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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:

o

 

Preliminary Proxy Statement

o

 

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

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

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):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a6(i-)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        
 
    (2)   Aggregate number of securities to which transaction applies:
        
 
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
 
    (4)   Proposed maximum aggregate value of transaction:
        
 
    (5)   Total fee paid:
        
 

o

 

Fee paid previously with preliminary materials.

o

 

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.

 

 

(1)

 

Amount Previously Paid:
        
 
    (2)   Form, Schedule or Registration Statement No.:
        
 
    (3)   Filing Party:
        
 
    (4)   Date Filed:
        
 

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LOGO

25 Lake Avenue Ext.
Danbury, CT 06811-5286

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS

Thursday, November 12, 2020
10:00 A.M. (Eastern Time)
Online at www.virtualshareholdermeeting.com/ETH2020

To our Stockholders:

                You are cordially invited to attend the 2020 Annual Meeting of Stockholders (the "Annual Meeting") of Ethan Allen Interiors Inc. (the "Company") at 10:00 A.M. (Eastern Time) on Thursday, November 12, 2020. The Annual Meeting will be conducted as a virtual meeting via live webcast at www.virtualshareholdermeeting.com/ETH2020.

                You may attend the meeting virtually and submit questions electronically during the meeting by visiting the virtual meeting platform at www.virtualshareholdermeeting.com/ETH2020. You will need the 16-digit control number included in the Notice of Internet Availability of Proxy Materials, on the proxy card, or in the instructions that accompanied the proxy materials to enter the Annual Meeting. If you encounter any difficulties accessing the virtual meeting at check-in or during the meeting, please call the technical support number that will be posted on the virtual meeting platform log-in page. You may log into the virtual meeting platform beginning at 9:45 A.M. Eastern Time on November 12, 2020.

                The purpose of the Annual Meeting is to act upon the following matters:

    Proposal 1.   to elect seven directors to serve until the 2021 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 2021 fiscal year; and

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

                Stockholders of record at the close of business on September 16, 2020 will be entitled to vote at the Annual Meeting and any adjournments thereof. Your vote is important, and we urge you to read the proxy statement carefully and to vote as promptly as possible in accordance with the Board of Directors' recommendations. You should vote by the deadlines specified in the proxy statement, and may do so via the Internet, by telephone or by signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided. If you vote in advance you may still decide to attend the virtual annual meeting of stockholders and vote your shares during the meeting. Further information about how to register for and attend the virtual Annual Meeting online, vote your shares online during the meeting and submit questions online during the meeting is included in the accompanying Proxy Statement. For instructions on how to vote your shares, please refer to the attached Proxy Statement or proxy card. These proxy materials are first being made available on October 2, 2020.

                On behalf of the Board of Directors, the officers and employees of the Company, I would like to take this opportunity to thank our stockholders for their continued support of Ethan Allen. We hope you can attend the virtual Annual Meeting.

BY ORDER OF THE BOARD OF DIRECTORS

GRAPHIC

Eric D. Koster
Corporate Secretary
October 2, 2020

Proxy Voting

Please vote as soon as possible using one of the following methods:

GRAPHIC   Internet

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 12, 2020:

The 2020 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 2020 Performance at a Glance

  19

Compensation Practices

  21

Elements of Fiscal 2020 Executive Compensation

  24

COMPENSATION COMMITTEE REPORT

 
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LOGO

25 Lake Avenue Ext. Danbury, CT 06811-5286

PROXY STATEMENT
FOR 2020 ANNUAL MEETING OF STOCKHOLDERS

Thursday, November 12, 2020
10:00 A.M. (Eastern Time)

Online at www.virtualshareholdermeeting.com/ETH2020

October 2, 2020

PROXY STATEMENT

                This proxy statement (the "Proxy Statement") and the accompanying proxy or voting instruction card are furnished in connection with the solicitation of proxies by the Board of Directors of Ethan Allen Interiors Inc., a Delaware corporation for use at the 2020 Annual Meeting of Stockholders (the "Annual Meeting").

