UNITED STATES SECURITIES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
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RH
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TO OUR PEOPLE, PARTNERS, AND SHAREHOLDERS,
Fiscal 2019 was an outstanding year for Team RH. We achieved record results across every key metric of our business while continuing to elevate the brand and create strategic separation in our industry. Revenues increased 5.4% over last year to $2.647 billion, adjusted operating margins reached an industry best 14.3%, and adjusted diluted earnings per share increased 49% to $11.66. We also generated $330 million of free cash flow in 2019, and achieved industry leading ROIC of 35.3%.
While proud of the outstanding results our team achieved last year, clearly much has changed as a result of the rapid spread of COVID-19 around the world. Our hearts go out to all of those whose lives are being impacted by the virus, and we are eternally grateful for all the brave souls who are on the front lines putting their health at risk to protect ours.
Like others, we have taken the expected steps of deferring new business introductions and capital spending, while reducing costs to navigate through the short-term challenges of this crisis. Unlike others, and due to our exceptional financial model, we believe we are well positioned to take advantage of the many opportunities that present themselves during times of dislocation. At RH, we live by Einstein’s three rules of work. “Out of clutter find simplicity. From discord find harmony. In the middle of difficulty lies opportunity.”
It was during the depths of the Great Recession, when the word “value”, drove an entire industry to lower quality and reduce prices, that we chose to move in the opposite direction, raising the quality of our offering, positioning RH as a disruptive force in the lucrative luxury home furnishings market. Out of the clutter of the current crisis, and in the middle of what seems like the most difficult of times, we are once again focused on elevating and reimagining the RH brand in a manner that will, in the words of Steve Jobs, “Change everything, again.”
THERE ARE THOSE WITH TASTE AND NO SCALE, AND THOSE WITH SCALE AND NO TASTE
RH at its core is about taste, and we believe the idea of scaling taste is large and far reaching.
15 Koch Road, Suite KThe RH brand attracts the best designers, artisans, and manufacturers in our industry, scaling and rendering their work more valuable across our integrated platform, enabling us to curate the most compelling collection of luxury home furnishings in the world. Our strategy to open new design galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 to $6 billion in North America, with the long term potential to become a $20 billion dollar global brand.
Corte Madera, CA 94925Our vision is to move the brand beyond curating and selling product to conceptualizing and selling spaces by building an ecosystem of products, places, services and spaces that elevate and establish the RH brand as a global thought leader, taste, and placemaker.
As an example, our product is elevated and rendered more valuable by our architecturally inspiring Galleries, which are further elevated and rendered more valuable by our seamlessly integrated hospitality experience. Our Hospitality efforts will continue to elevate the RH brand as we move beyond the four walls of our Galleries into RH Guesthouses where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion hotel industry. Additionally, we are creating bespoke hospitality experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley, and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean where the wealthy and affluent visit and vacation. These immersive experiences expose existing and new customers to our evolving authority in interior design, architecture, landscape architecture and hospitality.
This leads to our strategy of building the world’s first consumer facing Interior Design, Architecture, and Landscape Architecture services platform inside our Galleries, again elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries.
Our ecosystem will come full circle as we begin to conceptualize and sell spaces, moving the brand beyond the $200 billion home furnishings market into the $1.7 trillion North American housing market by offering beautifully designed and furnished turnkey homes and condominiums with the introduction of RH Residences.
The entire ecosystem will come to life digitally as we transform our website into The World of RH, a portal presenting our Products, Places, Services, and Spaces.
We believe the ecosystem can be expanded globally, multiplying the market opportunity to approximately $7 to $10 trillion, quite possibly one of the largest and most lucrative addressed by any brand in the world today. A one percent share of the global market represents a $70 to $100 billion opportunity.
Taste can be elusive, and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable.
LUXURY GOODS ARE THE ONLY AREA IT IS POSSIBLE TO MAKE LUXURY MARGINS ~ Bernard Arnault
We have spent decades building a business model that generates industry leading profitability and return on invested capital, and believe, like Bernard Arnault, “Luxury goods are the only area it is possible to make luxury margins.”
The emergence of RH as a luxury brand generating luxury margins is becoming evident as our adjusted operating margin has expanded over 700 basis points in the past two years from 7.0% in 2017 to 14.3% in 2019. We continue to expect operating margins to expand in 2020 despite the current setbacks from COVID-19, and now see a clear path to 20% operating margin over the next few years.
We also believe this recent period has been reminiscent of previous times when growth without profitability has been unjustly rewarded, and valuations were based on the misplaced belief that an online retail business is more profitable than a physical store. This view has driven new concepts to launch as “digitally native brands” chasing internet valuations and cheap capital from private and public markets that have somehow confused an online retail startup with a technology company. It’s becoming clear that retail brands birthed online desperately need a store lifeline to survive, as many are finding the variable cost of marketing an invisible store leads to an unprofitable path to the future.
Traditional retailers hoping for the same favorable valuations, and in some cases driven by the fear of not being viewed as fashionable by millennials, have allocated the vast majority of their capital to unnaturally grow their digital business. This has resulted in shifting, not lifting, sales online at greater costs, driving down margins while physical stores have been left to rot.
We, on the other hand, have built an integrated multi-channel platform that expresses our brand seamlessly across physical, digital and print. Our physical Galleries are architecturally inspiring spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality, with seamlessly integrated restaurants and brand amplifying services like RH Interior Design, all of which render our brand more valuable while creating a customer experience that cannot be replicated online.
Our digital experience, inclusive of RH Interiors, Modern, Outdoor, Baby & Child plus Teen generates over a billion dollars online, while our Source Books inspire millions of customers driving traffic to our Galleries and websites.
We believe the combination of our luxury positioning, the inspiring presentation of our collections across all channels, and the fact that we control our brand from concept to customer, will enable RH to continue to disrupt the highly fragmented luxury home furnishings market, expand our operating margins, and take share for years to come.
CLIMBING THE LUXURY MOUNTAIN WHILE BUILDING A BRAND WITH NO PEER
Hermès, Chanel, Louis Vuitton, Gucci, Cartier, Tiffany, and the rest of the finest luxury brands in the world were all born on the top of the luxury mountain. Never has a brand started near the base and made the climb to the peak. We believe RH can be the first to make the climb, knowing very well those at the top don’t necessarily want us to. To make the climb, we understand that our work has to be so extraordinary that it creates a forced reconsideration of our brand, requiring them to tip their hat, if you will.
It is not a climb for the faint of heart, requiring imagination, innovation, and a great deal of persistence and perspiration. We have to be willing to endure short-term pain to drive long-term gain, as we did moving from a promotional to a membership model, redesigning our operating platform, eliminating our holiday assortments, or managing the business with a bias for earnings versus revenues as we built a durable platform to support long-term high-quality growth.
We also understand the strategies we are pursuing – opening the largest specialty retail experiences in our industry, while most are shrinking the size of their retail footprint or closing stores; moving from a promotional to a membership model, while others are increasing promotions, positioning their brands around price versus product; continuing to mail inspiring Source Books, while many are eliminating catalogs; and refusing to follow the herd in self-promotion on social media, instead allowing our brand to be defined by the taste, design, and quality of the products and experiences we are creating – are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry.
We believe when you step back and consider: one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape and we would argue, will also prove to be equally valuable.
THIS IS A TIME TO BE DEFINED BY OUR VISION, NOT BY A VIRUS
As we move forward past the dark days of the pandemic, let this be a pivot point where we once again rise up. It is not a time to shelter and shrink, it is a time to expand and shine. It is not a time to revert back to old ways and former days, it is a time to reimagine new ways and brighter days. It is not a time to do less, it is a time to do more with less. It is not a time to be victims of our current reality, it is a time to be visionaries, destroying today’s reality to create tomorrow’s future.
Let this be a time we look back upon and remember our resurrection. A time we reimagined and reinvented ourselves once again. A time Team RH unleashed the greatest display of innovation our industry has ever seen.
A time we once again become, unimaginable.
This is a time to be defined by our vision, not by a virus.
Carpe Diem,
Gary Friedman
Chairman & Chief Executive Officer
NOTICE OF 20172020 ANNUAL MEETING OF STOCKHOLDERSSHAREHOLDERS
to be held on:
June 27, 2017
July 22, 2020 10:30 a.m. Pacific Time
Dear Stockholder:
You are cordially invited to attend our 2017 Annual Meeting of Stockholders, which will be held at 10:30 a.m. (Pacific Time) on June 27, 2017, at the Company’s headquarters located atRH, 15 Koch Road, Corte Madera, CA 94925.94925
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholder Meeting to be Held on July 22, 2020 (the “Annual Meeting”): The Company’s 2020 Notice and Proxy Statement, its fiscal 2019 Annual Report on Form 10-K and its proxy card are available for review online at www.proxyvote.com
RH SHAREHOLDER,
We are holding the Annual Meeting for the following purposes, which are more fully described in the proxy statement:
1. | To elect the three nominees named in the proxy statement to our board of directors; |
2. | To vote, on an advisory basis, on our named executive officer compensation; |
3. | To |
4. |
To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending |
To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
Only stockholdersshareholders of record as of the close of business on April 28, 2017May 26, 2020 are entitled to notice and to vote at the Annual Meeting or any postponement or adjournment thereof. A list of stockholdersshareholders entitled to vote will be available for inspection at our offices for ten days prior to the Annual Meeting. If you would like to view this stockholdershareholder list, please contact Investor Relationsthe Corporate Secretary at(415) 945-4998.
We intend to hold our Annual Meeting in person. However, in the event we determine it is not possible or advisable to hold our Annual Meeting in person due to health or other considerations related to COVID-19 or other reasons, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. If we take this step, we will announce the decision to do so via a press release and details about how to participate will be posted on our website and filed with the Securities and Exchange Commission as additional proxy materials. Please monitor our website at ir.rh.com for updated information. As always, we encourage you to vote your shares prior to the Annual Meeting.
