6,111     *      
    Clifford Thorn       (12)       12,913       *        
    All Directors and Executive Officers as a Group (13 persons)           2,790,674     10.4%  
    *
    Indicates beneficial ownership of less than 1% of shares of Company common stock
    (1)
    Information presented herein for each director and NEO reflects beneficial share ownership and includes stock-based compensation awards and outstanding options (the "Stock Options") granted under the Stock Incentive Plan which, as of September 16, 2019, are currently exercisable or will become exercisable within 60 days by such director or NEO, as applicable.
    (2)
    Includes (a) 1,954,377 shares owned directly by M. Farooq Kathwari, (b) 381,140 shares owned indirectly, (c) 8,565 shares held in the Ethan Allen Retirement Savings Plan, (d) 126,000 stock units issued in connection with Mr. Kathwari's 1997 employment agreement and for which payment has been deferred until termination of employment and (e) currently exercisable options to purchase 120,000 shares of common stock.
    (3)
    Includes (a) 18,084 shares owned directly by James B. Carlson and (b) currently exercisable options to purchase 13,606 shares of common stock.
    (4)
    Includes (a) 11,100 shares owned directly by John J. Dooner, Jr. and (b) currently exercisable options to purchase 22,537 shares of common stock.
    (5)
    Includes (a) 3,680 shares owned directly by Domenick J. Esposito and (b) currently exercisable options to purchase 9,947 shares of common stock.
    (6)
    Includes (a) 200 shares owned directly by Mary Garrett and(b) currently exercisable options to purchase 6,466 shares of common stock.
    (7)
    Includes (a) 2,700 shares owned directly by James W. Schmotter and (b) currently exercisable options to purchase 22,537 shares of common stock.
    (8)
    Includes (a) 6,300 shares owned directly by Tara I. Stacom and (b) currently exercisable options to purchase 6,466 shares of common stock.
    (9)
    Includes (a) 15,044 shares owned directly by Corey Whitely, (b) 1,561 shares held in the Ethan Allen Retirement Savings Plan and (c) currently exercisable options to purchase 14,222 shares of common stock.
    (10)
    Includes (a) 2,714 shares owned directly by Daniel Grow, (b) 2,284 shares held in the Ethan Allen Retirement Savings Plan and (c) currently exercisable options to purchase 11,834 shares of common stock.
    (11)
    Includes exercisable options to purchase 6,111 shares of common stock by Eric D. Koster.
    (12)
    Includes (a) 1,217 shares owned directly by Clifford Thorn, (b) 1,183 shares held in the Ethan Allen Retirement Savings Plan and (c) currently exercisable options to purchase 10,513 shares of common stock.

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Table of Contents

Security Ownership of Principal Stockholders

                The following table provides information about persons that have reported that they beneficially own or have voting power and/or dispositive power over, more than 5% of the Company's common stock, as of September 16, 2019, the record date for the Annual Meeting.

    Name of Beneficial Owner

           Amount and
Nature of
Beneficial
Ownership




  Common Stock
Percentage
Ownership



    BlackRock, Inc. and subsidiaries       (1)       3,963,247       14.8%    
    The Vanguard Group     (2)     2,731,147     10.2%  
    Dimensional Fund Advisors LP       (3)       2,269,330       8.5%    
    (1)
    BlackRock, Inc. ("BlackRock") had sole voting power over 3,963,247 shares of common stock and sole dispositive power over 3,897,402 shares of common stock according to BlackRock's Schedule 13G/A filed with the SEC on January 28, 2019. BlackRock's address is 55 East 52nd Street, New York, NY 10055.
    (2)
    The Vanguard Group ("Vanguard"), an investment advisor, had sole voting power over 24,897 shares of common stock, shared voting power over 5,703 shares of common stock, sole dispositive power over 2,704,100 shares of common stock and shared dispositive power over 27,047 shares of common stock according to Vanguard's Schedule 13G/A filed with the SEC on May 10, 2019. Vanguard's address is 100 Vanguard Blvd., Malvern, PA 19355.
    (3)
    Dimensional Fund Advisors LP, ("Dimensional Funds"), an investment advisor, had sole voting power over 2,165,153 shares of common stock and sole dispositive power over 2,269,330 shares of common stock according to Dimensional Funds' Schedule 13G/A filed with the SEC on February 8, 2019. Dimensional Funds' address is 6300 Bee Cave Road, Austin, TX, 78746.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

