UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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| Preliminary Proxy Statement | ||||
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| Soliciting Material Pursuant to (S)240.14a-12 | ||||
HOOKER FURNITURE CORPORATION | ||||
| (Name of Registrant as Specified in Its Charter) | ||||
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Hooker Furniture Corporation
440 East Commonwealth Boulevard
Martinsville, Virginia 24112
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held June 5, 2014
6, 2017
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hooker Furniture Corporation (the “Company”) will be held at the Company’s Corporate Office at 440 East Commonwealth Boulevard, Martinsville, Virginia, on Thursday,Tuesday, June 5, 2014,6, 2017, at 1:00 p.m., for the following purposes:
| § | To elect as directors the seven nominees named in the attached proxy statement to serve a one-year term on the Company’s Board of Directors; |
| § | To ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending |
| § | To cast an advisory vote to approve the compensation of the Company’s named executive |
| § | To cast an advisory vote on how frequently the Company should hold advisory votes on compensation of the Company’s named executive officers; and |
| § | To transact such other business as may properly be brought before the meeting or any adjournment of the meeting. |
The shareholders of record of the Company’s Common Stock at the close of business on April 15, 2014.7, 2017 are entitled to notice of and to vote at this Annual Meeting or any adjournment of the meeting.
Even if you plan to attend the meeting in person, we request that you mark, date, sign and return your proxy in the enclosed self-addressed envelope as soon as possible so that you may be certain that your shares are represented and voted at the meeting. Any proxy given by a shareholder may be revoked by that shareholder at any time before the voting of the proxy.
By Order of the Board of Directors,   Robert W. Sherwood Secretary |
May 5, 2017
Hooker Furniture Corporation
440 East Commonwealth Boulevard
Martinsville, Virginia 24112
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
June 5, 2014
6, 2017
The enclosed proxy is solicited by and on behalf of the Board of Directors of Hooker Furniture Corporation (the “Company”) for use at the Annual Meeting of Shareholders to be held on Thursday,Tuesday, June 5, 2014,6, 2017, at 1:00 p.m., at the Company’s Corporate Office at 440 East Commonwealth Boulevard, Martinsville, Virginia, and any adjournment of the meeting. The matters to be considered and acted upon at the meeting are described in the notice of the meeting and this proxy statement. This proxy statement and the related form of proxy are being mailed on or about May 2, 20145, 2017 to all holders of record on April 15, 20147, 2017 of the Company’s common stock, no par value (the “Common Stock”). Shares of the Common Stock represented in person or by proxy will be voted as described in this proxy statement or as otherwise specified by the shareholder. Any proxy given by a shareholder may be revoked by that shareholder at any time before the voting of the proxy by:
| § | delivering a written notice to the Secretary of the Company; |
| § | executing and delivering a later-dated proxy; or |
| § | attending the meeting and voting in person. |
The cost of preparing, assembling and mailing the proxy, this proxy statement, and any other material enclosed, and all clerical and other expenses of solicitations will be borne by the Company. In addition to the solicitation of proxies by use of the mails, directors, officers, and employees of the Company may solicit proxies by telephone or personal interview. The Company also will request brokerage houses and other custodians, nominees, and fiduciaries to forward soliciting material to the beneficial owners of Common Stock held of record by those parties and will reimburse those parties for their expenses in forwarding soliciting material.
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Shareholders to be Held on June
6, 2017
The proxy statement and annual report to shareholders are available at:
http://www.astproxyportal.com/ast/25490
Voting Rights
On April 15, 2014,7, 2017, the record date for the Annual Meeting, there were 10,752,98211,562,810 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock entitles the holder of that share to one vote.
vote on each matter presented.
Voting Procedures
Votes will be tabulated by one or more Inspectors of Elections. A majority of the total votes entitled to be cast on matters to be considered at the Annual Meeting constitutes a quorum. Once a share is represented for any purpose at the Annual Meeting, it is deemed to be present for quorum purposes for the remainder of the meeting. Abstentions and shares held of record by a broker or its nominee (“broker shares”) that are voted on any matter are included in determining the number of votes present or represented at the Annual Meeting. However, broker shares that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present at the meeting.
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In the election of directors, the seven nominees receiving the greatest number of votes cast in the election of directors will be elected. Votes that are withheld and broker shares that are not voted in the election of directors are not considered votes cast on the election of directors and, therefore, will have no effect on the election of directors.
Actions on all other matters to come before the meeting, including ratification of the selection of the Company’s independent registered public accounting firm, the advisory vote on executive compensation and the advisory vote on the frequency of advisory votes on executive compensation will be approved if the votes cast in favor of the action exceed the votes cast against it. Abstentions and broker shares that are not voted on a matter are not considered cast either for or against that matter and, therefore, will have no effect on the outcome of that matter.
The shares represented by proxies will be voted as specified by the shareholder. If the shareholder does not specify his or her choice, the shares will be voted
| § | “FOR” the election of the seven director nominees listed on the proxy card; |
| § | “FOR” the ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending |
| § | “FOR” the approval, on an advisory basis, of the compensation of certain of the Company’s named executive officers as disclosed in this proxy statement; |
| § | For “ONE YEAR” for the frequency of the advisory vote on the compensation of the Company’s named executive officers; and |
| § | In the discretion of the persons named in the proxies upon any other matter(s) that may properly come before the meeting or any adjournment of the meeting. |
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company proposes the election of Paul B. Toms, Jr., W. Christopher Beeler, Jr., John L. Gregory, III, E. Larry Ryder, Mark F. Schreiber, David G. Sweet, Ellen C. Taaffe and Henry G. Williamson, Jr. to hold office until the next Annual Meeting of Shareholders is held and their successors are elected. Each director nominee has consented to being named as a nominee for election at the Annual Meeting. The Board of Directors of the Company presently consists of seven directors whose terms expire at the time of the 20142017 Annual Meeting upon election of their successors.
The shares represented by proxies will be voted as specified by the shareholder. If the shareholder returns a properly executed proxy card but does not specify his or her choice, the shares will be voted in favor of the election of the nominees listed on the proxy card, except that ifcard. If any nominee should not continue to be available for election, the shares represented by those proxies will be voted for the election of such other person as the Board of Directors may recommend. As of the date of this proxy statement, the Board of Directors has no reason to believe that any of the nominees named below will be unable or unwilling to serve. Information regarding each nominee follows.
Paul B. Toms, Jr., 59,62, has been a director since 1993. Mr. Toms has been Chairman and Chief Executive Officer since December 2000 and also served as President from November 2006 until August 2011. Mr. Toms was President and Chief Operating Officer from December 1999 to December 2000, Executive Vice President-Marketing from 1994 to December 1999, Senior Vice President-Sales & Marketing from 1993 to 1994, and Vice President-Sales from 1987 to 1993. Mr. Toms joined the Company in 1983. His long tenure with the Company in senior and executive management roles and his position as the Company’s Chief Executive Officer uniquely qualify him to serve as a director of the Company.
W. Christopher Beeler, Jr., 62,65, has been a director since 1993 and has served as lead director since April 2011.until June 2016. He has been a director of Virginia Mirror Company, Inc. and Virginia Glass Products
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Corporation, both of which manufacture and fabricate architectural glass products, since 1986 and Chairman since 2000. He also served as President of those companies from 1988 until August 2011 and as CEO of those companies from 1997 until August 2011. In addition, he served on the board of directors and as a member of the audit committee of BB&T of Virginia (a wholly owned subsidiary of BB&T Corporation) from 1999-2006 and is a certified public accountant licensed in the Commonwealth of Virginia. Mr. Beeler serves as chair of the Audit Committee and is a member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Mr. Beeler’s executive experience, which encompasses traditional corporate management functions such as accounting, treasury and cash management, sales, information technology, manufacturing, distribution, and human relations,resources, as well as short-range and long-range planning complements Mr. Toms’ experience and well qualifies him to serve as a director and as lead director of the Company.director.