Each share of stock that you own represents one vote, and your vote as a stockholdershareholder of RH is very important. For questions regarding your stock ownership, you may contact Investor Relationsthe Corporate Secretary at(415) 945-4998 or, if you are a registered holder, our transfer agent, Computershare Investor Services, by email through their website atwww.computershare.com/contactus or by phone at(800) 962-4284 (within the U.S. and Canada) or(781) 575-3120 (outside the U.S. and Canada).
The Board of Directors has approved the proposals described in the accompanying proxy statement and recommends that you vote “FOR” the election of all nominees for director in Proposal 1, “FOR” the approval of compensation of our named executive officers in Proposal 2, “FOR” there-approval of our 2012 Stock Incentive Plan for purposes of Section 162(m)(4)(C) of the Codeevery “ONE YEAR” in Proposal 3 “FOR” the approval of our Cash Incentive Bonus Plan for purposes of Section 162(m)(4)(C) of the Code in Proposal 4 and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP in Proposal 5.4.
BY ORDER OF THE BOARD OF DIRECTORSBy order of the board of directors,
Gary Friedman
Chairman and& Chief Executive Officer
Corte Madera, California
May 18, 2017
YOUR VOTE IS IMPORTANT
Your Vote Is Important. Instructions for submitting your proxy are provided in the Notice of Internet Availability of Proxy Materials, the Proxy Statementproxy statement and your proxy card. It is important that your shares be represented and voted at the Annual Meeting. Please submit your proxy through the Internet, by telephone, or by completing the enclosed proxy card and returning it in the enclosed envelope. You may revoke your proxy at any time prior to its exercise at the Annual Meeting.
Important Notice RegardingCertain forward-looking statements and non-GAAP financial measures are included in this proxy statement including in the Availabilityletter from our Chairman and CEO. Please see the section titled “Forward Looking Statements” for further information and Annex A for a reconciliation of Proxy Materials for the Annual Stockholder MeetingGAAP to be Held on June 27, 2017:non-GAAP measures referenced in this proxy statement.
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RH
20172020 ANNUAL MEETING OF STOCKHOLDERS
SHAREHOLDERS
PROXY STATEMENT SUMMARY
Information about Solicitation and VotingINFORMATION ABOUT SOLICITATION AND VOTING
The accompanying proxy is solicited on behalf of the board of directors of RH (the “Company”) for use at the Company’s 20172020 Annual Meeting of StockholdersShareholders (the “Annual Meeting”) to be held at the Company’s headquarters located at 15 Koch Road, Corte Madera, CA 94925 on June 27, 2017,July 22, 2020, at 10:30 a.m. (Pacific Time), and any adjournment or postponement thereof.
On or about May 18, 2017,June 1, 2020, we will mail to our stockholdersshareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our 20172020 Notice and Proxy Statement and our fiscal 20162019 Annual Report onForm 10-K filed on March 30, 2020 (the “2016“2019 Annual Report”) via the Internet and vote online. The Notice of Internet Availability of Proxy Materials also contains instructions on how you can receive a paper copy of the proxy materials. Our 20162019 Annual Report, Notice of Internet Availability of Proxy Materials and our proxy card are first being made available online on or about May 18, 2017.June 1, 2020.
About the Annual MeetingABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
At our Annual Meeting, stockholdersshareholders will vote upon the fivefour proposals described in this proxy statement.
Why did I receive aone-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission, or the SEC, instead of mailing a printed copy of our proxy materials to all stockholdersshareholders entitled to vote at the Annual Meeting, we are furnishing the proxy materials to our stockholdersshareholders over the Internet. Accordingly, on or about May 18, 2017,June 1, 2020, the Company will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to the Company’s stockholders,shareholders, other than those who previously requested electronic or paper delivery. If you received a Notice by mail, you will not receive a printed copy of the proxy materials. Instead, the Notice will instruct you as to how you may access and review the proxy materials and submit your vote on the Internet or by telephone. If you received a Notice by mail and would like to receive a printed copy of the proxy materials, please follow the instructions for requesting such materials included in the Notice. On the date of mailing of the Notice, all stockholdersshareholders will have the ability to access all of our proxy materials on a website referred to in the Notice. These proxy materials will be available free of charge. We encourage stockholdersshareholders to take advantage of the availability of the proxy materials on the Internet to help reduce the cost of the physical printing and mailing of materials.
What proposals are scheduled to be voted on at the Annual Meeting?
StockholdersShareholders will be asked to vote on fivefour proposals. The proposals are:
1. | The election to our board of directors of the three nominees named in this proxy statement; |
2. | An advisory vote on our named executive officer compensation; |
3. |
The ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the fiscal year ending |
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What is the recommendation of the board of directors on each of the proposals scheduled to be voted on at the Annual Meeting?
The board of directors recommends that you vote:
Could other matters be decided at the Annual Meeting?
Our Bylaws require that we receive advance notice of any proposal to be brought before the Annual Meeting by stockholdersshareholders of the Company, and we have not received notice of any such proposals.Company. There are no shareholder proposals to be voted on at the Annual Meeting. If any other matter were to come before the Annual Meeting, the proxy holders appointed by our board of directors will have the discretion to vote on those matters for you.
Who can vote at the Annual Meeting?
StockholdersShareholders as of the record date for the Annual Meeting, April 28, 2017,the close of business on May 26, 2020, are entitled to vote at the Annual Meeting. At the close of business on the record date, there were 33,075,56919,291,566 shares of the Company’s common stock outstanding and entitled to vote.
StockholderShareholder of Record: Shares Registered in Your Name
If on April 28, 2017,May 26, 2020, your shares were registered directly in your name with our transfer agent, Computershare Investor Services, then you are considered the stockholdershareholder of record with respect to those shares.
As a stockholdershareholder of record, you may vote at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to vote over the Internet or by telephone, or, if you request paper proxy materials, by filling out and returning the proxy card.
Beneficial Owner: Shares Registered in the Name of a Broker or Nominee
If on April 28, 2017,May 26, 2020, your shares were held in an account with a brokerage firm, bank or other nominee, then you are the beneficial owner of the shares held in street name. As a beneficial owner, you have the right to direct your nominee on how to vote the shares held in your account, and your nominee has enclosed or provided voting instructions for you to use in directing it on how to vote your shares. However, the organization that holds your shares is considered the stockholdershareholder of record for purposes of voting at the Annual Meeting. Because you are not the stockholdershareholder of record, you may not vote your shares at the Annual Meeting unless you request and obtain a valid proxy from the organization that holds your shares giving you the right to vote the shares at the Annual Meeting.
How do I vote?
If you are a stockholdershareholder of record, you may:
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Votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on June 26, 2017.July 21, 2020. Submitting your proxy, whether via the Internet, by telephone or by mail if you requested a paper proxy card, will not affect your right to vote at the Annual Meeting should you decide to attend the meeting.
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If you are not a stockholdershareholder of record, please refer to the voting instructions provided by your nominee to direct it how to vote your shares.
Your vote is important. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure that your vote is counted. You may still attend the Annual Meeting if you have already voted by proxy.
What if I return my proxy card directly to the Company, but do not provide voting instructions?
If a signed proxy card is returned to us without any indication of how your shares should be voted on a particular proposal at the meeting, your shares will be voted in accordance with the recommendations of our board of directors stated above. For example, if you return a signed proxy card with no indication of your vote on any of the proposals, your votes will be cast “FOR” the election of the three director nominees named in this proxy statement, “FOR” the approval, on an advisory basis, of the compensation of our named executive officers, “FOR”for “ONE YEAR” on there-approval vote, on an advisory basis, on the frequency of our 2012 Stock Incentive Plan for purposes of Section 162(m)(4)(C) of the Code, “FOR” approval of our Cash Incentive Bonus Plan for purposes of Section 162(m)(4)(C) of the Codeholding an advisory vote on executive compensation, and “FOR” the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2017.2020.
If you hold your shares in street name and do not vote, and your broker does not have discretionary power to vote your shares, your shares may constitute “brokernon-votes” (as described below) and may not be counted in determining the number of shares necessary for approval of a proposal. However, shares that constitute brokernon-votes will be counted for the purpose of establishing a quorum for the Annual Meeting. Voting results will be tabulated and certified by the inspector of elections appointed for the meeting.Annual Meeting.
What is the quorum requirement for the Annual Meeting?
A majority of our outstanding shares as of the record date must be present at the meetingAnnual Meeting in order to hold the meeting and conduct business. This presence is called a quorum. Your shares are counted as present at the meeting if you are present and vote in person at the meeting or if you have properly submitted a proxy.
How are abstentions and brokernon-votes treated?
Abstentions (i.e., shares present at the meeting and voted “abstain”) are counted for purposes of determining whether a quorum is present, and have no effect on the election of directors (Proposal 1), on the advisory vote to approve our named executive officer compensation (Proposal 2), on the advisory vote on the frequency of holding an advisory vote on executive compensation (Proposal 3), or on the ratification of appointment of auditors (Proposal 5)4). For the purpose of determining whether the stockholders havere-approved our 2012 Stock Incentive Plan for purposes of Section 162(m)(4)(C) of the Code (Proposal 3) and approved our Cash Incentive Bonus Plan for purposes of Section 162(m)(4)(C) of the Code (Proposal 4), abstentions are counted as votes cast under the rules of the New York Stock Exchange (“NYSE”) and have the same effect as an “against” vote.