                The Company recognizes that transactions between the Company and related persons present a potential for actual or perceived conflicts of interest. The Company's general policies with respect to such transactions are included in its Code of Conduct and, the administration of which is overseen by the Corporate Governance & Nominations Committee. The Company defines "related party" transaction as any transaction or series of related transactions in excess of $120,000 in which the Company is a party and in which a "related person" had, has or will have direct or indirect material interest. Related persons include (i) any person who is, or at any time since the beginning of our last fiscal year, was, a director or executive officer of us or a nominee to become a director, (ii) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities, (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.

                The Company collects information about potential related party transactions in its annual questionnaires completed by directors and officers as well as throughout the year at its quarterly disclosure control committee meetings, comprised of key management responsible for significant business units, departments or divisions. Potential related party transactions are first reviewed and assessed by our General Counsel to consider the materiality of the transactions and then reported to the Audit Committee. The Audit Committee reviews and considers all relevant information available to it about each related party transaction and upon its approval presents the facts to the members of the Board not associated with the potential related party transaction. A related party transaction is approved or ratified only if such members of the Board determine that it is not inconsistent with the best interests of the Company and its stockholders. The Audit Committee then oversees any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K) and any other potential conflict of interest situations on an ongoing basis in accordance with Company policies and procedures.

Related Party Transactions

                The Board, acting through the Corporate Governance & Nominations Committee and the Compensation Committee, believes that the following related person arrangement is reasonable and fair to the Company.

                Robin van Puyenbroeck, the son-in-law of Mr. Kathwari, the Company's Chairman, President and Chief Executive Officer, is employed by the Company as Vice President, Business Development. Mr. van Puyenbroeck reports to the Senior Vice President, Business Development. During fiscal year 2019, the Company paid approximately $257,000 in aggregate compensation to Mr. van Puyenbroeck. The compensation was consistent with compensation paid to other employees holding similar positions. The Compensation Committee and the Board expects periodically and at each fiscal year end to provide an ongoing review of Mr. van Puyenbroeck's employment with the Company, including in relation to his compensation.

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PROPOSAL 2:    TO APPROVE, ON AN ADVISORY BASIS, NAMED EXECUTIVE OFFICER COMPENSATION

                Our executive compensation program is designed to facilitate long-term stockholder value creation. Our focus on pay-for-performance and on corporate governance promotes alignment with the interests of the Company's stockholders.

                The Company seeks stockholder approval, on a non-binding basis, of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement pursuant to Section 14A of the Exchange Act, commonly known as a "say-on-pay" vote. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensation policies and practices described in this Proxy Statement.

                At the Company's 2018 annual meeting of stockholders, our stockholders were asked to approve the Company's executive compensation program. A substantial majority (97%) of the votes cast on the "say-on-pay" proposal at the meeting were voted in favor of the proposal, which demonstrates stockholders' strong support of our executive compensation practices and pay for performance alignment. The Compensation Committee believes that these results reaffirm our stockholders' support of the Company's approach to executive compensation.

                The Compensation Committee strives to continue to ensure that the design of the Company's executive compensation program is focused on long-term stockholder value creation (with a meaningful and growing portion of the compensation paid to our Named Executive Officers being at risk, performance-based, tied to performance metrics that include good stewardship of the Company's resources, and not guaranteed) and emphasizes pay for performance and does not encourage the taking of short-term risks at the expense of long-term results.

                The Compensation Committee intends to continue to use the "say-on-pay" vote as a guidepost for stockholder sentiment and to consider stockholder feedback in making compensation decisions. See "Compensation Discussion and Analysis—Process for Determining Executive Compensation" for additional discussion about the Company's approach to executive compensation and the enhancements made in recent years to strengthen the link between pay and performance, further link compensation to our business and talent strategies and clearly detail the rationale for pay decisions.