John L. Gregory, III, 66,69, has been a director since 1988. He is a shareholder, officer and director of the law firm of Young, Haskins, Mann, Gregory, McGarry & Wall, P.C. Mr. Gregory is a memberserves as chair of the Compensation Committee, and a member of the Nominating and Corporate Governance Committee and the Audit Committee. The knowledge and experience Mr. Gregory has gained from his 2529 years of experience as a director with the Company and his 40 years of experience as an attorney more than well qualify him to serve as a director of the Company.
E. Larry Ryder, 66,69, has been a director since February 1, 2011. Mr. Ryder retired as Executive Vice President – Finance and Administration and Chief Financial Officer of the Company in January 2011, with 34 years of experience in that and other senior management roles with the Company. Mr. Ryder serves on the Audit Committee and the Nominating and Corporate Governance Committee. His familiarity with the Company’s strategy, operations, personnel and prior boardBoard deliberations, along with his extensive knowledge of the home furnishings industry and the investment community, well qualify him to serve as a director of the Company.
David G. Sweet, 67,70, has been a director since 2006. He is the retired Vice President of The North Face, a designer and marketer of outdoor apparel and a division of VF Corporation. He held that position from 2002 until his retirement in December 2004. He served as Vice President of VF Outdoor – Europe from 2000 to 2002. Before 2000, Mr. Sweet held various management positions during his career with VF Corporation. Mr. Sweet serves as chairmanchair of the Nominating and Corporate Governance Committee and a member of the Audit Committee and Compensation Committee. His 26 years of senior management experience at VF Corporation, including his operations experience in supply chain management, product sourcing and distribution, well qualifies him to serve as a director of the Company.
Ellen C. Taaffe, 55, has been a director since July 2015. In 2016, she joined the Clinical Faculty of Leadership at Northwestern University's Kellogg School of Management, where she is also Director of Women's Leadership Programming. She has been a Marketing Strategy Consultant and Executive Leadership Coach since 2015. Prior to founding her consulting business, she was President of Smith-Dahmer Associates LLC, a research and brand strategy consulting firm from 2010-2015. Prior to that, Ms. Taaffe served in various senior management positions at Whirlpool Corporation, Royal Caribbean Cruises Ltd., and PepsiCo. Earlier in her career, she held numerous positions in brand management, trade marketing, and sales at the Quaker Oats Company from 1984 - 2001. Ms. Taaffe has served on the board of directors of John B. Sanfilippo & Son Inc., a Chicago-based baking and snack nut processor, distributor and marketer, since 2011, where she is a member of the Compensation Committee, Governance Committee, and Audit Committee. Her executive experience at various public companies, her current service on a public-company board of directors and expertise in and knowledge of traditional and digital marketing best practices in high-ticket consumer durables, well qualify her to serve as a director of the Company.
Henry G. Williamson, Jr., 66,69, has been a director since 2004.2004 and lead director since June 2016. He is the retired Chief Operating Officer of BB&T Corporation and Branch Banking and Trust Company of North Carolina, South Carolina and Virginia. He held that position from 1989 until his retirement in June 2004. Mr. Williamson is also the Chairman of the Board of Williamson Media Corporation, which is involved in web-based commerce. Mr. Williamson is Chairmana member of the Audit Committee, and a member of the Compensation Committee and the Nominating and Corporate Governance Committee. HisMr. Williamson’s executive management experience at a large publicly traded company, including his financial oversight responsibilities complement Mr. Toms’ experience and hiscoupled with Mr. Williamson’s extensive knowledge of finance and banking, well qualify him to serve as a director and lead director of the Company.
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CORPORATE GOVERNANCE
The Board of Directors is currently comprised of:
| § | the Chairman of the Board of Directors, who also serves as the Company’s Chief Executive Officer, and |
| § | six independent |
The Board has established a Nominating and Corporate Governance Committee, a Compensation Committee and an Audit Committee.
The Nominating and Corporate Governance Committee regularly reviews the appropriateness of the combined position of Chairman of the Board and the Company’s principal executive officer.Chief Executive Officer. The Committee believes that it is in the best interests of the Company and its shareholders for the Board to continue to combine the roles of Chairman and Chief Executive Officer due to the depth of knowledge, experience and expertise of the Company’s current Chairman and Chief Executive Officer. The Committee believes combining these two roles creates a single focal point for Company leadership and projects a clear sense of direction to shareholders and employees within an industry that is in the midst of rapid change. The Committee will continue to regularly review the appropriateness of this combined role.
Beginning in 2011 the Board, upon the recommendation of the Nominating and Corporate Governance Committee, has determined that it is in the best interests of the Company and its shareholders to designate a lead director. Since 2011, the Board’s independent directors have designated W. ChristopherMr. Beeler to serveserved as lead director.director from 2011-2016. Mr. Beeler will continue to serveWilliamson was designated lead director in 2016 and currently serves in that role for the 2014-2015 term of service, subject to his election at the 2014 Annual Meeting.role. The Board believes having a lead director, among other things, allows Mr. Toms to more freely focus on the Company’s strategy, business and operations, while preserving the benefits of having a single focal point for Company leadership in his current combined role of Chairman and Chief Executive Officer. The lead director’s duties include presiding over executive sessions of the Company’s independent directors, facilitating information flow and communication among the directors, serving as a point of contact between the independent directors and the Chairman and CEO and performing other duties as requested by the Board.
The Board of Directors typically holds five to six meetings per year. In fiscal 2017, it held six meetings. During fiscal 2017, the Nominating and Corporate Governance Committee met five times, the Audit Committee met four times and the Compensation Committee met three times. Each incumbent director attended at least 75% of the total fiscal 2017 Board meetings and committee meetings held during the period that he or she was a member of the Board or those committees. The Board of Directors has determined that each of the following directors is independent as defined by applicable NASDAQ listing standards: W. Christopher Beeler, Jr., John L. Gregory, III, E. Larry Ryder, David G. Sweet, Ellen C. Taaffe and Henry G. Williamson, Jr. At each Board meeting the independent directors conduct a part of the meeting in executive session, at which only independent directors are present. It is the Company’s policy that each of the directors is expected to attend the Company’s Annual Meetings. All of the Company’s directors attended the 2016 Annual Meeting.
Also beginning in 2011, upon the recommendation of the Nominating and Corporate Governance Committee, the Board determined that it iswas in the best interests of the Company and its shareholders that all independent directors except for Mr. Ryder, serve on all committees of the Board. The Committee recently determined that Mr. Ryder was independent as defined by applicable NASDAQ listing standards, after completing the requisite three-year “cooling-off” period after having retired as the Company’s Executive Vice-President-Finance and Administration and Chief Financial Officer in 2011. The Board believes,believed, based on the relatively small size of the Board and the members’ history of working well together, this “Committees of the Whole” approach is more efficient, since all independent directors have input into committee actions and that the need for committees reporting at Board meetings iswould be greatly reduced.
However, Mr. Ryder, a former executive officer of the Company who retired in 2011, does not serve on the Compensation Committee.
The Board has established a Nominating and Corporate Governance Committee a Compensation Committee and an Audit Committee. The Board of Directors held five meetings during the fiscal year ended February 2, 2014 (“fiscal 2014”). The Compensation Committee met three times, the Audit Committee met four times and the Nominating and Corporate Governance Committee met five times in fiscal 2014. Each incumbent director attended 100% of the total fiscal 2014 Board meetings and committee meetings held during the periodhas also determined that he was aeach member of the Board or those committees. The Board of Directors has determined that each of the following directors and director nominees is independent as defined by applicable NASDAQ listing standards: W. Christopher Beeler, Jr., John L. Gregory, III, E. Larry Ryder, Mark F. Schreiber, David G. Sweetstandards, except for Mr. Toms.