                The Annual Meeting will be held at 10:00 A.M. Eastern Time on Thursday, November 12, 2020. The meeting will be conducted as a virtual meeting over the Internet. Stockholders may attend the meeting virtually and submit questions electronically during the meeting via live webcast by visiting the virtual meeting platform at www.virtualshareholdermeeting.com/ETH2020. Stockholders will need the 16-digit control number included in the Notice of Internet Availability of Proxy Materials, on the proxy card, or in the instructions that accompanied the proxy materials to enter the Annual Meeting. We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting at check-in or during the meeting, please call the technical support number that will be posted on the virtual meeting platform log-in page. Stockholders may log into the virtual meeting platform beginning at 9:45 A.M. Eastern Time on November 12, 2020. The meeting will begin promptly at 10:00 A.M. Eastern Time on November 12, 2020. If we determine to make any change to the date, time or procedures of our Annual Meeting, we will announce such changes in advance on our website https://ir.ethanallen.com.

                The Board of Directors of the Company 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. A proxy authorizes a person other than a stockholder, called the "proxyholder," to cast the votes that the stockholder would be entitled to cast at the Annual Meeting. 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 October 2, 2020.

                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 12, 2020:

The 2020 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 2020 Annual 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 2021 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 6 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 applicable to each individual director, 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 2020 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, as needed;

    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 2020, the Company engaged in extensive investor relations outreach efforts whereby members of senior management routinely met with 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 https://ir.ethanallen.com. 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 implement our pay-for-performance philosophy without encouraging or rewarding excessive or inappropriate risk-taking by our executive officers.

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                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. We believe that our sustainability, environmental and social values are intrinsic to our long-standing authentic American name and brand. 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 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 Corporate Responsibility Report is available at https://ir.ethanallen.com/corporate-governance/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 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 workspaces 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. We reduced electrical usage by 7% or 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. We decreased our water usage by 33% or 11.9 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. We reduced CO2 emissions by 25% or 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. 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 100 labor compliance audits in eleven countries on our behalf in the past five years.

                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.

                The Company also offers a wide variety of career opportunities and paths to advancement through on-the-job coaching, training, and education. We are proud to be a company where an associate can start in an entry-level position and turn it into a successful career.

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, Foreign Corrupt Practices Act Policy and the charters of its Audit Committee, Compensation Committee and Corporate Governance & Nominations Committee are available on the Company's website at https://ir.ethanallen.com/corporate-governance/governance-documents. You may also request printed copies of these documents, 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;

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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 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 2020. 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 2020, the Board of Directors met in person or by telephone conference five times, including the meeting in connection with the 2019 Annual Meeting of Stockholders. Independent directors also met five 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 2019 Annual Meeting of Stockholders. In fiscal year 2020, there was 100% attendance by each director at each of the five Board meetings, and for directors serving on such committees, there was 100% attendance at the seven regularly scheduled Audit Committee meetings, four regularly scheduled Compensation Committee meetings, and four 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              
    Dr. 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

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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 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 in person or by telephone conference seven times during fiscal 2020. 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 video conference during fiscal 2020. 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. 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 "How do I submit a proposal or nominate a director candidate for the 2021 annual meeting of stockholders?" 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 video conference during fiscal 2020.

                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

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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.

                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 2021 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 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: 76
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, has been inducted into the American Furniture Hall of Fame and recipient of the National Retail Federation Gold Medal. 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. 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: 65
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 founded The Dooner Group, a marketing communication consultancy in 2012, 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: 72
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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    Domenick J. Esposito        FINANCIAL SERVICES INDUSTRY LEADER
       

 

 

GRAPHIC

 

Mr. Esposito has been a 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: 73
Board Committees:

Audit - Chair

Compensation

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Prior to 1979, Mr. Esposito served as a member of Price Waterhouse. He had been a member of the NASDAQ Listing and Qualifications Committee and 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: 61
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. She is a member of the Danbury and New Milford Hospital board and is a member of the strategic planning committee and the technology 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: 73
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 president of the boards of directors of the Naples Council on World Affairs and the Dunes of Naples II Condominium Association (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: 62
Board Committees:

Nominations

   
 
    Specific Qualifications, Attributes, Skills and Experience:            
 
    Ms. Stacom earned her Bachelor of Science degree in Finance at Lehigh University where she later served on the Board of Trustees. She is a director of the Realty Foundation of New York and 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., a board member of Right to Dream and recipient of Crain's New York Business 100 Most Influential Women in New York City. 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. 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

                Only our non-employee directors receive compensation for service on the Board. Non-employee director compensation is determined by the Board, after considering the recommendation of the Compensation Committee. Mr. Kathwari, as an executive of the Company, is not compensated separately for his service on the Board. For fiscal 2020, the Board approved as compensation for our non-employee directors a combination of cash and option awards, as shown in the table below.

                Special Fee Reduction.    As part of the Company's action plan in response to the COVID-19 pandemic, the non-employee directors reduced their quarterly cash compensation (comprised of the annual cash retainer and, where applicable, committee chair cash retainer or lead director cash retainer) by 50% beginning on April 1, 2020 through June 30, 2020. In addition, as part of our action plan in response to the ongoing COVID-19 pandemic, for fiscal 2021, the non-employee director annual equity compensation was adjusted to reduce the fiscal 2021 stock option grants by 20%, as described below under Additional COVID-19 Response.

                Annual Cash Retainer.    For fiscal 2020, each independent director received $52,500 per annum, reflecting the Company's $60,000 per annum director fee less the 50% quarterly fee reduction as described above. This amount compared to the $54,000 cash retainer per annum paid to each director in fiscal 2019, which reflected the Company's $60,000 per annum director fee less a 10% annual fee reduction in consideration of the Company not attaining performance targets for fiscal 2018. Additional quarterly fees are paid to the chair of each of the committees as follows: Audit Committee $4,000; Compensation Committee $2,000; and Corporate Governance & Nominations Committee $2,000. The Lead Independent Director of the Board is paid an additional cash fee of $2,000 per quarter.

                Equity Compensation.    Non-employee directors are eligible to receive equity compensation in amounts determined by the Compensation Committee, which generally would be paid in the form of stock options. In fiscal 2020, each director was awarded a stock option award with the number of options equal in value to $100,000 based on the market price of the Company's stock as of the date of grant. These stock options vest in three equal annual installments commencing on the first anniversary of the date of grant so long as the director continues to serve on our Board. All options granted to directors have an exercise price equal to the fair market value of our common stock on the date of grant and remain exercisable for a period of up to 10 years, subject to continuous service on our Board.

                Meeting Fees.    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. There were no additional meeting fees paid to Directors during fiscal 2020.

                Additional COVID-19 Response.    For fiscal 2021, as part of the Company's action plan in response to the COVID-19 pandemic, the non-employee director annual equity compensation was adjusted to reduce the fiscal 2021 stock option grant by 20%.

    Name

  Fees Earned or
Paid in Cash
(1)


  Option
Awards
(2)


  Total

    James B. Carlson (3)       $        59,500       $        18,803       $        78,303    
    John J. Dooner, Jr. (4)     $        59,500     $        18,803     $        78,303  
    Domenick J. Esposito (5)       $        66,500       $        18,803       $        85,303    
    Mary Garrett (6)     $        52,500     $        18,803     $        71,303  
    James W. Schmotter (7)       $        59,500       $        18,803       $        78,303    
    Tara I. Stacom (8)     $        52,500     $        18,803     $        71,303  
    (1)
    The fess earned reflect that, as part of our COVID-19 pandemic action plan, the non-employee directors reduced their quarterly cash compensation (comprised of the annual cash retainer and, if applicable, committee chair cash retainer or lead director cash retainer) by 50% beginning on April 1, 2020 through June 30, 2020.
    (2)
    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.
    (3)
    Mr. Carlson was awarded 5,698 stock options on August 5, 2019 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2020, Mr. Carlson held 23,229 options outstanding, of which 13,606 were vested.
    (4)
    Mr. Dooner was awarded 5,698 stock options on August 5, 2019 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2020, Mr. Dooner held 32,160 options outstanding, of which 22,537 were vested.
    (5)
    Mr. Esposito was awarded 5,698 stock options on August 5, 2019 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2020, Mr. Esposito held 19,570 stock options outstanding, of which 9,947 were vested.
    (6)
    Ms. Garrett was awarded 5,698 stock options on August 5, 2019 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2020, Ms. Garrett held 16,089 stock options outstanding, of which 6,466 were vested.
    (7)
    Mr. Schmotter was awarded 5,698 stock options on August 5, 2019 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2020, Mr. Schmotter held 32,160 stock options outstanding, of which 22,537 were vested.
    (8)
    Ms. Stacom was awarded 5,698 stock options on August 5, 2019 vesting in three equal annual installments commencing on the first anniversary of the date of grant. As of June 30, 2020, Ms. Stacom held 16,089 stock options outstanding, of which 6,466 were vested.