                For the reasons outlined above, we believe that our executive compensation program is well designed, appropriately aligns executive pay with Company performance and incentivizes desirable behavior. Accordingly, we are asking our stockholders to endorse our executive compensation program by voting on the following resolution at the Annual Meeting:

      "RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Company's Named Executive Officers, as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the Compensation Tables and the related narrative."

                This proposal allows our stockholders to express their opinions regarding the decisions of the Compensation Committee on the annual compensation program for the Named Executive Officers. In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and Compensation Table sections. Because your vote is advisory, it will not be binding upon the Board. However, the Board values stockholders' opinions and the Compensation Committee will consider the outcome of the advisory vote when considering future executive compensation decisions. Further, this advisory vote will serve as an additional tool to guide the Board and the Compensation Committee in continuing to improve the alignment of the Company's executive compensation program with the interests of Ethan Allen and its stockholders and is consistent with our commitment to high standards of corporate governance and stockholder engagement.

The Board unanimously recommends that you vote FOR the approval, on an advisory basis, of the compensation of the Company's Named Executive Officers.

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COMPENSATION DISCUSSION AND ANALYSIS

Overview

                The purpose of this Compensation Discussion and Analysis is to provide material information about the Company's executive compensation objectives and policies for its NEOs and to put into perspective the tabular disclosures and related narratives. The non-binding advisory proposal regarding compensation of the NEOs submitted to stockholders at our 2018 Annual Meeting was approved by over 97% of the votes cast. We regularly engage in outreach efforts with our stockholders relating to a variety of topics and involve our Compensation Committee Chair or one or more independent directors in these conversations as appropriate. We use the information gathered through these outreach efforts to help inform our compensation decisions and look forward to continued dialogue on compensation matters and other issues relevant to our business.

Executive Summary—Fiscal Year 2019 Performance at a Glance

                In fiscal 2019 we continued our focus on strategic initiatives to reinforce our unique value and competitive advantage, including strengthening our vertically integrated business, innovating and expanding our product selection, and enhancing our advertising efforts with increased digital initiatives and technology. We also made infrastructure investments to increase supply chain efficiency and continued our commitment to social responsibility and sustainability. Our financial performance improved in many areas despite challenges in the business environment that especially impacted our international sales. Consistent with our pay for performance philosophy, this performance was a key factor in the payouts under the annual incentive compensation plan. The impact on the long-term equity incentive plan was less notable as these performance awards vest over a three-year time frame.

GRAPHIC

    STATEMENT OF OPERATIONS DATA
            2019       2018       2017    
    Net Sales       $      746,684       $      766,784       $      763,385    
    Adjusted Gross Margin (1)     55.1%     54.2%     55.8%  
               
    Adjusted Operating Income (1)       $        55,051       $        50,145       $        64,960    
    Adjusted Net Income (1)     $        41,632     $        37,306     $        40,643  
               
    Adjusted diluted EPS (1)       $            1.56       $            1.35       $            1.45    
    KEY METRICS  
    Adjusted Return on Equity (1)       11.13%       9.51%       10.25%    
    Dividends Paid     $        46,990     $        29,509     $        20,031  
    Dividend Yield       3.61%       3.10%       2.29%    
    (1)
    See Appendix A for the reconciliation of U.S. GAAP to adjusted key financial measures.

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Compensation Practices

GRAPHIC

Process for Determining Executive Compensation

                The Compensation Committee is responsible for determining the composition and value of the compensation for all of our NEOs. Our Chief Executive Officer ("CEO") and our Executive Vice President, Administration, who is responsible for the Company's Human Resources functions, provide input on program design and information on the Company's and the furniture industry's performance. The Compensation Committee also considers stockholder viewpoints on compensation.

                The Compensation Committee may not delegate its primary responsibility of overseeing executive officer compensation, but it may delegate to management the administrative aspects of our compensation programs that do not involve the setting of compensation levels for executive officers.