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Corporate Governance Guidelines
The Board of Directors has adopted Corporate Governance Guidelines, which set forth its policies with respect to certain governance issues and, Henry G. Williamson, Jr. The independent directors meet in executive session, at which only independent directors are present, at each Board meeting. It istogether with the Company’s policy that eacharticles and bylaws, provide a framework for the effective governance of the directorsCompany. A copy of the Corporate Governance Guidelines is expected to attendavailable on the Company’s Annual Meetings. All of the Company’s directors attended the 2013 Annual Meeting.website at www.hookerfurniture.com.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee which consists of all of the Board’s independent directors, withdirectors. Mr. Sweet servingcurrently serves as its Chairman:
Chair. The Committee:
| § | identifies, |
| § |
| assists the Board with respect to corporate governance matters applicable to the Company; |
| § | evaluates and makes recommendations to the Board regarding the size and composition of the Board; |
| § | develops and recommends criteria for the selection of individuals to be considered as candidates for election to the Board; and |
| § | assists the Board in senior management succession planning. |
The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee, a current copy of which is available on the Company’s Web sitewebsite at www.hookerfurniture.com. The Board of Directors has determined that each member of the Committee is independent as defined by applicable NASDAQ listing standards.
Candidates for director nominees will be assessed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of shareholders. The Committee has not established a set of specific, minimum qualifications for director candidates, but in conducting its assessment, the Committee will consider such factors as it deems appropriate given the current needs of the Board and the Company. In general, the Committee seeks candidates who:
| § | possess a reputation for adhering to the highest ethical standards and have demonstrated competence, integrity, and respect for others; |
| § | have demonstrated excellence in leadership, judgment and character; |
| § | have diverse business backgrounds, with a wide range of relevant education, skills and professional experience that will complement and enhance the Company’s business and strategy; and |
| § | have the time to devote to Board and Committee service and are free of potential conflicts of interest. |
While the Board has no formal policy regarding diversity, the Committee considers the diversity of the Board when identifying nominees for director. Such diversity may include a variety of different personal, business and professional experiences, as well as a variety of opinions, perspectives, backgrounds and other characteristics.
In the case of incumbent directors, the Committee will reviewreviews each director’s overall service to the Company during his or her term as director and whether his or her skills are still relevant to the needs of the Board in deciding whether to re-nominate the director. The Committee also considers future Board needs in light of the mandatory retirement age for outside directors of 75.
The Board does not believe that it is appropriate or necessary to limit the number of terms a director may serve. However, any outside director must retire upon reaching the age of 75, with such retirement being effective and occurring upon the completion of the term in which the director turns 75.
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The Committee also facilitates the Board’s annual self-assessment and is responsible for recommending director compensation to the Board of Directors.
The Committee annually reviews Board compensation of the Company’s peer group and periodically engages outside consultants to independently assess Board compensation.
Procedures for Shareholder Recommendations of Director Nominees
The Committee will consider a director candidate recommended by a shareholder of record for election at the 20152018 Annual Meeting if, in addition to meeting other applicable requirements, the shareholder submits the recommendation in writing to the Secretary of the Company in accordance with the procedures for the nomination of directors in the Company’s bylaws (including Article III, Section 3 of the bylaws) and it is received at the Company’s principal executive offices on or before January 2, 2015.5, 2018. The recommendation must include the candidate’s name and address, a description of the candidate’s qualifications for serving as a director and the following information:
| § | the name and address of the shareholder making the recommendation; |
| § | a representation that the shareholder is a record holder of the Company’s Common Stock entitled to vote at the meeting and, if necessary, would appear in person or by proxy at the meeting to nominate the person or persons recommended; |
| § | a description of all arrangements or understandings between the shareholder and the nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; |
| § | information regarding the director candidate that would be required to be included in a proxy statement filed under the proxy rules of the United States Securities and Exchange Commission (“SEC”), if the candidate were to be nominated by the Board of Directors; |
| § | information concerning the director candidate’s independence as defined by applicable SEC rules and NASDAQ listing standards; and |
| § | the consent of the director candidate to serve as a director of the Company if nominated and elected. |
The Nominating and Corporate Governance Committee may refuse to consider the recommendation of any person not made in compliance with this procedure.
Compensation Committee
The Compensation Committee consists of all of the Board’s independent directors, andexcept Mr. SchreiberRyder who is not a member of the Committee. Mr. Gregory currently serves as its Chairman.Chair. The Committee reviews and makes determinations with regard to the compensation for the Company’s executives, including the Chief Executive Officer the Chief Financial Officer and each of the Company’s other executive officers.
The Board of Directors has determined that each member of the Compensation Committee is “independent”independent as defined by applicable NASDAQ listing standards.
The Board of Directors has adopted a written charter for the Compensation Committee, a current copy of which is available on the Company’s Web sitewebsite at www.hookerfurniture.com. The charter delegates to the Committee a number of specific responsibilities for establishing, reviewing, approving, monitoring and administering executive compensation. In addition, the charter requires that each member of the Compensation Committee be an “outside director” for purposes of Section 162(m) of the Internal Revenue Code and a “non-employee director” under Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that each Committee member meet applicable NASDAQ director independence requirements. The Report of the Compensation Committee can be found on page 11.13. Under the terms of its charter, the Committee may delegate any of its duties or responsibilities to subcommittees of the Committee and under the terms of the Company’s Stock Incentive Plan (as amended and restated in 2010, the “Stock Incentive Plan”)Committee. In addition, the Committee may delegate to Company officers certain administrative responsibilities relating to that plan.
the Company’s 2015 Stock Incentive Plan.
The Committee has the authority, without any further approval from the Board, to retain advisers, as it deems appropriate, including compensation consultants. In retaining an adviser, the Committee has
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sole authority to approve the adviser’s fees and other retention terms, and has the sole authority to terminate the adviser.
The Committee has directly engaged Mercer (U.S.) Inc. as its external compensation consultant. Mercer reports to and receives direction directly from the Committee, and a representative of Mercer attendsis available to attend meetings of the Compensation Committee as its advisor when requested by the Committee. In prior fiscal years, Mercer has provided the Committee with third-party survey information for use in setting short- and long-term compensation levels, perspective on emerging compensation issues and trends, and expertise in incentive compensation structure, terms and design. In early fiscal 2017, the Committee engaged Mercer to advise it regarding executive compensation (including peer group selection for purposes of comparability analysis). The Committee did not engagealso engaged Mercer on behalf of the Nominating and Corporate Governance Committee to provide such services for fiscal year 2014, but the Committee did consideradvice to that committee regarding director compensation comparability data for companies in the peer group that Mercer helped the Committee select in a prior fiscal year. matters.
In addition, Mercer provides record keeping and actuarial services in connection with the Company’s Supplemental Retirement Income Plan, but does not advise the Company on the design or operation of thethat plan. In its consideration of retainingconsidering whether to continue to engage Mercer to serve as the Committee’s compensation advisor, the Committee annually evaluates Mercer’s independence from Company management and whether it has any conflicts of interest, including the fact that Mercer provides certain record keeping and consulting services to the Company. TheIn fiscal 2017, the Committee evaluated the fees paid by the Company to Mercer as a percentage of Mercer’s total revenue and Mercer’s policies and procedures to prevent conflicts of interest, and confirmedMercer’s confirmation that Mercerit has no business or personal relationship with a member of the Committee, does not own any stock of the Company, and has no business or personal relationship with any executive officer of the Company. The Compensation Committee concluded that Mercer iswas independent of the Committee and of Company management and hashad no conflicts of interest in its performance of services to the Committee.
The Committee typically meets three to four times each year. During the 20142017 fiscal year, it met three times. The Committee invites the Chief Executive Officer and the Chief Financial Officer to attend meetings when the Committee considers their input relevant or necessary whenfor evaluating compensation proposals. A portion of each meeting is generally held in executive session, as the Committee deems appropriate. All Committee votes are conducted in executive session. The Chief Executive Officer and the Chief Financial Officer do not attend these executive sessions. The ChairmanCommittee annually reviews the Chief Executive Officer’s compensation with the Board in executive session of independent directors only.
compensation.
The Chief Executive Officer makes recommendations to the Committee concerning compensation for the other executive officers of the Company. Decisions regarding compensation for employees other than the executive officers are made by the Chief Executive Officer in consultation with other members of senior management. Management assists the Committee in administering various elements of the Company’s executive compensation program. The Compensation Committee has unrestricted access to management and may request the participation of management in any discussion of a particular subject at any meeting. During fiscal 2014,2017, management provided the Committee with recommendations regarding executive officer compensation, as discussed further in Compensation Discussion and Analysis on page 12.14.