Brokernon-votes occur when shares held by a broker for a beneficial owner are not voted because (i) the broker did not receive voting instructions from the beneficial owner, and (ii) the broker lacked discretionary authority to vote the shares. Brokernon-votes are counted for purposes of determining whether a quorum is present. Note that if you are a beneficial
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holder and do not provide specific voting instructions to your broker, the broker that holds your shares will not be authorized to vote on the election of directors (Proposal 1), to vote on an advisory basis to approve our named executive officer compensation (Proposal 2), nor will the broker be authorized to vote tore-approve our 2012 Stock Incentive Plan for purposeson the frequency of Section 162(m)(4)(C) of the Codeholding an advisory vote on executive compensation (Proposal 3) or to vote to approve our Cash Incentive Bonus Plan for purposes of Section 162(m)(4)(C) of the Code (Proposal 4). Ratification of the appointment of auditors (Proposal 5)4) is considered to be a routine matter and, accordingly, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 5,4, brokers will be permitted to exercise their discretionary authority to vote for the ratification of the appointment of auditors. Accordingly, we encourage you to provide voting instructions to your broker, whether or not you plan to attend the Annual Meeting.
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What is the vote required for each proposal?
The votes required to approve each proposal are as follows:
Proposal 1. Shareholders’ choices for Proposal 1 (Election of Directors) are limited to “for” and “withhold.” A plurality of the shares of common stock voting in person or by proxy is required to elect each of the three nominees for director under Proposal 1. Under plurality voting, the three nominees receiving the largest number of votes cast (votes “FOR”) will be elected. Because the election of directors under Proposal 1 is considered to be a non-routine matter under the rules of the New York Stock Exchange (“NYSE”), if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 1, brokers will not be permitted to exercise their voting authority and uninstructed shares may constitute broker non-votes. Abstentions and broker non-votes will have no effect on the outcome of Proposal 1 because the election of directors is based on the votes actually cast.
Proposal 2. The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve, on an advisory basis, the compensation of our named executive officers described under Proposal 2 (Advisory Vote to Approve Executive Compensation). Because the advisory vote under Proposal 2 is considered to be a non-routine matter under the rules of the NYSE, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 2, brokers will not be permitted to exercise their voting authority and uninstructed shares may constitute broker non-votes. Abstentions and broker non-votes will have no effect on the outcome of Proposal 2 because the advisory vote is based on the votes actually cast.Proposal 3. Shareholders’ choices for Proposal 3 (Frequency of Advisory Vote on Executive Compensation) are limited to “one year,” “two years,” “three years” and “abstain.” A plurality of the votes cast will determine the shareholders’ preferred frequency for holding an advisory vote on executive compensation. This means that the alternative for holding an advisory vote every year, every two years, or every three years receiving the greatest number of “FOR” votes will be the preferred frequency of the shareholders. Because the advisory vote under Proposal 3 is considered to be a non-routine matter under the rules of the NYSE, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 3, brokers will not be permitted to exercise their voting authority and uninstructed shares may constitute broker non-votes. Abstentions and broker non-votes will have no effect on the outcome of Proposal 3 because the advisory vote is based on the votes actually cast. Proposal 4. The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to ratify the selection of the independent registered public accounting firm for fiscal 2020 under Proposal 4 (Ratification of Appointment of Auditors). Proposal 4 is considered to be a routine matter under the rules of the NYSE and, accordingly, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 4, brokers will be permitted to exercise their discretionary authority to vote for the ratification of the appointment of auditors. Abstentions and broker |
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How can I get electronic access to the proxy materials?
The Notice will provide you with instructions regarding how to use the Internet to:
The Company’s proxy materials are also available atir.rh.com. This website address is included for reference only. The information contained on the Company’s website is not incorporated by reference into this proxy statement.
Choosing to receive future proxy materials by email will save the Company the cost of printing and mailing documents to you. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it.
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Who is paying for this proxy solicitation?
The Company is paying the costs of the solicitation of proxies. Proxies may be solicited on behalf of the Company by our directors, officers, associates (we refer to our employees as associates) or agents in person or by telephone, facsimile or other electronic means. We will also reimburse brokerage firms and other custodians, nominees and fiduciaries, upon request, for their reasonable expenses incurred in sending proxies and proxy materials to beneficial owners of our common stock. We have retained the services of Alliance Advisors LLC (“Alliance”) to assist in the solicitation of proxies for a fee of approximately $26,000$25,500 plus reasonableout-of-pocket expenses. We may engage Alliance for additional solicitation work and incur fees greater than $26,000,$25,500 depending on a variety of factors, including preliminary voting results and recommendations from Institutional Shareholder Services.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.
How can I change my vote after submitting my proxy?
A stockholdershareholder who has given a proxy may revoke it at any time before it is exercised at the meeting by:
Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to revoke a proxy, you must contact that firm to revoke any prior voting instructions.
Where can I find the voting results?
The final results will be tallied by the inspector of elections and filed with the SECU.S. Securities and Exchange Commission (the “SEC”) in a current report on Form8-K within four business days of the Annual Meeting.
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INTENTIONALLY LEFT BLANK
PROPOSAL 1
ELECTION
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ANNUAL MEETING OF SHAREHOLDERS | 2020 PROXY STATEMENT | 11 |
SECURITY OWNERSHIP OF DIRECTORSTOP
SHAREHOLDERS & LEADERSHIP
Our boardThe following table sets forth information as of May 26, 2020, regarding the beneficial ownership of our common stock by: each person or group who is known by us to own beneficially more than 5% of our outstanding shares of our common stock; each of our named executive officers; each of our current directors; and all of our current executive officers and directors currently consists of nine directors, three of whom, as a group.
Beneficial ownership for the Class II directors, have been nominated and are standing for election at the Annual Meeting.
Unless proxy cards are otherwise marked or a brokernon-vote occurs, the persons named as proxies will vote all proxiesFOR the election of each nominee named in this proxy statement. Proxies submitted to the Company cannot be voted at the Annual Meeting for nominees other than those nominees named in this proxy statement. However, if any director nominee is unable or unwilling to serve at the timepurposes of the Annual Meeting,following table is determined in accordance with the persons namedrules and regulations of the SEC. Percentage of beneficial ownership is based on 19,291,566 shares of common stock outstanding as proxies may vote for a substitute nominee designated by our board of directors. Alternatively, our board of directors may reduceMay 26, 2020. Except as disclosed in the size of our board of directors.
Each nominee has consentedfootnotes to serve as a director if elected,this table and our board of directors does notsubject to applicable community property laws, we believe that any nominee will be unwillingeach shareholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the shareholder. Unless otherwise indicated in the table or unable to serve if electedfootnotes below, the address for each beneficial owner is c/o RH, 15 Koch Road, Corte Madera, CA 94925.
| | | | | |
NAME(1) |
| NUMBER |
| PERCENT |
|
Gary Friedman(2) |
| 6,730,158 |
| 27.8% | |
FMR LLC(3) 245 Summer Street, Boston, MA 02210 |
| 2,849,551 |
| 14.8% | |
BlackRock, Inc.(4) 55 East 52nd Street, New York, NY 10055 |
| 1,915,777 |
| 9.9% | |
The Vanguard Group(5) 100 Vanguard Blvd., Malvern, PA 19355 |
| 1,830,350 |
| 9.5% | |
Berkshire Hathaway Inc.(6) 3555 Farnam Street, Omaha, NE 68131 |
| 1,708,348 |
| 8.9% | |
Renaissance Technologies LLC(7) 800 Third Avenue, New York, NY 10022 |
| 1,299,277 |
| 6.7% | |
Miller Value Partners, LLC(8) One South Street, Suite 2550, Baltimore, MD 21202 |
| 985,635 |
| 5.1% | |
The Goldman Sachs Group, Inc.(9) 200 West Street, New York, NY 10282 |
| 976,926 |
| 5.1% | |
Carlos Alberini(10) |
| 45,346 |
| * | |
Keith Belling(11) |
| 10,003 |
| * | |
Ryno Blignaut |
| — |
| * | |
Eri Chaya(12) |
| 386,437 |
| 2.0% | |
Mark Demilio(13) |
| 58,108 |
| * | |
Hilary Krane(14) |
| 6,618 |
| * | |
Katie Mitic(15) |
| 9,269 |
| * | |
Jack Preston(16) |
| 79,794 |
| * | |
DeMonty Price(17) |
| 205,077 |
| 1.1% | |
Ali Rowghani(18) |
| 7,955 |
| * | |
Leonard Schlesinger(19) |
| 12,504 |
| * | |
David Stanchak(20) |
| 188,000 |
| 1.0% | |
All current executive officers and directors as a group (12 persons)(21) |
| 7,739,269 | | 33.0% | |
* | Represents beneficial ownership of less than 1% of our outstanding common stock. |
(1) | Under the rules of the SEC, our named executive officers include our principal executive officer, principal financial officer and the next three most highly compensated executive officers. |
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SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP | 2020 PROXY STATEMENT | 13 |
(2) | Includes 4,876,826 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 26, 2020. As of May 26, 2020, 250,000 of these options are subject to selling restrictions. |
(3) | Based on the Schedule 13G/A filed by FMR LLC on February 7, 2020. |
(4) | Based on the Schedule 13G/A filed by BlackRock, Inc. on February 10, 2020. |
(5) | Based on the Schedule 13G/A filed by Vanguard Group, Inc. on February 12, 2020. |
(7) | Based on the Schedule 13G filed by Renaissance Technologies LLC on February 12, 2020. |
(8) | Based on the Schedule 13G/A filed by Miller Value Partners, LLC on February 14, 2019. |
(9) | Based on the Schedule 13G/A filed by The Goldman Sachs Group, Inc. on February 12, 2019. |
(10) | Includes 1,002 restricted stock awards that vest on July 24, 2020. |
(11) | Includes 1,002 restricted stock awards that vest on July 24, 2020. |
(12) | Includes 318,600 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 26, 2020 and 1,000 restricted stock units that vest on June 16, 2020. |
(14) | Includes 1,002 restricted stock awards that vest on July 24, 2020. |