                All equity awards to executives, including stock options, PSUs, restricted stock and restricted stock units, are approved by the Compensation Committee.

                The Compensation Committee maintains sole authority to retain, terminate, approve fees and other terms of engagement of its compensation consultant and to obtain advice and assistance from internal or external legal, accounting or other advisors.

                The Compensation Committee Chair, together with the Executive Vice President, Administration, periodically engages in dialogue with a number of the Company's larger institutional investors regarding the Company's approach to executive compensation. The Compensation Committee also reviews executive compensation and incentive structures used by the peer companies. In fiscal 2018, this dialogue and review focused on whether the Company's approach to executive compensation should move from a primary focus on a single Adjusted Operating Income performance metric to a broader set of metrics. Through its 2018 dialogue with investors, the Compensation Committee decided to expand the Company's incentive structure to include operating income, revenue growth, return on equity and total shareholder returns as performance metrics used in assessing executive compensation.

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Peer Group

                The Compensation Committee established a peer group which, in its judgment, best represents the unique nature of the Company's vertical business model which integrates manufacturing, merchandising and retailing.

                In developing the peer group, the population of U.S. based, publicly traded companies that were considered included:

    furniture manufacturers and/or home furnishing retailers;

    competitors and peers identified as the Company's direct U.S. furniture competitors;

    highly integrated companies in non-furniture industries (e.g. apparel, etc.);

    companies with iconic consumer brand recognition (beyond the furniture and home furnishing industries); and

    companies that might be considered competitors for Company executives and equivalent talent.

                In addition to industry, branding and supply chain considerations, the Compensation Committee filtered companies by revenues, number of employees and market capitalization. Companies with higher revenues are included in the peer group since the Company competes for executives with such other companies that are in the home furnishings industry. The Compensation Committee established a peer group that reflects 15 companies to enable full comparisons to the Company, as follows:

    Bassett Furniture       Kimball International       RH    
    Flexsteel Industries     Kirkland's Inc.     Sleep Number Corporation  
           
    Haverty Furniture       Knoll Inc.       Steelcase Inc.    
    Herman Miller     La-Z-Boy Inc.     Tempur Sealy International  
           
    HNI Corp       Pier 1 Imports       The Dixie Group Inc.    

                We believe that it is appropriate to offer industry-competitive cash and equity compensation packages to all of our NEOs in order to attract and retain top executive talent. The peer group allows us to monitor the compensation practices of our primary competitors for executive talent. However, we do not target any specific pay percentile of the peer group for our executive officers. Instead, we use this information to provide a general overview of market practices and to ensure that we make informed decisions regarding our executive pay programs. The Compensation Committee did not make any changes to the peer group for fiscal 2019.

Fiscal 2019 Target Total Compensation Mix

                The total base compensation mix for the NEOs based upon target levels of achievement for the annual incentive program and the long-term performance stock unit incentive awards were established at the start of fiscal 2019 as follows:

GRAPHIC   GRAPHIC

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Elements of Fiscal 2019 Executive Compensation

                Our compensation programs are structured to align the interests of our executive officers with the interests of our stockholders and include the following elements for fiscal 2019:

            Element   Key Characteristics   Link to Shareholder Value   How we Determine Amount   Key Decisions    
    Fixed
  Base Salary   Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate.   A means to attract and retain talented executives capable of driving superior performance.   Consider individual contributions to business outcomes, the scope and complexity of each role, future potential, market data, and internal pay equity.   During fiscal 2019, the Compensation Committee approved a base salary increase for Mr. Koster to reflect market competitive rates, but not for any other NEO.    

 

        Annual Incentive Program   Variable compensation component payable in cash based on performance against annually established financial goals.   Incentive targets are tied to achievement of key annual financial measures. Financial metric for the fiscal 2019 award was based on Adjusted Operating Income and Revenue growth.   Incentive award levels based on individual contributions to business outcomes, potential future contributions, historical incentive amounts, retention considerations and market data.   Total incentive awards for fiscal 2019 were earned at 41% of target. Mr. Koster and Mr. Thorn did not participate in the annual non-equity incentive program, but rather each received a discretionary bonus based on their respective individual performance results.    
   