Audit Committee
The Audit Committee consists of all of the Board’s independent directors, anddirectors. Mr. WilliamsonBeeler serves as its Chairman. The Committee:
| § | approves the appointment of an independent registered public accounting firm to audit the Company’s financial statements and internal control over financial reporting; |
| § | negotiates fees for audit, audit-related and tax services; |
| § | reviews and approves the scope, purpose and type of audit and non-audit services to be performed by the independent registered public accounting firm; |
| § | approves the appointment of the Company’s internal audit service provider, |
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| § | oversees the accounting and financial reporting processes of the Company and the integrated audit of the Company’s annual financial statements and internal control over financial reporting. |
The Audit Committee receives updates from the auditor and management at its quarterly Audit Committee meetings. During fiscal 2017, the auditor and management made presentations to the Committee on specific topics of interest, including:
| § | management’s critical accounting policies; |
| § | the auditor’s fiscal 2017 integrated audit plan and updates on the completion of the plan; |
| § | the progress of the auditor’s opening balance sheet audit of the newly acquired business of Home Meridian; |
| § | the status of management’s purchase price allocation work related to the Home Meridian acquisition; |
| § | post-acquisition integration efforts; |
| § | compliance with the internal controls required under Section 404 of the Sarbanes-Oxley Act; |
| § | strategy and management of the implementation of the Company’s ERP system in its legacy businesses; and |
| § | the Company’s cybersecurity practices. |
The Board of Directors has adopted a written charter for the Audit Committee, a current copy of which is available on the Company’s Web sitewebsite at www.hookerfurniture.com. The Board of Directors has determined that each member of the Audit Committee is independent as defined by applicable SEC rules and NASDAQ listing standards. The Company’s Board of Directors has determined that each of Messrs. Williamson, Ryder and Beeler is an “audit committee financial expert” for purposes of the SEC’s rules. The Report of the Audit Committee can be found on page 10.12.
Appointment and Evaluation of the Independent Auditor
On an annual basis, the Audit Committee reviews the audit firm’s performance as part of its consideration of whether to reappoint the firm as the Company’s independent auditor. As part of this review, the Audit Committee considers, among other things:
| § | the continued independence of the audit firm; |
| § | the audit firm’s experience and fresh perspective occasioned by mandatory audit partner rotation and the rotation of other audit management; |
| § | the length of time the audit firm has served as the Company’s independent auditors, including the benefits of having a long-tenured auditor and controls and processes that help safeguard the audit firm’s independence; |
| § | whether the audit firm should be rotated and considers the advisability and potential of selecting a different audit firm; |
| § | the appropriateness of the audit firm’s fees; |
| § | evaluations of the audit firm by management; |
| § | the audit firm’s effectiveness of communications and working relationships with the audit committee and management; and |
| § | the quality and depth of the audit firm and the audit team’s expertise and experience in the Company’s industry and related industries in light of the breadth, complexity and global reach of the Company’s business. |
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Related Party Transactions
The Company’s Audit Committee is responsible under its charter for reviewing and approving any related party transactions. For this purpose a “related party transaction” includes any transaction, arrangement or relationship involving the Company in which an executive officer, director, director nominee or 5% shareholder of the Company, or their immediate family members, has a direct or indirect material interest that would be required to be disclosed in the Company’s proxy statement under applicable rules of the SEC.
For relationships or transactions involving a related-party which involve an officer or director, the proposed relationship or transaction must be (i) reported to the Chairman of the Audit Committee, if a director or senior Company officer (including the named executive officers) is involved, (ii) reported to the SVP Finance and Accounting, or the Chief Executive Officer, for transactions involving other officers of the Company, and (iii) reviewed and approved by the Audit Committee. While we do not have a standalone written policy or procedure for the review, approval or ratification of other transactions with related persons, it is our practice that potential related person transactions are first screened by our SVP – Finance and Accounting for materiality and then sent to the Audit Committee for review. In determining whether to approve or reject a related person transaction, the Audit Committee takes into account, among other factors it deems appropriate, whether the proposed transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, as well as the extent of the related person’s economic interest in the transaction.
There were no related party transactions identified during fiscal 2017.
Code of Business Conduct and Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics, which applies to all of the Company’s employees and directors, including the principal executive officer, principal financial officer and principal accounting officer. A copy of the Code of Business Conduct and Ethics is available on the Company’s website at www.hookerfurniture.com. Amendments of and waivers from the Company’s Code of Business Conduct and Ethics will be posted to the website when permitted by applicable SEC and NASDAQ rules and regulations.
The Role of the Board of Directors in Risk Oversight
The Board of Directors, or an appropriate committee of the Board of Directors, provides oversight for Company-wide risk management and performs the Board’s oversight role in many different ways, including by:
| § | reviewing and approving the Company’s annual operating and capital budgets; |
| § | reviewing the Company’s quarterly and year-to-date operating results and discussing those results with senior management; |
| § | reviewing management’s quarterly risk assessment reports; |
| § | reviewing management and internal audit reports regarding the Company’s internal control over financial reporting; and |
| § | reviewing reports regarding the Company’s internal control over financial reporting from its independent registered public accounting firm. |
The Audit Committee meets in executive session with the Company’s independent auditors to discuss topics related to the Company’s financial reporting and internal control. Additionally, the Nominating and Corporate Governance Committee and the Compensation Committee meet periodically to address governance and compensation issues, including compensation-related risks. The committees have the authority to utilize outside advisors and experts when needed. In his combined role as Chairman and Chief Executive Officer, Mr. Toms’ membership on the Board gives the Board valuable insight into the Company’s operations and risks. His unique depth of knowledge, experience and expertise give the Board a more complete and holistic view of the risks the Company faces. The Board committees (which consist of only independent members of the Boardmembers) also engage in discussions regarding risk management in executive session, without the participation of the Chairman and Chief Executive Officer.
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Director Compensation
The Nominating and Corporate Governance Committee is responsible for recommending director compensation to the Board of Directors. The non-employee director compensation arrangements discussed below were recommended by the Nominating and Corporate Governance Committee and approved by the Board of Directors.
Non-employee directors are compensated based on their term of service, which typically begins with the election of directors at the Company’s Annual Meeting, and which is referred to as a “service year.”
Board Compensation Review
In 2011,2016, the Nominating and Corporate Governance Committee retained Mercer to review the Company’s compensation structure and positioning, reflecting recent changes relative to the thirteen-company peer group developed for the executive total remuneration assessment conducted in early 2016. Mercer recommended a peer group consisting of companies similar to Hooker Furniture in terms of industry, size and operational complexity. Mercer recommended this group because its members shared various financial and operational attributes with the Company, adopted a “Committeeswhile not being limited to furniture companies. The Committee determined it was appropriate for Mercer to use the same peer group developed for its executive compensation review for its analysis of Board compensation.
Mercer found that the Company’s director compensation was in the lower quartile of the Whole” approach to corporate governance, in which all independent directors serveCompany’s peer group. Based on all committees. Mr. Ryder previously has not been considered an independent director under NASDAQ listing standards, having retired asthe results of Mercer’s study and the Company’s Executive Vice-President – Financelarger size and Administration and Chief Financial Officer in January 2011. Therefore, he has not served on anyincreased complexity due to its acquisition of the Board committees.
2016:
| § |
| § |
| § | Stipends for |
Non-Employee Director Compensation for the 2016-2017 Service Year
The non-employee director compensation arrangements discussed below were recommended by the Nominating and Corporate Governance Committee and approved by the Board of Directors. For the 2016-2017 service year non-employee directors received cash fees in the form and amounts described above.