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SECURITY OWNERSHIP

                The following tables sets forth, as of September 16, 2020, 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. 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, 2020, 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)       2,630,082       10.4%    
    James B. Carlson     (3)     36,092     *      
    John J. Dooner, Jr.       (4)       38,039       *        
    Domenick J. Esposito     (5)     18,029     *      
    Mary Garrett       (6)       11,068       *        
    James W. Schmotter     (7)     29,639     *      
    Tara I. Stacom       (8)       17,168       *        
    Corey Whitely     (9)     31,938     *      
    Daniel M. Grow       (10)       15,999       *        
    Eric D. Koster     (11)     6,667     *      
    Rodney A. Hutton                     *        
    All Directors and Executive Officers as a Group (14 persons)           2,853,041     11.3%  
    *
    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 shares that can be acquired upon the exercise of stock options or the vesting of restricted stock units and performance stock units within 60 days of September 16, 2020.
    (2)
    Includes 1,944,377 shares owned directly by M. Farooq Kathwari, 431,140 shares owned indirectly, 8,565 shares held in the Ethan Allen Retirement Savings Plan, 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 currently exercisable options to purchase 120,000 shares of common stock.
    (3)
    Includes 18,084 shares owned directly by James B. Carlson and currently exercisable options to purchase 18,008 shares of common stock.
    (4)
    Includes 11,100 shares owned directly by John J. Dooner, Jr. and currently exercisable options to purchase 26,939 shares of common stock.
    (5)
    Includes 3,680 shares owned directly by Domenick J. Esposito and currently exercisable options to purchase 14,349 shares of common stock.
    (6)
    Includes 200 shares owned directly by Mary Garrett and currently exercisable options to purchase 10,868 shares of common stock.
    (7)
    Includes 2,700 shares owned directly by James W. Schmotter and currently exercisable options to purchase 26,939 shares of common stock.
    (8)
    Includes 6,300 shares owned directly by Tara I. Stacom and currently exercisable options to purchase 10,868 shares of common stock.
    (9)
    Includes 15,044 shares owned directly by Corey Whitely, 1,561 shares held in the Ethan Allen Retirement Savings Plan and currently exercisable options to purchase 15,333 shares of common stock.
    (10)
    Includes (a) 2,714 shares owned directly by Daniel Grow, 2,284 shares held in the Ethan Allen Retirement Savings Plan and currently exercisable options to purchase 11,001 shares of common stock.
    (11)
    Includes exercisable options to purchase 6,667 shares of common stock by Eric D. Koster.

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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, 2020, the record date for the Annual Meeting.