    Performance-Based
  Performance-Based Restricted Stock Unit Awards   PSUs cliff vest after a three-year performance period and payouts are based on Company performance against pre-established financial goals and other performance metrics.   PSUs recognize our executive officers for achieving superior long-term relative performance. Financial metrics for the fiscal 2019 award were based on Revenue growth and Return on Equity. An additional TSR performance metric was also included.   Grant award levels based on individual contributions to business outcomes, potential future contributions, historical grant amounts, retention considerations and market data. Actual award payout is based on performance against pre-established goals over a three-year performance period.   In early fiscal 2019, the Compensation Committee approved PSU grants to select NEOs with three performance metrics that were based on Revenue growth, Return on Equity and a TSR performance metric.    
   

Base Salary

                We set base salaries for our NEOs based on individual contributions to business outcomes, the scope and complexity of each role, competencies, experience, leadership, performance, future potential, market data, and internal pay equity.

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Salary Changes in Fiscal Year 2019

                In July 2018, the Compensation Committee completed the annual review of the salary levels for each of the NEOs. As part of the salary review process, the Compensation Committee reviewed and considered the performance of each NEO, relevant market data, the comparison of compensation among various levels of management, and the Company's overall performance. As a result of this review, the Compensation Committee determined to increase the base salary of Mr. Koster to $320,000 but made no changes to the base salaries of any of the other NEOs.

    Name     Fiscal 2018
Salary ($)


  Fiscal 2019
Salary ($)


  % Chg

    M. Farooq Kathwari       $1,150,000       $1,150,000       0%    
    Corey Whitely     $   500,000     $   500,000     0%  
    Daniel M. Grow       $   350,000       $   350,000       0%    
    Eric D. Koster (1)(2)         $   320,000      
    Clifford Thorn (2)             $   310,000          
    (1)
    Mr. Koster's salary increase became effective August 1, 2018, one month after the start of fiscal 2019. As a result, the annual salary amount of $320,000 reported in the table above is higher than the amount disclosed in the Summary Compensation table.

    (2)
    Mr. Koster and Mr. Thorn were not NEOs in fiscal 2018, thus salary information was not provided in the table above.

Annual Non-Equity Incentive Compensation

                NEOs are eligible to earn cash awards under our annual incentive compensation program, which is designed to motivate and reward executives for performance on key annual measures. The annual incentive compensation program is based exclusively on attainment of financial metrics, measured on the Company's overall consolidated financial performance, that align our annual incentives with our strategy of driving growth, with an emphasis on profitability.

                For fiscal 2019, the Compensation Committee revised the annual incentive plan performance measurement from a single performance metric to two performance metrics for all NEOs to better align performance metrics used to assess non-equity incentive compensation payout eligibility with our fiscal 2019 growth strategy, focusing on consolidated net sales (weighted 60% of target incentive) and Adjusted Operating Income (weighted 40% of target incentive). The Compensation Committee also refined the calculation of Adjusted Operating Income used for purposes of executive compensation programs to eliminate any add-back adjustment to Adjusted Operating Income related to executive compensation, including any expenses related to the annual incentive bonus or stock-based compensation. Target, maximum and threshold awards, specified as a percentage of base salary, vary among various levels of management. The NEOs have the opportunity to earn awards between 50% of their target awards if we meet minimum threshold performance requirements and a maximum of 133% to 227% of their target incentive opportunity, based on performance.