All non-employee directors also receivereceived annual grants of restricted stock under the Company’s 2015 Stock Incentive Plan. The number of shares of restricted stock awarded to each non-employee director is determined by dividingwas equal to fifty percent of the total cash fees payable to that director for a service yearyear. As required by the plan, the restricted stock awards were determined by dividing fifty percent of the total cash fees payable to each non-employee director by the fair market value (as defined in the 2015 Stock Incentive Plan) of the Company’s Common Stock on the award date and rounding to the nearest whole share. The restricted stock becomeswill become fully vested, and the restrictions applicable to the restricted stock will lapse, on:
| § | the |
| § | if earlier, when the director dies or is disabled, the Annual Meeting following the director’s attainment of age 75, or a change in control of the Company. |
Directors are prohibited from engaging in certain types of transactions related to the Company’s Common Stock, including transactions in derivative securities, hedging transactions, using margin accounts and pledging shares as collateral.
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Directors are reimbursed for reasonable expenses incurred in connection with attending Board and committee meetings or performing their duties as directors.directors, as well as Board-related professional education. Mr. Toms receives no compensation for serving on the Board of Directors or for attending Board or committee meetings other than reimbursement for expenses.
The following table sets forth non-employee director compensation paid for fiscal year 2014.2017.
Non-Employee Director Compensation
| Name | Cash Fees (1) | Stock Awards(2)(3) | Total | |||||||||
| W. Christopher Beeler, Jr. | $ | 56,000 | $ | 28,000 | $ | 84,000 | ||||||
John L. Gregory, III | 53,000 | 26,500 | 79,500 | |||||||||
E. Larry Ryder | 48,000 | 24,000 | 72,000 | |||||||||
| David G. Sweet | 53,000 | 26,500 | 79,500 | |||||||||
Ellen C. Taaffe | 48,000 | 24,000 | 72,000 | |||||||||
| Henry G. Williamson, Jr. | 56,000 | 28,000 | 84,000 | |||||||||
| Name | Cash Fees (1) | Stock Awards(2) | All Other Compensation(3) | Total | ||||||||||||
| W. Christopher Beeler, Jr. | $ | 41,500 | $ | 20,750 | $ | 2,340 | $ | 64,590 | ||||||||
| John L. Gregory, III | 36,500 | 18,250 | 2,146 | 56,896 | ||||||||||||
| E. Larry Ryder | 20,000 | 10,000 | 980 | 30,980 | ||||||||||||
| Mark F. Schreiber | 40,500 | 20,250 | 2,184 | 62,934 | ||||||||||||
| David G. Sweet | 39,500 | 19,750 | 2,216 | 61,466 | ||||||||||||
| Henry G. Williamson, Jr. | 41,500 | 20,750 | 2,357 | 64,607 | ||||||||||||
(1) Includes annual retainer fee, committee membership fees, committee chair fees and lead director fee paid to each director in June 2013, as described in greater detail above. (2) These amounts are the aggregate grant date fair value of shares of restricted stock awarded to each non-employee director on June 7, 2013 under the Company’s Stock Incentive Plan. Fair value is determined in accordance with stock-based compensation accounting standards (Topic 718 of the Accounting Standards Codification). The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of assumptions used in calculating award values, refer to note 12 of the Company’s consolidated financial statements included in the Company’s 2014 Annual Report on Form 10-K. (3) This column shows the aggregate dividends paid to each non-employee director during the fiscal year ended February 2, 2014 with respect to his unvested shares of restricted stock. The non-employee directors held the following number of shares of unvested restricted stock as of February 2, 2014: W. Christopher Beeler, Jr., 5,410; John L. Gregory, III, 4,961; E. Larry Ryder, 2,607; Mark F. Schreiber, 5,077; David G. Sweet, 5,149; Henry G. Williamson, Jr., 5,410. | ||||||||||||||||
| (1) | Includes annual retainer fee, committee chair fees and lead director fee paid to each director in June 2016, as described in greater detail above. |
| (2) | These amounts are the aggregate grant date fair value of shares of restricted stock awarded to each non-employee director on June 10, 2016 under the Company’s 2015 Stock Incentive Plan. Fair value is determined in accordance with stock-based compensation accounting standards (Topic 718 of the Accounting Standards Codification). The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of assumptions used in calculating award values, refer to note 13 of the Company’s consolidated financial statements included in the Company’s 2017 Annual Report on Form 10-K. |
| (3) | As of January 29, 2017, each non-employee director had the following unvested stock awards outstanding: |
| Name | Restricted Stock(#) | |||
| W. Christopher Beeler, Jr. | 2,624 | |||
| John L. Gregory, III | 2,404 | |||
| E. Larry Ryder | 2,301 | |||
| David G. Sweet | 2,499 | |||
| Ellen C. Taaffe | 993 | |||
| Henry G. Williamson | 2,624 | |||
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the Company’s financial statements and the reporting process, including internal control over financial reporting. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited financial statements for the fiscal year ended February 2, 2014January 29, 2017 with management, including a discussion of the quality and acceptability of
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accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
The Committee discussed with the Company’s independent registered public accounting firm, who is responsible for expressing an opinion on conformity of those audited financial statements with U.S. generally accepted accounting principles, the firm’s judgment as to the quality and acceptability of the Company’s accounting principles and such other matters as are required to be discussed with the independent registered public accounting firm under the standards of the Public Company Accounting Oversight Board. In addition, the Committee has discussed with the independent registered public accounting firm the firm’s independence from management and the Company, including the matters in the written disclosures and letter from the independent registered public accounting firm to the Committee required by Public Company Accounting Oversight Board Auditing Standard 16. The Committee has also considered whether the non-audit related services provided by the independent registered public accounting firm are compatible with maintaining the firm’s independence and found them to be acceptable.
The Committee met with the Company’s independent registered public accounting firm, with and without management present, and discussed the overall scope and results of their audits, their evaluation of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2014January 29, 2017 for filing with the SEC.
W. Christopher Beeler, Jr., Chairman
John L. Gregory III
John L. Gregory III
E. Larry Ryder
David G. Sweet
David G. Sweet
Ellen C. Taaffe
Henry G. Williamson, Jr., Chairman
REPORT OF THE COMPENSATION COMMITTEE
The Committee has reviewed, and discussed with management, the Compensation Discussion and Analysis that appears below. Based on that review, and the Committee’s discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
W. Christopher Beeler, Jr.
David G. Sweet
Ellen C. Taaffe
Henry G. Williamson, Jr.
Henry G. Williamson, Jr.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised entirely of the independent directors and none of our executive officers served on the compensation committee or board of any company that employed any member of the Compensation Committee or Board of Directors as an executive officer.
Compensation Risk Assessment
As part of its oversight responsibilities, the Compensation Committee, with assistance from management, annually reviews the Company's compensation policies and practices for all employees to determine whether they are reasonably likely to present a material adverse risk to the Company. Their review includes, among other things, a consideration of the incentives that the Company’s compensation policies and practices create and factors that may affect the likelihood of excessive risk taking. Based on its most recent review, the Committee concluded that the Company’s employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. For additional
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information concerning this review, see Management of Executive Compensation-Related Risk on page 19.
25.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Compensation Committee of the Board oversees the Company’s executive compensation program. The Committee makes decisions regarding the compensation of the Company’s “named executive officers,officers.” which typically consist of the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers of the Company. The named executive officers as of the last day of fiscal year 20142017 (which ended January 29, 2017) are listed in the Summary Compensation Table on page 21. The Committee also determines the compensation of the other executive officers of the Company.28. More information concerning the composition of the Committee and its authority and responsibilities can be found under Compensation Committee on page 7.
Compensation Philosophy
A key objective of the Company’s executive compensation program is to attract and retain highly qualified executives who will contribute significantly to the success and financial growth of the Company and enhance value for shareholders. Another objective of the program is to motivate and appropriately reward executives when they achieve the Company’s financial and business goals and meet their individual performance objectives. The Committee also believes that having a stable executive management team is necessary to achieve the Company’s profitability objectives as the industry adapts to changing consumer preferences, sourcing and distribution options and broader market factors such as the overall performance of the U.S. economy and the relative strength of housing and home furnishings related activity.