(15) | Includes 1,002 restricted stock awards that vest on July 24, 2020. |
(16) | Includes 68,750 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 26, 2020 and 3,500 restricted stock units that vest on June 16, 2020. |
(17) | Includes 145,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 26, 2020 and 7,000 restricted stock units that vest on June 16, 2020. |
(18) | Includes 1,002 restricted stock awards that vest on July 24, 2020. |
(19) | Includes 1,002 restricted stock awards that vest on July 24, 2020. |
(20) | Includes 164,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 26, 2020 and 3,000 restricted stock units that vest on June 16, 2020. |
(21) | Includes 5,589,176 shares of common stock our executive officers and directors have a right to acquire upon the exercise of options that are exercisable within 60 days of May 26, 2020, 7,014 restricted stock awards that vest on July 24, 2020 and 14,500 restricted stock units that vest on June 16, 2020. |
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14 | 2020 PROXY STATEMENT | SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP |
INTENTIONALLY LEFT BLANK
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SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP | 2020 PROXY STATEMENT | 15 |
DIRECTORS
| | |
GARY FRIEDMAN | | |
| | |
Chairman and Chief Age: 62 Director since 2013 Board Committees: None Class III Director: Continuing in office until | | Gary Friedman has served as our Chairman and Chief Executive Officer of the Company, and Founder of the RH brand as we know it today since January 2014. Previously, Mr. Friedman served as our Co-Chief Executive Officer and Director from July 2013 to January 2014, and as Chairman and Co-Chief Executive Officer from May 2010 to October 2012. From October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis, and as Chief Executive Officer and a member of our board of directors from March 2001 to October 2012, during which time he served as our Chairman from March 2005 to June 2008. Mr. Friedman joined RH from Williams-Sonoma, Inc. where he spent 14 years serving as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer of Williams-Sonoma, Inc. and President of Retail from 1995 to 2000, and as Executive Vice President of Williams-Sonoma, Inc. and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2000 during which time Mr. Friedman was responsible for transforming Pottery Barn from a $50 million dollar table top and accessories business, into a billion dollar plus home furnishings lifestyle brand. Mr. Friedman also developed and rolled out the revolutionary Williams-Sonoma Grande Cuisine stores, growing the brand from less than $100 million to almost $1 billion. Lastly, while at Williams-Sonoma Mr. Friedman spent several years conceptualizing and developing the West Elm brand which launched shortly after he left the company. Mr. Friedman joined Williams-Sonoma in 1988 as Senior Vice President of Stores and Operations. Mr. Friedman began his retail career in 1977 as a stock-boy at the Gap store in Santa Rosa, California. He spent eleven years with Gap, and held the positions of Store Manager, District Manager and Regional Manager overseeing 63 stores in Southern California. Qualifications: Mr. Friedman was selected to our board of directors because of his leadership in re-conceptualizing and developing the RH brand and business into the leading luxury home brand in the North American market, his deep and unmatched expertise in developing and rapidly growing many of the leading consumer brands in the home furnishings space, and his extensive knowledge of building and leading complex multi-branded and multi-channel organizations. |
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MARK DEMILIO | | |
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Lead Independent Director Age: 64 Director since 2009 Board Committees: Audit, Class I Director: Continuing in office until | | Mark Demilio has served as a member of our board of directors since September 2009 and currently serves as the board’s Lead Independent Director. Mr. Demilio currently serves as a member of the board of directors and Chairman of the audit committee of SCP Health, a privately-held provider of emergency medicine and hospitalist services through physician staffing and management since September 2015. Mr. Demilio also currently serves as a member of the board of directors and Chairman of the audit committee of Nurse Assist, a privately-held FDA registered manufacturer of medical device products since June 2018. Mr. Demilio was a member of the board of directors of Cosi, Inc., a national restaurant chain, from April 2004 to May 2017, served on its audit committee, its compensation committee and its nominating and corporate governance committee, and served for a time as Chairman of the board of directors of Cosi and as the interim Chief Executive Officer of Cosi. From February 2014 through March 2016, Mr. Demilio served as a member of the board of directors and Chairman of the audit committee of The Paslin Company, a private company that designs, assembles and integrates robotic assembly lines for the automotive industry. |
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COMPANY LEADERSHIP, DIRECTORS & OFFICERS | 2020 PROXY STATEMENT | 17 |
MARK DEMILIO | | |
| | From December 2000 until his retirement in October 2008, Mr. Demilio served as the Chief Financial Officer of Magellan Health Services, Inc., a Nasdaq-listed managed specialty healthcare company that managed the delivery of behavioral healthcare treatment services, specialty pharmaceuticals and radiology services. Mr. Demilio has also been the General Counsel for Magellan Health Service, the Chief Financial Officer and General Counsel of Youth Services International, Inc., an attorney specializing in corporate and securities law with the law firms of Miles & Stockbridge and Piper & Marbury, a financial analyst for CareFirst BlueCross BlueShield of Maryland and a certified public accountant with Arthur Andersen LLP. Qualifications: Mr. Demilio was selected to our board of directors because he possesses particular knowledge and experience in accounting, finance and capital structure, strategic planning and leadership of complex organizations and board practices of other major corporations. |
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LEONARD SCHLESINGER | | |
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Age: 67 Director since 2014 Board Committees: Compensation Class I Director: Continuing in office until | | Leonard Schlesinger was appointed to our board of directors in April 2014. Dr. Schlesinger has served as the Baker Foundation Professor of Business Administration at Harvard Business School, a role he returned to in July 2013 after having served as the President of Babson College from July 2008 until July 2013 and having held various positions at public and private companies. From 1999 to 2007, Dr. Schlesinger held various executive positions at Limited Brands, Inc. (now L Brands, Inc.), an NYSE-listed company, including Vice Chairman of the board of directors and Chief Operating Officer. While at Limited Brands, he was responsible for the operational and financial functions across the enterprise including Express, Limited Stores, Victoria’s Secret Beauty, Bath and Body Works, C.O. Bigelow, Henri Bendel and the White Barn Candle Company. Dr. Schlesinger also previously served as Executive Vice President and Chief Operating Officer at Au Bon Pain Co., Inc. and as a director of numerous public and private retail, consumer products and technology companies. Dr. Schlesinger has also held leadership roles at leading MBA and executive education programs and other academic institutions, including twenty years at Harvard Business School where he served as the George Fisher Baker Jr. Professor of Business Administration. Dr. Schlesinger holds a Doctor of Business Administration from Harvard Business School, an M.B.A. from Columbia University and a Bachelor of Arts in American Civilization from Brown University. |
| | Qualifications: Dr. Schlesinger’s extensive experience at numerous private and public retail companies provides the board with valuable operational, financial and business expertise. |
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18 | 2020 PROXY STATEMENT | COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
CARLOS ALBERINI | | |
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Age: 64 Director since 2010 Board Committees: None Class III Director: Continuing in office until | | Carlos Alberini has served on our board of directors since June 2010. Mr. Alberini currently serves as a member of the board of directors and Chief Executive Officer of Guess?, Inc., an NYSE-listed specialty retailer of apparel and accessories, since February 2019. Mr. Alberini previously served as the Chairman and Chief Executive Officer of Lucky Brand from February 2014 to February 2019. Mr. Alberini served as our Co-Chief Executive Officer from June 2010 through October 2012 and from July 2013 through January 2014, and he served as our sole Chief Executive Officer from October 2012 through July 2013. Mr. Alberini was President and Chief Operating Officer of Guess from December 2000 to June 2010. From May 2006 to July 2006, Mr. Alberini served as Interim Chief Financial Officer of Guess. Mr. Alberini served as a member of the board of directors of Guess from December 2000 to September 2011. Prior to Guess, Mr.��Alberini served as Senior Vice President and Chief Financial Officer of Footstar, Inc., a retailer of footwear from October 1996 to December 2000. From May 1995 to October 1996, Mr. Alberini served as Vice President of Finance and Acting Chief Financial Officer of the Melville Corporation, a retail holding corporation. From 1987 to 1995, Mr. Alberini was with The Bon-Ton Stores, Inc., an operator of department stores, in various capacities, including Corporate Controller, Senior Vice President, Chief Financial Officer and Treasurer. Prior to that, Mr. Alberini served in various positions at PricewaterhouseCoopers LLP, an audit firm. |
| | Qualifications: Mr. Alberini was selected to our board of directors because he possesses particular knowledge and experience in retail and merchandising, branded consumer goods, accounting, financing and capital finance, board practices of other large retail companies and leadership of complex organizations. |
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KEITH BELLING | | |
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Age: 62 Director since 2016 Board Committees: None Class III Director: Continuing in office until | | Keith Belling has served on our board of directors since April 2016, and previously served as an advisor to the board of directors from May 2015 to April 2016. Mr. Belling is the founder and Chief Executive Officer of RightRice, a next generation rice brand that launched in February 2019, in Whole Foods Markets nationwide and on Amazon. Mr. Belling is also the co-founder and former Chairman and Chief Executive Officer of popchips, inc. (“popchips”) a leading better-for-you snack food business that launched in 2007. He previously served as popchips’ Chief Executive Officer from 2007 through 2012, leading the company to sales and distribution at over 30,000 retail stores across North America and the United Kingdom and served as the Chairman of the Board from 2007 through 2019. Mr. Belling has served as an advisor to several innovative consumer, real estate and technology companies, including Modern Meadow Inc., Olly Nutrition, and LBA Realty LLC. Mr. Belling also has founded other businesses, including e-commerce company AllBusiness.com, a leading small business portal, founded in 2008, where Mr. Belling formerly served as Chief Executive Officer and which was acquired by NBCi. Mr. Belling was a real estate attorney with Morrison & Foerster LLP, where he represented a diverse clientele including developers and real estate investors. Qualifications: Mr. Belling has been selected to our board because of his experience as a founder, leader, and entrepreneur of several innovative consumer companies, as well as his background and experience in the real estate sector. |