    Name of Beneficial Owner

           Amount and
Nature of
Beneficial
Ownership




  Common Stock
Percentage
Ownership



    BlackRock, Inc.       (1)       3,927,476       15.7%    
    The Vanguard Group     (2)     2,709,608     10.8%  
    Dimensional Fund Advisors LP       (3)       2,180,551       8.7%    
    LSV Asset Management     (4)     1,329,516     5.3%  
    Patricia Wadors       (5)       1,272,846       5.1%    
    (1)
    BlackRock, Inc. ("BlackRock"), a parent holding company, had sole voting power over 3,862,306 shares of common stock and sole dispositive power over 3,927,476 shares of common stock according to BlackRock's Schedule 13G/A filed with the SEC on February 4, 2020. 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 24,304 shares of common stock, shared voting power over 5,703 shares of common stock, sole dispositive power over 2,683,378 shares of common stock and shared dispositive power over 26,230 shares of common stock according to Vanguard's Schedule 13G/A filed with the SEC on February 12, 2020. 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 2,081,461 shares of common stock and sole dispositive power over 2,180,551 shares of common stock according to Dimensional Funds' Schedule 13G/A filed with the SEC on February 12, 2020. Dimensional Funds' address is 6300 Bee Cave Road, Building One, Austin, TX, 78746.
    (4)
    LSV Asset Management, ("LSV"), an investment advisor, had sole voting power over 814,826 shares of common stock and sole dispositive power over 1,329,516 shares of common stock according to LSV's Schedule 13G/A filed with the SEC on February 11, 2020. LSV's address is 155 N. Wacker Drive, Suite 4600, Chicago, IL 60606.
    (5)
    Patricia and David Wadors, individual investors, had shared voting power over 1,272,846 shares of common stock and shared dispositive power over 1,272,846 shares of common stock according to the Schedule 13G filed with the SEC on May 6, 2020. The shares of common stock consist of (i) an aggregate of 651,391 shares through three IRAs held by Patricia Wadors; (ii) an aggregate of 286,392 shares through two IRAs held by David Wadors; (iii) 306,393 shares jointly owned by Patricia Wadors and David Wadors; (iv) an aggregate of 2,670 shares through two IRAs for the benefit of children of Patricia and David Wadors; (v) an aggregate of 24,500 shares held by two trusts for which Patricia and David Wadors act as trustees and whose primary beneficiaries are Patricia and David Wadors' child and David Wadors' sister, respectively; and (vi) 1,500 shares held by the child of Patricia and David Wadors. Patricia and David Wadors' address is 968 Manor Way, Los Altos, CA 94024.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

                The Company's general policies with respect to certain relationships and related party transactions are included in its Code of Conduct. 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 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.

                Directors and officers are required to provide the Company information about potential related party transactions. 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 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, was employed by the Company as Vice President, Business Development during fiscal 2020 until his resignation, effective June 12, 2020. Mr. van Puyenbroeck reported to the Senior Vice President, Business Development. During fiscal year 2020, the Company paid approximately $225,000 in aggregate compensation to Mr. van Puyenbroeck. The compensation was consistent with compensation paid to other employees holding similar positions.

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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 2019 annual meeting of stockholders, our stockholders were asked to approve the Company's executive compensation program. A substantial majority (96%) 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 2019 Annual Meeting was approved by over 96% 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. In 2018, our Compensation Committee Chair, along with our Executive Vice President, Administration, discussed our approach to executive compensation practices with a number of our largest and leading institutional investors, and based on those discussions and insights from other advisors and experts, we revised our approach, including the components and metrics, relating to our short-term and long-term incentive compensation for our NEOs. 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 2020 Performance at a Glance

GRAPHIC

                Fiscal 2020 was an unprecedented year for the Company. During the fiscal year there was a strong focus on evolving our product offerings and strengthening our marketing programs. We have refreshed approximately 70% of our entire product line over the past three years and during fiscal 2020, we launched new products including Lucy, a mid-century modern inspired upholstery collection that launched very successfully, and Farmhouse, a country cottage inspired furniture collection that just recently launched to strong reviews. Our contract sales, including sales to the GSA, hospitality and other commercial businesses, also continued to grow and the GSA has become one of our ten largest customers. Our marketing programs during the year were strong and we further refined our digital presence. In the third quarter, with the effects of the COVID-19 pandemic accelerating, we pivoted our marketing messaging to our core values centered on our quality and design service, including offering the opportunity for our customers to shop safely by appointment in-store or online. We also implemented marketing geared to drive customers to our online channels and to interact with our designers virtually, and as a result, we have seen our internet business double during the past three months.