Compensation Program
The Company’s executive compensation program employs several elements of compensation to achieve the objectives of its compensation philosophy. The primary elements of the program are base salary, an annual cash incentive, long-term incentives and supplemental retirement and life insurance benefits. The Company has also enteredmay enter into an employment agreementsagreement with certainan executive officersofficer under specific circumstances, as discussed further below. These elements are structured to compensate executives over three separate timeframes:
| § | Annual compensation. Base salaries are typically set for each calendar year and the annual cash incentive is set for each fiscal year. The annual cash incentive is determined based on the Company’s financial performance during the current fiscal year. The Compensation Committee sets base salaries and potential annual cash incentive amounts for each executive position based on a number of factors, including competitive market data, responsibilities and individual performance and the Committee members’ business judgment. Base salaries are set for each calendar year based on the individual executive’s performance during the preceding fiscal year. |
| § | Longer-term compensation. Long-term incentives are designed to reward executives if the Company achieves specific performance goals or growth in shareholder value over multi-year periods. The amounts payable to executives under performance incentives vary based on the extent to which the specified goals are achieved or surpassed. The Company has historically granted long-term incentives in the form of performance awards and restricted stock units. |
| § | Full career and time-specific compensation. Supplemental retirement and life insurance benefits are linked to |
The Committee believes the objectives of the Company’s executive compensation program can best be attained by structuring the program to provide compensation over these separate timeframes. For example, the Committee views annual and longer-term performance-based compensation as essential to encouraging executives to appropriately balance both the short-term and long-term interests of the Company and its shareholders. In addition, the Committee believes compensation tied to service
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over a full career or a specific period helps to promote executive retention and thereby allow the Company to maintain a stable management team.
Fiscal Year 20142017 Financial Highlights
The Home Meridian acquisition closed on the first day of the Company’s recently completed 2017 fiscal year. Consequently, Home Meridian’s prior year results are not included in the results for fiscal 2016 discussed below.
The Company delivered a year of solid performance in fiscal year 2017. The following are selected highlights of the Company’s results for fiscal year 20142017 compared to fiscal year 2013 that affected the annual cash incentive earned by the named executive officers for fiscal year 2014:
2016:
| § | Consolidated net income |
| § | Diluted earnings per share |
Fiscal Year 20142017 Compensation Highlights
| § | Annual cash incentive – The Committee approved annual cash incentive increases for Messrs. Toms and Huckfeldt and Ms. Jacobsen, based on an evaluation of the competitiveness of their total compensation to the market, as defined by the modified peer group the Committee adopted earlier in the year. The Company achieved approximately |
| § | Long-Term Incentive Awards – The Company awarded time-based restricted stock units and performance grants to the named executive officers for the |
| § | Base |
Mix of Total Compensation. The following charts illustrate the percentage of total compensation for our CEO and our other named executive officers on average, respectively, represented by each element of compensation for the 2017 fiscal year.
15
16
Process for Determining Executive Compensation
The Committee sets base salaries, determines the amount and terms of annual cash incentive opportunities and determines long-term incentive compensation and other benefits for the Company’s executive officers. The Committee follows the processes and considers the information discussed below in setting executive compensation.
Competitive Pay Data
In 2012 fiscal year 2017, the Compensation Committee retainedengaged Mercer to update the Company’s peer group based on the Company’s changed profile following its purchase of the business of Home Meridian International. Mercer was also asked by the Committee to summarize peer compensation data and conduct a review of the Company’s executive compensation programs and to recommend a peer group to be used for the purposes of evaluating and setting executive compensation.programs. Mercer recommended a peer group consisting of companies similar to Hooker Furniturethe Company in terms of industry (companies in the furniture/household durables/consumer discretionary markets) and size (companies with annual revenue and market capitalization of approximately 50%60% to 200%265% of the Company’s annual revenue and market capitalization)revenue). Mercer recommended this group because its members shared various financial and operational attributes with the Company, while not being limited to furniture companies. The peer group represents companies of a similar size and similar operational complexity as the Company, and also represents the type of companies against which the Company competes for management talent. The peer group developed at that time consistedconsists of the following companies:
| § |
| American Woodmark Corporation |
| § | Bassett Furniture Industries, Inc. |
| § | Cavco Industries, Inc. |
| § |
| Culp, Inc. |
| § | Dixie Group, Inc. |
| § | Ethan Allen Interiors, Inc. |
| § | Flexsteel Industries, Inc. |
| § | Haverty Furniture Companies, Inc. |
| § |
| § | Lifetime Brands, Inc. |
| § | Nautilus, Inc. |
| § | PGT, Inc. |
| § |
| Trex Company, Inc. |
The Compensation Committee has used this peer group as one of several factors in making compensation decisions includingand to establish a baseline from which to set executive compensation (including during fiscal year 2014.2017). The Committee compared total compensation as well as the individual compensation elements for each executive officer to the peer group in fiscal year 2017. The Committee will refresh the peer group and compensation study in the future, as needed. The Committee does not tie compensation for its executive officers to any particular level or target based on this comparable compensation data. Instead, the Committee considers this pay comparability data as one of many factors when determining the appropriateness of individual elements of compensation, as well as the total compensation, payable to the Company’s executive officers. For fiscal year 2014, American Biltrite, Chromcraft-Revington, Inc. and Steinway Musical Instruments, Inc. were dropped as peer companies because they ceased to be SEC registrants. The Committee continues to monitor the peer group and will consider replacing companies that have been removed, as it deems appropriate.
Other factors considered in setting fiscal year 20142017 executive compensation were inflation, executive promotionsregional cost-of-living factors and whether there were material changes in executives’ duties, as discussed later in this Compensation Discussion and Analysis. The Committee did not consult with Mercer in making its fiscal 2014 compensation decisions.duties.
Company Performance
Each year the Committee considers which financial performance measures to use in setting annual and longer-term incentive compensation for the executive officers. The Committee has, at various
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times, linked annual cash incentives to the Company’s attainment of specific levels of operating income, pretax income and net income. Longer term incentives typically have been linked to achievement of a different set of performance measures, such as earnings per share and average annual return on equity for performance grants. Beginning with fiscal year 2013,Historically, the Committee has awarded long-term performance grants tied to growth in the Company’s earnings per share (EPS), both in absolute terms and relative to EPS growth for the peer group companies. The Committee believes that EPS and EPS growth are currently the most appropriate performance measures for long-term compensation incentives because these metrics lend themselves, in a simple and objective manner, to year-over-year comparisons and to comparison with the financial performance of peer companies. In most cases, other performance measures have been found to behave in a manner consistent with EPS-related measures. Therefore, the Committee does not believe additional criteria would provide a different or an enhanced perspective on the Company’s performance.
The Committee generally selects performance measures for annual incentive compensation that correspond to financial measures used by management in making day-to-day operating decisions and in setting strategic goals. In addition, these types of measures are used by the Board in evaluating Company performance. The Committee generally consults with the Chief Executive Officer and other senior executives before setting performance levels for annual and longer-term incentive compensation. The input provided by management is one of many factors that Committee considers in establishing the applicable measures and performance levels for incentive compensation. The other factors the Committee considers include the annual operating budget which is approved by the Board. The Board’s approval of the annual budget includes its review of industry and macroeconomic trends, industry sales growth, cost containment and expected capital expenditures.
Individual Performance
The Committee annually assesses the individual performance of each executive officer and considers it is considered by the Committee when setting an executive officer’s base salary. However, given the modest increases in cost of living in recent years and the Company’s emphasis on linking a larger percentage of executives’ total compensation to performance-based incentives, the Committee may elect not to increase certain executives’ base salaries on an annual basis, instead using potential annual and longer-term incentive based payments to offer the potential for increased earnings bycompensate individual executives. The Committee reserves the right to adjust base salaries as it determines to be appropriate.appropriate; however, the Committee does not have a practice of automatically providing for annual increases in base salaries and therefore a decision not to increase an executive’s base salary is not based on an assessment of an executive’s performance. Each executive’s performance is measured against specific personal objectives that were established early in the prior year. The Chief Executive Officer’s annual personal objectives are established in consultation with the Committee. Other executive officers establish their individual objectives in consultation with the Chief Executive Officer. These objectives may include both subjective and quantifiable individual and departmental performance and developmental initiatives that are within each officer’s area of operation and are consistent with the Company’s strategic plans.