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COMPANY LEADERSHIP, DIRECTORS & OFFICERS | 2020 PROXY STATEMENT | 19 |
ERI CHAYA | | |
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Age: 46 Director since 2012 Board Committees: None Class I Director: Continuing in office until | | Eri Chaya serves as our President, Chief Creative and Merchandising Officer and Director. Ms. Chaya leads product curation and integration, brand development and design, and Interior Design for RH Interiors, Modern, Outdoor, Baby & Child and Teen, across the Company’s physical, digital and print channels of distribution. Ms. Chaya served as RH’s Co-President, Chief Creative and Merchandising Officer and Director from May 2016 to November 2017, Chief Creative Officer from April 2008 to May 2016 and Vice President of Creative from July 2006 to April 2008. Ms. Chaya has been a member of the board of directors since 2012. Prior to RH, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency, and a creative director at Banana Republic. Qualifications: Ms. Chaya was selected to our board of directors because of her extensive knowledge and experience in design, product development, brand development, marketing and advertising. |
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HILARY KRANE | | |
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Age: 56 Director since 2016 Board Committees: Audit Class II Director: Continuing in office until | | Hilary Krane has served on our board of directors since her appointment in June 2016. Ms. Krane is currently Executive Vice President, Chief Administrative Officer and General Counsel for NIKE, Inc. and has served in executive roles since 2010. Prior to joining NIKE, Inc., Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. Ms. Krane has been a director at the Federal Reserve Bank of San Francisco, Portland Branch since January 2018. Ms. Krane holds a Bachelor of Arts from Stanford University and a J.D. from the University of Chicago. Qualifications: Ms. Krane was selected to our board of directors because of her experience contributing to the growth and development of innovative and iconic global brands. |
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KATIE MITIC | | |
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Age: 50 Director since 2013 Board Committees: Audit Class II Director: Continuing in office until | | Katie Mitic has served on our board of directors since October 2013. Ms. Mitic is currently Co-Chief Executive Officer and Co-founder of SomethingElse, Inc., a direct-to-consumer beverage company. From 2012 to 2017, Ms. Mitic was the Chief Executive Officer and Co-founder of Sitch, Inc., a startup building innovative mobile consumer products. From 2010 to 2012, Ms. Mitic served as Director of Platform & Mobile Marketing at Facebook, Inc., where she was responsible for developing and growing global developer and partner products. Prior to joining Facebook, Ms. Mitic served as Senior Vice President, Product Marketing at Palm, Inc., expanding the company product lines and international footprint through its acquisition by Hewlett-Packard in 2010. Prior to Palm, Ms. Mitic spent fifteen years in leadership positions at various consumer technology companies. These experiences include NetDynamics (acquired by Sun Microsystems), where she launched the industry’s first application server, Four11, where she built the industry-leading email service RocketMail (now Yahoo! Mail) and at Yahoo!, where she served as Vice President and General Manager. |
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20 | 2020 PROXY STATEMENT | COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
KATIE MITIC | | |
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| | She currently serves on the board of directors, compensation committee and nominating and governance committee of eBay, Inc. She also serves on the board of directors of Headspace Inc., a health and wellness technology company, and the non-profit organization LeanIn.Org. Ms. Mitic received her B.A. from Stanford University and her M.B.A. from Harvard Business School. Qualifications: Ms. Mitic was selected to our board of directors because of her extensive experience as a leader and entrepreneur obtained from her experience with major global consumer-facing technology companies. |
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ALI ROWGHANI | | |
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Age: 47 Director since 2015 Board Committees: Nominating and Corporate Governance Class II Director Continuing in office until | | Ali Rowghani was appointed to our board of directors on January 22, 2015. Mr. Rowghani is currently the Chief Executive Officer of the YCombinator Continuity Fund, which invests in growth-stage startups. Mr. Rowghani has served in executive leadership positions at innovative growth companies, including Twitter, Inc. and Pixar Animation Studios, Inc. At Twitter, Mr. Rowghani was hired as the Company’s first Chief Financial Officer in March 2010, and later served as Chief Operating Officer, with responsibility for business development, platform, media, product, and business analytics, from December 2012 to June 2014. Prior to Twitter, from June 2002 to February 2010, Mr. Rowghani served in various leadership roles at Pixar, including Chief Financial Officer and Senior Vice President, Strategic Planning, reporting to Pixar founder and President, Ed Catmull. Mr. Rowghani holds a B.A. in International Relations and an M.B.A. from Stanford University. Qualifications: Mr. Rowghani’s operational and financial leadership, coupled with his expertise in scaling innovative, high-growth companies, provides the board with valuable operational and financial expertise. |
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COMPANY LEADERSHIP, DIRECTORS & OFFICERS | 2020 PROXY STATEMENT | 21 |
EXECUTIVE OFFICERS
Below is a director. Each director will hold office until the expirationlist of the three-year termnames and until his or her successor has been duly elected and qualified or until his or her earlier resignation or removal.
Nominees for Director
Our board of directors has nominated the nominees listed below to serve as Class II directors for the term beginning at the Annual Meeting and ending at our 2020 annual meeting.
There are no familial or special relationships between any director nominee or executive officer and any other director nominee or executive officer. There are no arrangements or understandings between any director nominee or executive officer and any other person pursuant to which he or she has been or will be selected as our director and/or executive officer.
The names of each nominee for director, their ages, as of April 28, 2017, and other information about each nominee are shown below.
Nominee | Age | Director Since | ||||||
Hilary Krane | 53 | 2016 | ||||||
Katie Mitic | 47 | 2013 | ||||||
Ali Rowghani | 44 | 2015 |
Hilary Kranehas served onMay 26, 2020, of our board of directors since her appointment in June 2016. She currently serves as the Executive Vice President, Chief Administrative Officer and General Counsel of NIKE, Inc., a position she has held since 2013. From 2011 to 2013, she served as the Vice President, General Counsel and Corporate Affairs of NIKE, Inc. From April 2010 under responsibilities expanded in 2011, she served as Vice President and General Counsel of NIKE, Inc. Prior to joining NIKE, Inc., Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. Ms. Krane holds a Bachelor of Arts from Stanford Universityexecutive officers and a J.D. from the Universitydescription of Chicago. Ms. Krane was selected to our boardtheir business experience.
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GARY FRIEDMAN | | |
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Chairman and Chief Executive Officer Age: 62 | | Gary Friedman has served as our Chairman and Chief Executive Officer of the Company, and Founder of the RH brand as we know it today since January 2014. Previously, Mr. Friedman served as our Co-Chief Executive Officer and Director from July 2013 to January 2014, and as Chairman and Co-Chief Executive Officer from May 2010 to October 2012. From October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis, and as Chief Executive Officer and a member of our Board of Directors from March 2001 to October 2012, during which time he served as our Chairman from March 2005 to June 2008. Mr. Friedman joined RH from Williams-Sonoma, Inc. where he spent 14 years serving as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer of Williams-Sonoma, Inc. and President of Retail from 1995 to 2000, and as Executive Vice President of Williams-Sonoma, Inc. and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2000 during which time Mr. Friedman was responsible for transforming Pottery Barn from a $50 million dollar table top and accessories business, into a billion dollar plus home furnishings lifestyle brand. Mr. Friedman also developed and rolled out the revolutionary Williams-Sonoma Grande Cuisine stores, growing the brand from less than $100 million to almost $1 billion. Lastly, while at Williams-Sonoma Mr. Friedman spent several years conceptualizing and developing the West Elm brand which launched shortly after he left the company. Mr. Friedman joined Williams-Sonoma in 1988 as Senior Vice President of Stores and Operations. Mr. Friedman began his retail career in 1977 as a stock-boy at the Gap store in Santa Rosa, California. He spent eleven years with Gap, and held the positions of Store Manager, District Manager and Regional Manager overseeing 63 stores in Southern California. |
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ERI CHAYA | | |
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President, Chief Creative and Merchandising Officer Age: 46 | | Eri Chaya serves as our President, Chief Creative and Merchandising Officer and Director. Ms. Chaya leads product curation and integration, brand development and design, and Interior Design for RH Interiors, Modern, Outdoor, Baby & Child and Teen, across the Company’s physical, digital and print channels of distribution. Ms. Chaya served as RH’s Co-President, Chief Creative and Merchandising Officer and Director from May 2016 to November 2017, Chief Creative Officer from April 2008 to May 2016 and Vice President of Creative from July 2006 to April 2008. Ms. Chaya has been a member of the RH Board of Directors since 2012. Prior to RH, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency, and a creative director at Banana Republic. |
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22 | 2020 PROXY STATEMENT | COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
DEMONTY PRICE | | |