                The impact of the COVID-19 crisis, which accelerated during the second half of fiscal 2020 and caused the temporary closing of all of our North American design centers and most of our manufacturing in March 2020 and through most of our fourth quarter, had a significant negative impact on our fiscal 2020 financial results. Consolidated net sales were 21.0% lower in fiscal 2020 compared to the prior year. Our adjusted gross margin expanded 60 basis points to 55.7% due to improved retail price optimization and increased wholesale contract business partially offset by plant shutdowns due to the COVID-19 pandemic. Adjusted operating income, which excludes pre-tax charges from restructuring initiatives, asset impairments and other corporate actions in both periods presented, decreased 69.0% in fiscal 2020 compared with a year ago. Adjusted diluted EPS was $0.52 compared with $1.56 in the prior year primarily from net sales being negatively impacted as a result of the COVID-19 pandemic partially offset by expense management measures implemented.

                The Company initiated an enterprise-wide focus on liquidity and expense reduction as part of its COVID-19 action plan, which included expense reductions, salary reductions and the furloughing of about 70% of our global workforce. As of June 30, 2020, having recalled about 56% of our furloughed workers, we operated with 30% less workers and our balance sheet was strong with cash and cash equivalents of $72.3 million and inventory of $126.1 million. During fiscal 2020, we generated $52.7 million of cash from operating activities, including $14.0 million generated during our most challenging fiscal fourth quarter, which provided us the ability to pay $21.5 million in regular quarterly cash dividends and repurchase $24.3 million in shares during fiscal 2020. Furthermore, we elected to draw down $100.0 million on our credit facility during fiscal 2020 to increase our cash position as a precautionary measure and to preserve financial flexibility in consideration of the disruption and uncertainty surrounding the ongoing COVID-19 pandemic. We subsequently repaid $50.0 million in June using available cash on hand, which leaves $50.0 million of outstanding borrowings on our balance sheet as of June 30, 2020.

                While certain key financial performance metrics such as adjusted gross margin, operating expenses and cash on hand improved, the majority of our key performance metrics declined primarily due to the disruptions in the market caused by the ongoing COVID-19 pandemic. While recognizing the strong and decisive performance of our executives in leading the Company through this unprecedented period, in consideration of the continuing economic challenges facing the Company and consistent with our pay for performance

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philosophy, there were no adjustments made, including as a result of the COVID-19 pandemic and its disruptive impact on our business results, our retail peers and American retailers generally, to the fiscal 2020 performance targets resulting in no payouts under the annual incentive compensation plan. There were also no adjustments to or vesting of the fiscal 2018, 2019 or 2020 equity incentive grants for fiscal 2020, which performance awards vest over a three-year time frame.

COVID-19 Special Response

                As part of our action plan in response to the COVID-19 pandemic, each of our NEOs reduced their compensation in order to show leadership during these unprecedented times, with our Chief Executive Officer reducing his compensation by 100% and our other NEOs reducing their compensation by 30% to 40% for the period March 29, 2020 through June 30, 2020, without that reduced compensation being made up or recouped later. When our revenues and business began to rebound later in the fourth quarter of 2020, the compensation levels were restored on June 30, 2020.

Selected Financial Data and Key Metrics

    STATEMENT OF OPERATIONS DATA
    Fiscal Year Ended June 30,       2020       2019       2018    
    Net Sales       $      589,837       $      746,684       $      766,784    
    Adjusted Gross Margin (1)     55.7%     55.1%     54.2%  
               
    Adjusted Operating Income (1)       $        17,072       $        55,051       $        50,145    
    Adjusted Net Income (1)     $        13,512     $        41,632     $        37,306  
               
    Adjusted diluted EPS (1)       $            0.52       $            1.56       $            1.35    
    KEY METRICS  
    Adjusted Return on Equity (1)       3.9%       11.1%       9.5%    
    Cash flows from operating activities     $        52,696     $        55,247     $        42,497  
    Cash and cash equivalents       $        72,276       $        20,824       $        22,363    
    Current ratio     1.65     1.76     1.77  
    Long-term debt to equity ratio       15.2%       0.1%       0.3%    
    Cash Dividends Paid     $        21,469     $        46,990     $        29,509  
    Dividend Yield       7.1%       3.6%       3.1%    
    (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 2020, the Compensation Committee decided to continue to use operating income, revenue growth, return on equity and total shareholder returns ("TSR") as performance metrics used in assessing executive compensation.