The Committee’s assessment of each executive officer’s performance with respect to these objectives is conducted primarily through conversations with the Chief Executive Officer and a review of Company performance. The Committee believes that consideration of individual performance objectives is important because it creates incentives for executive officers to make specific contributions to the Company’s financial growth based on their individual areas of responsibility, and because it allows the Company to reward those specific contributions.
Allocating Between Compensation Elements
The Committee does not have a fixed standard for determining how an executive officer’s total compensation is allocated among the various elements of the Company’s compensation program. Instead, the Committee uses a flexible approach so that it can structure the compensation elements in a manner that will, in its judgment, best achieve the specific objectives of the Company’s compensation program.
Shareholder Say-on-Pay Vote
At the 20132016 Annual Meeting, shareholders had the opportunity to approve, in a non-binding advisory vote, the compensation of the Company’s named executive officers. This is referred to as a “say-on-pay”
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“say-on-pay” proposal. Approximately 99%98% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Committee believes this vote result reflects general approval of the Company’s overall approach to structuring the Company’s executive compensation.compensation program. Therefore, the Committee did not make any significant changes in the structure of the Company’s executive compensation program during fiscal 20142017 in response to the 20132016 say-on-pay vote. The Compensation Committee will continue to consider the vote results for say-on-pay proposals in future years when making compensation decisions for the Company’s named executive officers.
Shareholder Say-on-Frequency Vote
The Board of Directors has determined that the Company’s shareholders should vote on a say-on-pay proposal each year, consistent with the preference expressed by the Company’s shareholders at the 2011 Annual Meeting. Accordingly, at the 20142017 Annual Meeting, shareholders will again have the opportunity to indicate their views on the compensation of the Company’s named executive officers by an advisory say-on-pay vote. The Board recommends that you vote FOR the say-on-pay proposal (Proposal Three) at the 20142017 Annual Meeting. For more information, see “PROPOSAL THREE — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION” on page 3140 in this proxy statement.
statement and “PROPOSAL FOUR — ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION on page 41.
Executive Compensation Decisions for Fiscal Year 2014
2017
For the 20142017 fiscal year, the primary elements of compensation for the named executive officers were:
| § | base salary (set on a calendar year basis), |
| § | an annual cash incentive opportunity (based on the Company’s fiscal year financial performance), |
| § | long-term equity-based incentives for each named executive officer, |
| § | supplemental retirement benefits for |
| § | life insurance benefits for one of the named executive officers. |
Base Salary
Annual Cash Incentive
The Committee believes it is in the best interests of the Company and its shareholders to usebase the annual cash incentive directly on achievement of an objective performance metric. The Committee generally considers consolidated net income asto be the appropriate performance metric for the annual cash incentive for senior management. The Committeemanagement because it believes that items included in net income, such as consolidated income tax expense, discontinued operations, interest expense and other income and
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expense, reflect upon the appropriateness of management decision makingdecision-making and therefore are appropriate basesprovide an effective tool for measuring senior management performance.performance over the course of a fiscal year. However, since Mr. Revington’s fiscal 2017 responsibilities related primarily to the Home Meridian segment and Mr. Delgatti’s responsibilities were primarily related to the Hooker Casegoods and Upholstery segments, the Committee believed it was in the best interest of the Company and its shareholders to set Mr. Revington’s and Mr. Delgatti’s performance metrics based on the operating income of their respective areas of responsibility.
2017 (150% of the Home Meridian segment’s budgeted operating income in the case of Mr. Revington and 150% of the Hooker Casegoods and Upholstery segments’ consolidated operating income in the case of Mr. Delgatti).
Annual cash incentive targets are established based on budgeted net income. Budgeted net income is established by management in its annual operating budget, which is approved by the Board annually.
Board.
Target payouts for each named executive were established based on a number of factors including:
| § | Historical target payouts for each executive; |
| § | data contained in a Mercer compensation study from a prior fiscal year; |
| § | general business knowledge and experience of the Committee’s members; |
| § | other general compensation information available to the |
| § | the |
As discussed above, the Mercer study reflected total compensation for similar positions at similarly situated companies with which the Company would expect to compete for executive talent. The Committee evaluated each executive’s total compensation, with an emphasis on shifting a greater share of the executive’s total compensation to incentive-based pay, and also considered the executives’ specific roles, responsibilities and experience, as well as other elements of each executive’s compensation arrangement and considered the mix of short- and long-term elements in each executive’s overall compensation plan. Generally, it works as follows: the greater an executive’s responsibilities, the larger the potential award. For example, Messrs.Mr. Toms, and Cole, the first and second most senior executives, respectively, wereexecutive was awarded a larger potential incentive awardsaward than were Messrs. Huckfeldt and Delgatti,other senior executives due to theirhis senior standing within the Company and theirhis larger share of responsibilities. Mr. Huckfeldt, a more recent entrant to executive management, was awarded a larger percentage of base pay, on a lower base salary as incentive potential than was Mr. Delgatti, due to the Committee’s emphasis on making performance-based compensation a larger component of senior management’s total compensation. The incentive opportunities were structured such that if consolidated net income did not meet the target, the named executive officers would receive a reduced payment or no payment, but if consolidated net income exceeded the target, incentive payments would increase at a rate greater than the increase in net income. This was designed to recognize exemplary consolidated net income achievement. In no event would an incentive payment be earned if less than 70% of the target level was attained.
In 2016, the Committee reviewed a compensation study prepared by Mercer. The study evaluated the total remuneration packages for the named executive officers and evaluated the competiveness of their compensation to the market, as defined by the modified peer group that the Committee adopted earlier in the year. The Company also evaluated the personal performance of the individual executive officers, except for Mr. Revington, who only recently joined the Company. Based on
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this review of total executive compensation and the complexity of the new, much larger organization, the Committee approved increases in annual cash incentive for Messrs. Toms and Huckfeldt and Ms. Jacobsen.
The award opportunities for each executive were as follows (expressed as a percentage of 20132016 calendar year base salary):
| If the Company Attained: | ||||||||||||||||||||||||
0-69% of Target Net Income* | 70-84% of Target Net Income* | 85-99% of Target Net Income* | 100-124% of Target Net Income* | 125-149% of Target Net Income* | 150%+ of Target Net Income* | |||||||||||||||||||
| Paul B. Toms, Jr. | 0 | % | 30.0 | % | 45.0 | % | 60.0 | % | 80.0 | % | 100.0 | % | ||||||||||||
| Paul A. Huckfeldt | 0 | % | 23.0 | % | 34.0 | % | 45.0 | % | 60.0 | % | 75.0 | % | ||||||||||||
| George Revington | 0 | % | 23.0 | % | 34.0 | % | 45.0 | % | 60.0 | % | 75.0 | % | ||||||||||||
| Anne M. Jacobsen | 0 | % | 23.0 | % | 34.0 | % | 45.0 | % | 60.0 | % | 75.0 | % | ||||||||||||
| Michael W. Delgatti, Jr. | 0 | % | 23.0 | % | 34.0 | % | 45.0 | % | 60.0 | % | 75.0 | % | ||||||||||||
| If the Company Attained: | ||||||||||||||||||||
70% of Target Net Income | 85% of Target Net Income | 100% of Target Net Income | 125% of Target Net Income | 150% of Target Net Income | ||||||||||||||||
| Paul B. Toms, Jr. | 25.0 | % | 37.5 | % | 50.0 | % | 66.5 | % | 83.5 | % | ||||||||||
| Paul A. Huckfeldt | 20.0 | % | 30.0 | % | 40.0 | % | 53.2 | % | 66.8 | % | ||||||||||
| Alan D. Cole | 25.0 | % | 37.5 | % | 50.0 | % | 66.5 | % | 83.5 | % | ||||||||||
| Michael W. Delgatti, Jr. | 17.5 | % | 26.3 | % | 35.0 | % | 46.6 | % | 58.5 | % | ||||||||||
* Home Meridian segment operating income in the case of Mr. Revington and Hooker Casegoods and Upholstery segment operating income in the case of Mr. Delgatti.