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President, Chief Operating, Service and Values Officer Age: 58 | | DeMonty Price serves as our President, Chief Operating, Service and Values Officer. Mr. Price leads service and operations across the Company’s Galleries, outlets, distribution centers, care centers and home delivery network, as well as ensure a deep commitment to the Company’s values and beliefs throughout the organization. Mr. Price served as Co-President, Chief Operating, Service and Values Officer from May 2016 to November 2017. Mr. Price joined RH in 2002 and served as the Company’s Chief Service and Values Officer from September 2015 to May 2016, and Senior Vice President of Retail Galleries and Operations, and the Company’s Chief Values Officer from June 2006 to September 2015. Prior to RH, Mr. Price was with Williams-Sonoma, Inc. for four years in various field leadership roles, as well as with Gap Inc. and Nike Inc. |
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DAVE STANCHAK | | |
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President, Chief Real Estate and Development Officer Age: 62 | | David Stanchak serves as our President, Chief Real Estate and Development Officer. Mr. Stanchak leads real estate development, architecture and design for all of the Company’s brands, concepts and facilities domestically and internationally. Prior to Mr. Stanchak’s appointment to the Office of the President in November 2017, Mr. Stanchak served as RH’s Chief Real Estate and Transformation Officer since May 2017 and Chief Real Estate and Development Officer from May 2015 to May 2017. From 2008 to 2013, Mr. Stanchak served as Senior Vice President of Dick’s Sporting Goods and as President of Golf Galaxy. Mr. Stanchak has also been the President and owner of Pinpoint Real Estate Company since 1995. Over his 30-year career in the commercial real estate industry, Mr. Stanchak has worked as a senior executive, board member, consultant, investor, real estate broker and attorney in all aspects of high-growth, multi-unit retail brand development. He has had direct responsibility for opening more than 2,500 retail store locations, managing real estate portfolios and deploying in excess of $2 billion for retailers including RH, Dick’s Sporting Goods, Field & Stream, Golf Galaxy, True Runner, DSW, Filene’s Basement, Mike Ditka’s Steakhouse, James Hardie Building Products, Blockbuster Entertainment, Einstein/Noah Bagel Corp. and Boston Market. |
JACK PRESTON | | |
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Chief Financial Officer Age: 46 | | Jack Preston serves as our Chief Financial Officer and leads all financial functions including strategic and financial planning, accounting, treasury, tax, internal audit and investor relations across the Company’s multiple businesses and brands. Mr. Preston served as RH’s Senior Vice President, Finance and Chief Strategy Officer from August 2014 to March 2019, and Senior Vice President, Finance and Strategy from April 2013 to August 2014. Prior to RH, Mr. Preston worked for Bank of America Merrill Lynch for over 12 years, where he most recently served as a Director in the consumer and retail investment banking group. Mr. Preston holds a bachelor of commerce degree from the Sauder School of Business at the University of British Columbia. |
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COMPANY LEADERSHIP, DIRECTORS & OFFICERS | 2020 PROXY STATEMENT | 23 |
Table of innovative and iconic global brands.Contents
Katie Mitichas served on our board of directors since October 2013. Ms. Mitic is the Founder and Chief Executive Officer of Sitch, Inc., a consumer mobilestart-up company formed in August 2012. From August 2010 to August 2012, Ms. Mitic served as Director of Platform & Mobile Marketing for Facebook, Inc., a social networking service. From June 2009 to July 2010, Ms. Mitic served as Senior Vice President, Product Marketing of Palm, Inc., a smartphone manufacturer. She also serves on the board of directors and the executive committee of Special Olympics International, and on the board of directors, compensation committee and as chair of the nominating and governance committee of eBay, Inc., a Nasdaq-listed global commerce company. Ms. Mitic holds a Bachelor of Arts in Economics from Stanford University and an M.B.A. degree from Harvard Business School. Ms. Mitic was selected to our board of directors because of her extensive experience as a leader and entrepreneur obtained from her experience with major global consumer-facing technology companies.
6
Ali Rowghaniwas appointed to our board of directors in January 2015. Mr. Rowghani has served in executive leadership positions at innovative growth companies, including Twitter, Inc. and Pixar Animation Studios, Inc. At Twitter, Mr. Rowghani was hired as the Company’s first Chief Financial Officer in March 2010, and later served as Chief Operating Officer, with responsibility for business development, platform, media, product, and business analytics, from December 2012 to June 2014. Prior to Twitter, from June 2002 to February 2010, Mr. Rowghani served in various leadership roles at Pixar, including Chief Financial Officer and Senior Vice President, Strategic Planning, reporting to Pixar founder and President, Ed Catmull. Mr. Rowghani is currently the Chief Executive Officer of YCombinator’s Continuity Fund. Mr. Rowghani holds a Bachelor of Arts in International Relations and an M.B.A. from Stanford University. Mr. Rowghani’s operational and financial leadership, coupled with his expertise in scaling innovative, high-growth companies, provides the board of directors with valuable operational and financial expertise.
THE BOARD RECOMMENDS A VOTE “FOR” ELECTION OF
EACH OF THE THREE NOMINATED DIRECTORS.
Class I Directors Continuing in Office Until the 2019 Annual Meeting
Eri Chaya,43, has served as a member of our board of directors since November 2012. Ms. Chaya served as our Chief Creative Officer since April 2008 and, in May 2016, becameCo-President, Chief Creative and Merchandising Officer. Before becoming our Chief Creative Officer, Ms. Chaya was our Vice President of Creative, beginning in July 2006. From February 2004 to June 2006, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency. From May 2000 to February 2004, Ms. Chaya was a creative director at Banana Republic, a clothing retailer. Ms. Chaya graduated from Art Center College of Design, one of the country’s preeminent design schools. Ms. Chaya was selected to our board of directors because of her extensive knowledge and experience in design, product development, brand development, marketing and advertising.
Mark Demilio,61, has served as a member of our board of directors since September 2009 and currently serves as the board’s Lead Independent Director. Mr. Demilio was a member of the board of directors of Cosi, Inc., a national restaurant chain, from April 2004 to May 2017, served on its audit committee, its compensation committee and its nominating and corporate governance committee, and served for a time as Chairman of the board of directors of Cosi and as the interim Chief Executive Officer of Cosi. Since September, 2015, Mr. Demilio has served as a member of the board of directors and Chairman of the audit committee of Schumacher Clinical Partners, a privately-held provider of emergency medicine and hospitalist services through physician staffing and management. From February 2014 through March 2016, Mr. Demilio served as a member of the board of directors and Chairman of the audit committee of The Paslin Company, a private company that designs, assembles and integrates robotic assembly lines for the automotive industry. From December 2000 until his retirement in October 2008, Mr. Demilio served as the Chief Financial Officer of Magellan Health Services, Inc., a Nasdaq-listed managed specialty healthcare company that managed the delivery of behavioral healthcare treatment services, specialty pharmaceuticals and radiology services. Mr. Demilio has also been the General Counsel for Magellan Health Service, the Chief Financial Officer and General Counsel of Youth Services International, Inc., an attorney specializing in corporate and securities law with the law firms of Miles & Stockbridge and Piper & Marbury, a financial analyst for CareFirst BlueCross BlueShield of Maryland and a certified public accountant with Arthur Andersen LLP. Mr. Demilio was selected to our board of directors because he possesses particular knowledge and experience in accounting, finance and capital structure, strategic planning and leadership of complex organizations and board practices of other major corporations.
Leonard Schlesinger,64, was appointed to our board of directors in April 2014. Dr. Schlesinger has served as the Baker Foundation Professor of Business Administration at Harvard Business School, a role he returned to in July 2013 after having served as the President of Babson College from July 2008 until July 2013 and having held various positions at public and private companies. From 1999 to 2007, Dr. Schlesinger held various executive positions at Limited Brands, Inc. (now L Brands, Inc.), an NYSE-listed company, including Vice Chairman of the board of directors and Chief Operating Officer. While at Limited Brands, he was responsible for the operational and financial functions across the enterprise including Express, Limited Stores, Victoria’s Secret Beauty, Bath and Body Works, C.O. Bigelow, Henri Bendel and the White Barn Candle Company. Dr. Schlesinger also previously served as Executive Vice President and Chief Operating Officer at Au Bon Pain Co., Inc. and as a director of numerous public and private retail, consumer products and technology companies.
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Dr. Schlesinger has also held leadership roles at leading MBA and executive education programs and other academic institutions, including twenty years at Harvard Business School where he served as the George Fisher Baker Jr. Professor of Business Administration. Dr. Schlesinger holds a Doctor of Business Administration from Harvard Business School, an M.B.A. from Columbia University and a Bachelor of Arts in American Civilization from Brown University. Dr. Schlesinger’s extensive experience at numerous private and public retail companies provides the board with valuable operational, financial and business expertise.
Class III Directors Continuing in Office Until the 2018 Annual Meeting
Gary Friedman, 59, is the Chairman and Chief Executive Officer of the Company and Founder of the RH brand as we know it today. From July 2013 to January 2014, Mr. Friedman served asCo-Chief Executive Officer with Mr. Alberini, and from October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis. Mr. Friedman served as our Chairman from May 2010 to October 2012 and as ourCo-Chief Executive Officer from June 2010 to October 2012. He also served as our Chief Executive Officer from March 2001 to June 2010 and as our Chairman from March 2005 to June 2008. He served on our board of directors from March 2001 to October 2012. Prior to joining us, from 1988 to 2001, Mr. Friedman worked for Williams-Sonoma, Inc., a specialty retailer of products for the home, where he served in various capacities, including as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer and President of Retail Stores from 1995 to 2000 and as Executive Vice President and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2001. Prior to joining Williams-Sonoma, Mr. Friedman spent eleven years with Gap, Inc., a specialty retailer, in various management positions. Mr. Friedman was selected to our board of directors because of his leadership inre-conceptualizing and developing the RH brand and business into the leading luxury home brand in the North American market, his deep and unmatched expertise in developing and rapidly growing many of the leading consumer brands in the home furnishings space, and his extensive knowledge of building and leading complex multi-branded and multi-channel organizations.