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Executive Compensation Program Changes for Fiscal 2020—Highlights

                Based on its annual review and in response to the COVID-19 pandemic, the Compensation Committee approved the following for the fiscal 2020 executive compensation program:

    Base salaries for each NEO to remain at the same level as the prior fiscal year.

    Approved temporary reductions to base salaries for each NEO, ranging from 30% to 100%, which were effective from March 29, 2020 to June 30, 2020 as part of the Company's COVID-19 pandemic action plan.

    Concluded that no annual incentive compensation or discretionary bonus was to be awarded to the NEOs during fiscal 2020, in light of the COVID-19 pandemic and its effect on the financial results of the Company.

Executive Compensation Program Changes for Fiscal 2021—Highlights

                The COVID-19 pandemic has had and continues to have a significant impact on the global economy, the industry and the Company. The following changes were made in recognition of both the uncertain economic conditions and the negative impact COVID-19 has had on each NEOs overall compensation, who the Compensation Committee believes executed strongly to preserve cash and liquidity and position the Company well upon global economic recovery.

    The Compensation Committee restored the temporary salary reductions as of June 30, 2020 and maintained salaries for the NEOs at the same level for fiscal 2021 as in fiscal 2020. There was no recoupment of the temporary salary reductions.

    In addition to the performance-based restricted stock units that performance vest after three years, the Compensation Committee awarded a service-based restricted stock grant that vests ratably over two years. The Compensation Committee believes having a greater portion of total compensation tied to long-term equity-based compensation better aligns the executive's compensation with meeting the long-term goals of the Company and its stockholders.

                In implementing these changes, the Compensation Committee sought to balance the drive to reduce expenses and preserve liquidity, with its desire to appropriately incentivize and retain the Company's leadership as they continue to manage the Company during an unprecedented period of economic challenge and uncertainty. The Compensation Committee recognizes that our CEO and NEOs had decisively and dramatically responded to the COVID-19 pandemic and crisis; they rapidly began downsizing and preserving cash, and so persevering through the crisis with a strong balance sheet; our business rebounded as the fourth quarter progressed even though our executives were under the pressure of managing the restart of business with a substantially lower overall headcount; and our Chief Executive Officer and NEOs had shown leadership through reducing their compensation substantially during the fourth quarter.

                As the Compensation Committee did not make any adjustments to the executive compensation performance targets or metrics as a result of the business disruption from the COVID-19 pandemic, which resulted in our Chief Executive Officer and NEOs not receiving any annual incentive or performance vesting of long-term incentive awards for fiscal 2020, and due to the uncertainties related to the on-going economic impact from the COVID-19 pandemic, the Compensation Committee will continue to assess the impact to the short-term and long-term components of the compensation program and may make further modifications to the program design or performance measures as appropriate.

Peer Group

                The Compensation Committee, in setting individual NEO pay levels and opportunities, utilizes a peer group of companies that 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 made no changes to the peer group during fiscal 2020. The peer group used to evaluate fiscal 2020 NEO compensation is composed of the following 15 companies:

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FY 2020 Peer Group

    Bassett Furniture Industries       Kimball International       RH    
    Flexsteel Industries, Inc.     Kirkland's Inc.     Sleep Number Corporation  
           
    Haverty Furniture Companies Inc.       Knoll, Inc.       Steelcase Inc.    
    Herman Miller, Inc.     La-Z-Boy Incorporated     Tempur Sealy International, Inc.  
           
    HNI Corporation       Leggett & Platt, Incorporated       The Dixie Group Inc.    

                Based on its annual review of the peer group, the Compensation Committee removed four peers, two of which filed for bankruptcy, and added five peers for fiscal 2021 to ensure the peer group represents a similar range of the characteristics of the business, consumer innovation, use of technology and comparability in size to the Company.