The net income target for the 20142017 fiscal year was set at $9.3$25.8 million on a consolidated basis. The net income target had previously been approved by the Board in consultation with management, and after considering the Company’s profit potential, including the impacts of the Home Meridian Acquisition, the impact of national and international economic conditions on the Company and the home furnishings industry as a whole. Based on these factors, the Committee concluded that the target and threshold levels were appropriate to motivate and appropriately reward executive officers to attain the desired level of performance for fiscal 2014.
2017.
The Company achieved approximately 85%98% of its consolidated net income target set by the Committee for fiscal 2014.2017. The Home Meridian segment achieved 101% of its target set by the Committee in fiscal 2017 and the Hooker Casegoods and Upholstery segments achieved approximately 97% of the combined target set by the Committee in fiscal 2017. This results in payments at 75% of the cash incentive target for Messrs. Toms, Huckfeldt and Delgatti and Ms. Jacobsen and a 100% payout for Mr. Revington. As a result, the named executive officers received annual cash incentive payments as follows:
| Name | Fiscal 2017 Annual Cash Incentive Earned | |||
| Paul B. Toms, Jr. | $ | 186,750 | ||
| Paul A. Huckfeldt | 84,375 | |||
| George Revington | 180,000 | |||
| Anne M. Jacobsen | 67,500 | |||
| Michael W. Delgatti, Jr. | 101,250 | |||
| Name | 2014 Annual Cash Incentive Earned | |||
Paul B. Toms, Jr. | $ | 138,750 | ||
| Paul A. Huckfeldt | 64,350 | |||
Michael W. Delgatti, Jr. | 69,560 | |||
Alan D. Cole | 124,875 | |||
Long-Term Incentives
During fiscal 2017, consistent with the Committee’s objective of giving greater weight to the performance-based element of total compensation, the Committee granted two types of long-term incentive awards for the performance period beginning in fiscal year 2017. The awards were designed to directly link a significant portion of a named executive’s compensation to growth in value of the Company and to further enhance existing retention incentives under the Company’s executive compensation program.
The first of the two types of awards was a performance grant that entitles the executive to receive a payment at the end of a three-year performance period based on certain earnings per share (“EPS”)
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targets. One target is based on annual average growth in the Company’s EPS over the performance period and the other target is based on EPS growth over the performance period compared to that of the peer companies described at page 17. The executive officer also must remain continuously employed with the Company through the end of the three-year performance period to be eligible for a payment (subject to limited exceptions).
The amount set forth in the table below is based on the average annual growth of the Company’s fully diluted EPS from continuing operations over the performance period. The Company’s EPS growth must average at least 5% annually over the performance period for a payment to be made.
Payout Amount Based on EPS Growth (%) for Performance Period | ||||||||||||||||||||
| Executive Officer | 5% | 10% | 15% | 20% | 25% | |||||||||||||||
| Paul B. Toms, Jr. | $ | 31,125 | $ | 93,375 | $ | 124,500 | $ | 155,625 | $ | 186,750 | ||||||||||
| Paul A. Huckfeldt | 15,000 | 45,000 | 60,000 | 75,000 | 90,000 | |||||||||||||||
| George Revington | 20,004 | 60,012 | 80,016 | 100,020 | 120,024 | |||||||||||||||
| Anne M. Jacobsen | 12,000 | 36,000 | 48,000 | 60,000 | 72,000 | |||||||||||||||
| Michael W. Delgatti, Jr. | 15,003 | 45,009 | 60,012 | 75,015 | 90,018 | |||||||||||||||
The amount set forth in the table below is based on the average annual growth of the Company’s EPS over the performance period relative to a group of specified peer companies. However, if the Company’s EPS growth is not positive for the performance period, this payment will be capped at the amount for the 50th percentile.
Payout Amount Based on Relative EPS Growth for Performance Period | ||||||||||||
| Executive Officer | Less than 50th percentile | 50th percentile, but less than 75th percentile | Equal to or greater than 75th percentile | |||||||||
| Paul B. Toms, Jr. | $ | 0 | $ | 124,500 | $ | 186,750 | ||||||
| Paul A. Huckfeldt | 0 | 60,000 | 90,000 | |||||||||
| George Revington | 0 | 79,992 | 119,988 | |||||||||
| Anne M. Jacobsen | 0 | 48,000 | 72,000 | |||||||||
| Michael W. Delgatti, Jr. | 0 | 59,994 | 89,991 | |||||||||
The Committee selected EPS as the measure for the performance targets because EPS, and especially changes in EPS, directly reflect changes in the value of the Company over time, which the Committee believes best reflects the long-term interests of the shareholders. Using a simple, well-defined performance measure for these awards reduces the risk of manipulating that measure for short-term gain and reduces the risk of unintended consequences that could result from paying bonuses based on factors other than earnings, such as sales growth or non-financial measures which could misalign shareholder and management objectives. For example, a focus on sales growth or a non-financial metric such as customer satisfaction could provide an incentive to increase sales through greater discounting or create excessively generous return and allowance policies at the expense of overall profitability.
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The Committee also awarded to each named executive officer (other than Mr. Toms) restricted stock units that will vest if the executive remains continuously employed with the Company (subject to limited exceptions) until the three-year anniversary date of each grant which is April 13, 2019. The awards may be paid in shares of company stock, cash or a combination of both, as determined by the Committee in its discretion. They are designed to encourage retention and to provide an incentive for increasing shareholder value. The number of RSUs awarded to each executive officer is set forth in the table below:
| Executive Officer | Number of RSUs | |||
| Paul B. Toms, Jr. | 0 | |||
| Paul A. Huckfeldt | 1,179 | |||
| George Revington | 3,143 | |||
| Anne M. Jacobsen | 943 | |||
| Michael W. Delgatti, Jr. | 2,357 | |||
The Committee did not award restricted stock to Mr. Toms because it determined that the Supplemental Retirement Income Plan and executive life insurance program provide sufficient retention incentives for him.
Supplemental Retirement and Life Insurance Benefits
Messrs. Toms and Huckfeldt, Ms. Jacobsen and certain other officers and managers, participate in the Company’s Supplemental Retirement Income Plan (“SRIP”). The SRIP is an unfunded supplemental retirement plan that provides a monthly benefit equal to a specified percentage of the participant’s base salary plus annual bonus for the 60 consecutive month period preceding his termination of employment (referred to as his “Final Average Earnings”). Messrs. Toms and Huckfeldt and Ms. Jacobsen are each eligible to receive a monthly benefit equal to 50%, 25% and 25%, respectively, of histheir Final Average Earnings. The benefit is paid for 15 years following the participant’s retirement. As a general matter, a participant is not entitled to receive any benefit under the SRIP unless he remainsthey remain continuously employed with the Company to age 60. At age 60, the participant becomes vested in 75% of histheir SRIP benefit and in 5% increments each following year until becoming 100% vested at age 65, assuming the participant remains continuously employed to those dates.
The objective of the SRIP is to create incentives for covered employees to remain employed with the Company over the balance of their careers, reward extended service with the Company and to balance short-term and long-term decision making, thereby enhancing the stability of the management team and allowing for predictability in succession planning.
In addition, the Committee has determined that the SRIP helps mitigate compensation-related risk for the reasons discussed at page 25.
Each participant’s benefit in the SRIP will become fully vested, regardless of age, and the present value of those benefits will be paid in a lump sum upon a change in control of the Company. The Committee believes that this provision further enhances retention by providing assurance to employees that the benefits promised under the SRIP will be paid if the Company comes under new ownership or control. The amounts to which participating named executive officers would be entitled thus farto receive under the SRIP and additional information concerning the SRIP can be found in the Pension Benefits table on page 2433 and Potential Payments upon Termination or Change in Control on page 25.33.
Messrs. ColeRevington and Delgatti do not participate in the SRIP, but insteadSRIP. They have been provided other retention incentives under their respective employment agreements that are tailored to their specific employment circumstances.
The Company also maintains an executive life insurance program for certain officers, including Mr. Toms and for certain other officers.Toms. Like the SRIP, the life insurance program is designed to retain executives through their careers and reward extended service with the Company by providing life insurance coverage until they reach age 65, allowing for stability in management and predictability in succession planning. The death