Carlos Alberini, 61, has served on our board of directors since June 2012. Mr. Alberini has served as the Chairman and Chief Executive Officer of Lucky Brand since February 2014. Mr. Alberini served as ourCo-Chief Executive Officer from June 2010 through October 2012 and from July 2013 through January 2014, and he served as our sole Chief Executive Officer from October 2012 through July 2013. Mr. Alberini was President and Chief Operating Officer of Guess?, Inc., an NYSE-listed specialty retailer of apparel and accessories, from December 2000 to June 2010. From May 2006 to July 2006, Mr. Alberini served as Interim Chief Financial Officer of Guess. Mr. Alberini served as a member of the board of directors of Guess from December 2000 to September 2011. From October 1996 to December 2000, Mr. Alberini served as Senior Vice President and Chief Financial Officer of Footstar, Inc., a retailer of footwear. From May 1995 to October 1996, Mr. Alberini served as Vice President of Finance and Acting Chief Financial Officer of the Melville Corporation, a retail holding corporation. From 1987 to 1995, Mr. Alberini was with TheBon-Ton Stores, Inc., an operator of department stores, in various capacities, including Corporate Controller, Senior Vice President, Chief Financial Officer and Treasurer. Prior to that, Mr. Alberini served in various positions at PricewaterhouseCoopers LLP, an audit firm. Mr. Alberini was selected to our board of directors because he possesses particular knowledge and experience in retail and merchandising, branded consumer goods, accounting, financing and capital finance, board practices of other large retail companies and leadership of complex organizations.
Keith C. Belling,59, has served on our board of directors since April 2016, and previously served as an advisor to the board of directors from May 2015 to April 2016. Mr. Belling is theco-founder, Chairman and former Chief Executive Officer of popchips, inc. (“popchips”) a leadingbetter-for-you snack food business that launched in 2007. Mr. Belling has served as chairman of popchips since 2007 and served as popchips’ Chief Executive Officer from 2007 through 2012, leading the company to distribution of over 30,000 retail stores across North America and the United Kingdom. Mr. Belling has served as an advisor to several innovative consumer, real estate and technology companies. Mr. Belling also has founded other businesses, includinge-commerce company Allbusiness.com, a leading small business portal, founded in 2008, where Mr. Belling formerly served as Chief Executive Officer and which was acquired by NBCi. Mr. Belling has been selected to our board of directors because of his experience as a founder, leader, and entrepreneur of several innovative consumer companies, as well as his background and experience in the real estate sector.
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CORPORATE GOVERNANCE & DIRECTOR INDEPENDENCE
Corporate Governance GuidelinesWe have a number of policies and practices related to corporate governance and oversight of our business. A number of the more important policies and procedures are described in this section of the proxy statement.
CORPORATE GOVERNANCE GUIDELINES
Our Corporate Governance Guidelines generally specify the distribution of rights and responsibilities of our board of directors and detail the rules and procedures for making decisions on corporate affairs. In general, the stockholdersshareholders elect our board of directors, which is responsible for the general governance of our Company, including selection and oversight of key management,leadership, and managementleadership is responsible for running ourday-to-day operations.
Our Corporate Governance Guidelines are available on the Investor Relations section of our website, which is located atir.rh.com, by clicking on “Corporate Governance.” The contents of our website are not incorporated by reference into this proxy statement and are not soliciting materials.
Code of Business Conduct and Code of EthicsCODE OF ETHICS & CODE OF BUSINESS CONDUCT
We have adopted a code of business conductethics for our chief executive officer and senior financial officers. We have also adopted a code of ethicsbusiness conduct applicable to our principal executive, financial and accountingassociates, officers and all persons performing similar functions.directors. Copies of these codes are available on the Investor Relations section of our website, which is located atir.rh.com, by clicking on “Corporate Governance.” We expect that any amendmentsamendment to eitheror waiver of the requirements of the code orof ethics for our chief executive officer and senior financial officers will be disclosed on our website and any waiver of the requirements of eitherthe code of business conduct relating to our executive officers and directors will be promptly disclosed on our website orto shareholders, in each case as required by applicable law or NYSE listing requirements.
Compensation Committee Interlocks and Insider ParticipationCOMPENSATION COMMITTEE INTERLOCKS & INSIDER PARTICIPATION
No member of the compensation committee has served as one of our officers or employeesbeen employed as one of our associates at any time. None of our executive officers serves as a member of the compensation committee of any other company that has an executive officer serving as a member of our board of directors. None of our executive officers serves as a member of the board of directors of any other company that has an executive officer serving as a member of our compensation committee. None of our directors or executive officers are members of the same family.
Composition and Qualifications of our Board of DirectorsCOMPOSITION & QUALIFICATIONS OF OUR BOARD OF DIRECTORS
Our board of directors consists of nine directors, including our Chairman and Chief Executive Officer. Our certificate of incorporation provides that, subject to any rights applicable to any then-outstanding preferred stock, our board of directors shall consist of such number of directors as determined from time to time by resolution adopted by a majority of the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. Subject to any rights applicable to any then-outstanding preferred stock, any additional directorships resulting from an increase in the number of directors may only be filled by the directors then in office, unless otherwise required by law or by a resolution passed by our board of directors. The term of office for each director will be until his or her successor is elected at our annual meetingAnnual Meeting or his or her death, resignation or removal, whichever is earliest to occur.
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CORPORATE GOVERNANCE | 2020 PROXY STATEMENT | 25 |
Our board of directors is divided into three classes, with each director serving a three-year term, and one class being elected at each year’s annual meeting of stockholders.shareholders. Our directors by class are as follows:
Class I: Eri Chaya, Mark Demilio and Leonard Schlesinger, with a term expiring at the 20192022 annual meeting.
Class II: Hilary Krane, Katie Mitic and Ali Rowghani, with a term expiring at the 20172020 annual meeting.
Class III: Gary Friedman, Carlos Alberini and Keith Belling, with a term expiring at the 20182021 annual meeting.
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NAME/ CURRENT POSITION | AGE | DIRECTOR | INDEPENDENT | AUDIT | COMP. | NOM. | ||||||
Gary Friedman | | 62 | | Jul. 2013 | | | | | | | | |
Carlos Alberini | | 64 | | Jun. 2010 | | ● | | | | | | |
Keith Belling | | 62 | | Apr. 2016 | | | | | | | | |
Eri Chaya | | 46 | | Nov. 2012 | | | | | | | | |
Mark Demilio | | 64 | | Sep. 2009 | | ● | | ☐ | | ∎ | | ☐ |
Hilary Krane | | 56 | | Jun. 2016 | | ● | | ∎ | | | | |
Katie Mitic | | 50 | | Oct. 2013 | | ● | | ∎ | | | | |
Ali Rowghani | | 47 | | Jan. 2015 | | ● | | | | | | ∎ |
Leonard Schlesinger | | 67 | | Apr. 2014 | | ● | | | | ☐ | | |
☐ | Committee Chair |
∎ | Committee Member |
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26 | 2020 PROXY STATEMENT | CORPORATE GOVERNANCE |
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NAME/ CURRENT POSITION | BUSINESS | BRAND/ | GROWTH | PUBLIC CO. | INVESTMENT/ | LEGAL | RISK | |||||||
Gary Friedman | | ● | | ● | | ● | | ● | | | | |||
Carlos Alberini | | ● | | ● | | ● | | ● | | ● | | | ||
Keith Belling | | ● | | ● | | ● | | | ● | | | |||
Eri Chaya | | | ● | | ● | | | | | |||||
Mark Demilio | | ● | | | | ● | | ● | | ● | | ● | ||
Hilary Krane | | | ● | | | ● | | | ● | | ● | |||
Katie Mitic | | ● | | ● | | ● | | ● | | | | |||
Ali Rowghani | | ● | | ● | | ● | | ● | | ● | | | ||
Leonard Schlesinger | | ● | | ● | | ● | | ● | | | | ● |
We believe our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe experience, qualifications, or skills in the following areas are most important: retail merchandising; marketing and advertising; furniture and consumer goods; sales and distribution; accounting, finance, and capital structure; strategic planning and leadership of complex organizations; legal/regulatory and government affairs; people management;leadership; and board practices of other major corporations. We believe that all our current board members possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each board member in their individual biographies above and as otherwise summarized below.above.
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2020 PROXY STATEMENT |
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Board Leadership Structure; Lead Independent Director
Our Corporate Governance Guidelines provide that the roles of Chairman of our board of directors and Chief Executive Officer may be either separate or combined, and our board of directors exercises its discretion in combining or separating these positions as it deems appropriate. Our board of directors believes that the combination or separation of these positions should continue to be considered as part of our succession planning process. Currently, the roles are combined, with Mr. Friedman serving as Chief Executive Officer and Chairman of our board of directors.
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In July 2013, the board of directors created the position of Lead Independent Director and adopted a Lead Independent Director Charter which is available on the Investor Relations section of our website, which is located atir.rh.com, by clicking on “Corporate Governance.” The Lead Independent Director Charter provides that the Lead Independent Director shall serve in a lead capacity to coordinate the activities of the othernon-employee directors, to help facilitate communication between the board of directors and management and perform such other duties and functions as directed by the board from time to time. The Lead Independent Director presides over executive sessions ofnon-management directors.
Mr. Demilio currently serves as our Lead Independent Director. We believe the appointment of Mr. Demilio as our Lead Independent Director is beneficial to the Company due to Mr. Demilio’s breadth of experience and ability to facilitate communication between management and the board of directors and devote significant time to the Company.
Our Corporate Governance Guidelines provide the flexibility for our board of directors to modify our leadership structure in the future as appropriate. We believe that our Company is well served by this flexible leadership structure.
Board Meetings
Our board of directors held a total of eight meetings during the fiscal year ended January 28, 2017 (“fiscal 2016”) and our independent directors met in regularly scheduled executive sessions presided over by our Lead Independent Director. During fiscal 2016, all of our incumbent directors attended at least 75% of the total meetings of the board and of the committees on which they served during the period for which they were a director or committee member.
Agendas and topics for board and committee meetings are developed through discussions among management and members of our board of directors and its committees. Information and data that are important to the issues to be considered are distributed in advance of each meeting. Board meetings and background materials focus on key strategic, operational, financial, governance and compliance matters applicable to us.