FY 2021 Peer Group

    Acco Brands Corporation       Herman Miller, Inc.       Kirkland's, Inc.    
    Apogee Enterprises, Inc.     HNI Corporation     Knoll, Inc.  
           
    Bassett Furniture Industries, Inc.       Hooker Furniture Corporation       La-Z-Boy Incorporated    
    Cavco Industries, Inc.     Interface, Inc.     Sleep Number Corporation  
           
    Flexsteel Industries, Inc.       Kimball International, Inc.       Steelcase Inc.    
    Haverty Furniture Companies, 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 and similarly situated companies 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.

Fiscal 2020 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 2020 as follows:

GRAPHIC   GRAPHIC

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Elements of Fiscal 2020 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 2020:

            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.   There were no changes to base salaries during fiscal 2020 as the Compensation Committee believes each NEO's current base salary reflects market competitive rates.    

 

        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. The financial metrics used to determine the payout of the fiscal 2020 awards were 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.   As the performance thresholds for the fiscal 2020 performance metrics were not attained, we did not pay any non-equity incentive compensation.    
   
    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 2020 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.   The Compensation Committee approved PSU grants to select NEOs during fiscal 2020 with three performance metrics that were based on Revenue growth, Return on Equity and a TSR performance metric. No performance stock units were earned for the fiscal 2020 performance period.    
   

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.

                In July 2019, 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 no changes were needed to existing base salaries as they represent market competitive rates.

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                Due to the COVID-19 pandemic, effective March 29, 2020, the Compensation Committee approved temporary reductions to each of the NEO's base salaries through June 30, 2020. Mr. Kathwari elected to fully forgo his salary and reduced it by 100%, Mr. Whitely reduced his salary by 40% and the other NEOs reduced their salaries by 30% for the period. These temporary base salary reductions are reflected in the base salary amounts shown in the Summary Compensation Table for fiscal 2020.

                The Compensation Committee also approved for the Board of Directors to forgo 50% of their director fees effective March 29, 2020 through June 30, 2020, which is reflected in the Director Compensation section.

  Name Fiscal 2019
Salary ($)


Fiscal 2020
Salary ($)
(1)


% 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%  
  Rodney A. Hutton (2) $           — $    375,000 n/a
  Eric D. Koster (3)   $    320,000   $    320,000   0%  
    (1)
    Due to the COVID-19 pandemic, effective March 29, 2020, the Compensation Committee approved temporary base salary reductions for each of the NEOs. These temporary base salary reductions remained in effect until the end of fiscal 2020 and are reflected in the base salary amounts shown in the Summary Compensation Table. As a result, the amounts shown here for Fiscal 2020 are higher than those shown in the Summary Compensation Table.

    (2)
    Mr. Hutton was not a NEO in fiscal 2019, thus salary information was not provided in the table above.

    (3)
    Mr. Koster's salary increased to $320,000, 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.

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 2020, the Compensation Committee evaluated two performance metrics in its annual incentive plan performance review for all NEOs, which aligns performance metrics used to assess non-equity incentive compensation payout eligibility with our fiscal 2020 growth strategy, focusing on consolidated net sales (weighted 60% of target incentive) and Adjusted Operating Income (weighted 40% of target incentive). 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 4% Consolidated Net Sales growth and 9% Adjusted Operating Income growth for fiscal 2020 compared to fiscal 2019, and established threshold and maximum performance levels as follows (in millions):

Fiscal 2020 Annual Incentive Goals and Results

    ($ in millions)
Performance Level

 
  Consolidated
Net Sales $


  Percent of
Target


  Adjusted
Operating
Income $
(1)



  Percent of
Target


    Maximum       $799.0       103%       $71.0       118%    
    Target     $776.6     100%     $60.0     100%  
    Threshold       $746.7       96%       $55.1       92%    
    Actual     $589.8     76%     $17.1     28%  
    Individual Metric Payout               0%               0%    
    Individual Metric Weight         60%         40%  
    Overall Payout (as percent of Target)