                The Compensation Committee established targets of 9% Adjusted Operating Income growth and 4% Consolidated Net Sales growth for fiscal 2019 compared to fiscal 2018, and established threshold and maximum performance levels as follows (in millions):

Fiscal 2019 Annual Incentive Goals and Results

    Performance Level     Consolidated
Net Sales $


  Percent of
Target


  Adj.
Operating
Income $
(1)



  Percent of
Target


    Maximum       $820.5       103%       $64.7       118%    
    Target     $797.5     100%     $54.7     100%  
    Threshold       $766.8       96%       $50.1       92%    
    Actual     $746.7     94%     $55.1     101%  
    Individual Metric Payout               0%               101%    
    Individual Metric Weight         60%         40%  
    Overall Payout (as percent of Target)                               41%    
    (1)
    See Appendix A for a non-GAAP reconciliation showing how adjusted operating income is calculated from our financial statements.

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Fiscal 2019 Annual Incentive Target, Achievement and Actual Payout

    Name (1)
  Fiscal 2019
Target Incentive
(% of base
salary)




  Overall
Performance
Level Achieved
(% of target
performance)





  Actual
Fiscal 2019
Incentive Payout
(% of base
salary)





    M. Farooq Kathwari       65%       41%       27%    
    Corey Whitely     25%     41%     10%  
    Daniel M. Grow       26%       41%       11%    
    (1)
    Mr. Koster and Mr. Thorn did not participate in the fiscal 2019 non-equity incentive compensation plan disclosed above, but rather received discretionary bonuses under the discretionary bonus program described below.

Discretionary Bonus

                The Company maintains a discretionary bonus program for executives who are not included in our annual incentive compensation program. For purposes of the discretionary bonus, individual performance is assessed based upon the executive's performance relative to his or her responsibilities, goals and objectives for each executive, which may or may not include financial metrics. Each executive develops annual business objectives for their respective areas, which are approved by the CEO and are used for this assessment. Individual performance is additionally measured by how the executive's actions conform with and exemplify the Company's ten "Leadership Principles". For each executive, the executive's impact upon initiatives of their division, department function or organization is also considered, as well as their impact on the development of their associates. For fiscal 2019, the CEO recommended and the Compensation Committee approved the award of discretionary bonuses to Mr. Koster and Mr. Thorn equivalent to approximately 8% of their respective base salaries.

Long-term Incentive Compensation

                To align our executive officers' pay outcomes with long-term performance and encourage long-term strategic thinking, our annual long-term incentive grants typically feature financial-based performance metrics. The long-term incentive award provisions of our Stock Incentive Plan provide for equity-based compensation including restricted stock, restricted stock units, stock options, or other forms of equity-based compensation.

                The Compensation Committee establishes for the NEOs, other than the CEO, the target, maximum and threshold awards as a percentage of base salary on the grant date, which percentages may vary among the various levels of management. The target, maximum and threshold awards are specified as a fixed number of shares for the CEO. Our CEO has limited discretion during the year to approve additional equity-based grants to employees other than the NEOs.

                For fiscal 2019, the Compensation Committee updated our NEO long-term incentive compensation program by revising the performance-based restricted stock unit awards from a single performance metric to three performance metrics to better align with our growth strategy, focusing on consolidated net sales, return on equity and the three-year total shareholder return relative to the performance of the other constituents of the S&P Retail Select Industry Index. The Compensation Committee selected consolidated net sales as a broad indicator of attaining strategic objectives, return on equity as a fundamental measure of the Company's effectiveness at turning the net profits and cash put into the business into greater gains and growth for the Company and investors, and total shareholder return to add a relative measure of performance in comparison to market peers. The vesting period for performance-based equity compensation awards changed from a two-year vesting period, with a third year catch up opportunity, to a three-year cliff vesting period. The weighting of the three performance metrics was established as follows:

Fiscal 2019 Long-term Incentive Performance Metrics

    Payout Metric (Total Weight)

  Fiscal 2020
Weight (50%)


  Fiscal 2021
Weight (30%)


  Fiscal 2022
Weight (20%)


    Sales Growth (40%)       20%       12%       8%    
    Return on Equity (40%)

  20%     12%     8%  
    3-year Total Shareholder Return (20%)                       20%    

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                The Compensation Committee awarded the fiscal 2019 performance restricted stock unit grants to selected NEOs as follows:

    Name     Threshold

  Target

  Maximum

    M. Farooq Kathwari       32,500       65,000       81,250