Committee Composition and Meetings
In fiscal 2016, the board had three standing committees: an audit committee; a compensation committee; and a nominating and corporate governance committee. All board committees are composed of independent directors. Committee membership and the number of meetings each committee held in fiscal 2016 are as follows:
Committees | ||||||
Directors | Audit | Compensation | Nominating & Corporate Governance | |||
Mark Demilio(1)(2) | Chair | Member | Chair | |||
Hilary Krane(3) | Member | |||||
Katie Mitic | Member | |||||
Ali Rowghani | Member | |||||
Leonard Schlesinger | Chair | |||||
Thomas Mottola(2) | Former Member | Former Member | Former Chair | |||
Number of Meetings in Fiscal 2016 | 5 | 7 | 2(4) |
Our board of directors has delegated various responsibilities and authorities to its three different committees, as described below and in the committee charters. The board committees regularly report on their activities and actions to the full board of directors as they deem appropriate and as the board of directors may request. Each member of the audit committee, the compensation committee and the nominating and corporate governance committee was appointed by our board of directors, which reviews committee composition from time to time.
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Audit Committee
The audit committee was established for the primary purpose of assisting the board of directors in overseeing the accounting and financial reporting processes of the Company and audits of its financial statements. The audit committee is responsible for, among other matters:
Our audit committee currently consists of Mr. Demilio, Ms. Krane and Ms. Mitic. Rule10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and NYSE rules require us to have at least three audit committee members, all of whom are independent. Our board of directors has affirmatively determined that each of Mr. Demilio, Ms. Krane and Ms. Mitic meets the definition of “independent director” for purposes of serving on our audit committee under Rule10A-3 of the Exchange Act and NYSE rules. In addition, our board of directors has determined that Mr. Demilio qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of RegulationS-K.
Our board of directors has adopted a written charter for the audit committee, which is available on the Investor Relations section of our website, which is located atir.rh.com, by clicking on “Corporate Governance.” The audit committee conducts an annual self-evaluation of its performance, as set forth in its charter.
Compensation Committee
The compensation committee was established for the primary purpose of assisting the board of directors in discharging its responsibilities relating to the compensation of the Company’s directors and executive officers, as further described in “Compensation Discussion and Analysis—Compensation Committee Review of Compensation” below. The compensation committee is responsible for, among other matters:
Our compensation committee currently consists of Mr. Demilio and Dr. Schlesinger. Our board of directors has affirmatively determined that each member of the compensation committee meets applicable independence requirements for membership on a compensation committee in accordance with applicable rules of the NYSE.
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Our board of directors adopted a written charter for the compensation committee, which is available on the Investor Relations section of our website, which is located atir.rh.com, by clicking on “Corporate Governance.” The compensation committee conducts an annual self-evaluation of its performance, as set forth in its charter.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee was established for the primary purpose of assisting the board of directors in discharging its responsibilities relating to the election of directors. The nominating and corporate governance committee is responsible for, among other matters:
Our nominating and corporate governance committee currently consists of Messrs. Demilio and Rowghani. Our board of directors has affirmatively determined that each member of the nominating and corporate governance committee meets applicable independence requirements for membership on a nominating and corporate governance committee in accordance with applicable rules of the NYSE.
Our board of directors adopted a written charter for the nominating and corporate governance committee, which is available on the Investor Relations section of our website, which is located atir.rh.com, by clicking on “Corporate Governance.” The nominating and corporate governance committee conducts an annual self-evaluation of its performance, as set forth in its charter.
Director Nominations; Communication with Directors
Criteria for Nomination to the Board
In accordance with its charter, the nominating and corporate governance committee will consider candidates submitted by the Company’s stockholders, as well as candidates recommended by directors and management, for nomination to our board of directors. The nominating and corporate governance committee considers qualifications for the board of directors’ membership, which may include, among others:
(1) the highest personal and professional integrity,
(2) demonstrated exceptional ability and judgment,
(3) broad experience in business, finance or administration,
(4) familiarity with the Company’s industry,
(5) ability to serve the long-term interests of the Company’s stockholders,
(6) sufficient time available to devote to the affairs of the Company,
(7) ability to provide continuing service to promote stability and continuity in the boardroom and provide the benefit of familiarity and insight into the Company’s affairs that directors would accumulate during their tenure,
(8) ability to help the board of directors work as a collective body, and
(9) experience, areas of expertise, as well as other factors relative to the overall composition of the board of directors.
The nominating and corporate governance committee further reviews and assesses the activities and associations of each candidate to ensure there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on our board of directors. In making its selection, the nominating and corporate governance committee bears in mind that the foremost responsibility of a director of a company is to represent the interests of the stockholders as a whole.
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Each director’s individual biography set forth above includes the key individual attributes, experience and skills of each director that led to the conclusion that each director should continue to serve as a member of our board of directors at this time, as reflected in the summary above. We believe the range of tenures of our directors creates a synergy between institutional knowledge and new perspectives.
Stockholder Proposals for Nominees
In accordance with its charter, the nominating and corporate governance committee will consider potential nominees properly submitted by stockholders. Stockholders seeking to do so should provide the information set forth in the nominating and corporate governance committee’s charter regarding director nominations. The nominating and corporate governance committee will apply the same criteria for candidates proposed by stockholders as it does for candidates proposed by management or other directors.
To be considered for nomination by the nominating and corporate governance committee at next year’s annual meeting of stockholders, submissions by stockholders must be submitted in writing and must be received by the Corporate Secretary between January 18, 2018 and February 17, 2018 to ensure adequate time for meaningful consideration by the nominating and corporate governance committee. Each submission must include the following information:
Information regarding requirements that must be followed by a stockholder who wishes to make a stockholder nomination for election to our board of directors for next year’s annual meeting is described in this proxy statement under “Additional Information—Stockholder Proposals for the 2018 Annual Meeting.”
Communicating with Members of the Board of Directors
Any stockholder or any other interested party who wishes to communicate directly with (i) our entire board of directors, (ii) thenon-management directors as a group, or (iii) the Lead Independent Director, may do so by corresponding with the Lead Independent Director at the following address: Lead Independent Director, RH, Legal Dept., 15 Koch Road, Suite K, Bldg. D, Corte Madera, CA 94925, Attn: Corporate Secretary. All communications will be received, processed and then directed to the appropriate member(s) of our board other than, at the board’s request, certain items unrelated to the board’s duties, such as customer complaints, spam, junk mail, solicitations, employment inquires and similar items.
Stockholder Outreach Activities
We actively engage with major stockholders of the Company, which has been a practice of the Company since our initial public offering in 2012. In 2016, we launched a formal stockholder outreach program in order to solicit additional input from stockholders with respect to corporate governance and executive compensation practices. This stockholder outreach effort continued in 2017 and is designed to supplement the ongoing communications between our management and stockholders.
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As part of the 2016 stockholder outreach campaign, we solicited the views of institutional investors that we believe represented approximately 94% of our issued and outstanding shares owned by institutional investors as of December 31, 2015, and had discussions with and received feedback from investors representing approximately 61% of such outstanding shares. In addition to the general feedback noted in the chart below, investors expressed appreciation of our outreach efforts and acknowledged our quick reaction and responsiveness to the results of our prior year annual meeting at which stockholders voted against oursay-on-pay proposal. The results of the stockholder outreach campaign and the feedback we received were provided to our board of directors.
As part of the 2017 stockholder outreach campaign, we solicited the views of institutional investors that we believe represented approximately 54.7% of our issued and outstanding shares owned by institutional investors as of December 31, 2016, and had discussions with and received feedback from investors representing approximately 39.9% of such outstanding shares. Inasmuch as we had contacts with a large number of our investors in our first annual stockholder outreach campaign during 2016, a number of our investors that had been previously contacted indicated there was not a need to have a second round of conversations in the current annual stockholder outreach campaign as their positions on the topics discussed had not changed in any significant way from the prior year conversations. In addition to the general feedback noted in the chart below, investors once again expressed appreciation of our outreach efforts. The results of the stockholder outreach campaign and the feedback we received were presented to our board of directors.
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Please refer to the Compensation Discussion and Analysis section of this proxy statement under “Stockholder Engagement” for more information regarding our stockholder outreach program. We plan to continue various stockholder communication and outreach programs in the future.
Board Independence
In accordance with our Corporate Governance Guidelines, the board of directors affirmatively determines that each independent director has no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and meets the standards for independence as defined by applicable law and the rules of the NYSE.
Our board of directors undertook a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our board of directors affirmatively determined that each of Mr. Alberini, Mr. Demilio, Ms. Krane, Ms. Mitic, Mr. Rowghani and Dr. Schlesinger is an “independent director,” as defined under the applicable rules of the NYSE and the SEC, and that the other members of the board are not independent. Further, the board of directors determined that each member of the board of directors’ audit committee, compensation committee and nominating and corporate governance committee satisfies independence standards applicable to each committee on which he or she serves.
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The board’s independence determination was based on information provided by our current directors. In particular, in making its determination that Mr. Alberini is an independent director, the board of directors considered that under the rules of the NYSE and the SEC, Mr. Alberini could be deemed independent for membership on the board of directors after February 2017 given that his prior service as the Company’sCo-Chief Executive Officer and Chief Executive Officer had occurred more than three years prior to such date. In reaching its conclusion regarding the independence of Mr. Alberini, the board of directors further considered Mr. Alberini’s position as the chief executive officer of Lucky Brands and other prior and existing relationships between the Company and Mr. Alberini. The board concluded that Mr. Alberini’s full-time position as chief executive officer of another company distinguished his circumstances from that of a former chief executive officer who remains on the board of directors upon retirement as chief executive officer. Although the board of directors determined that Mr. Alberini is an independent director under the applicable rules of the NYSE and the SEC, the board of directors elected not to appoint Mr. Alberini to any of the committees of the Company that are required under applicable rules of the NYSE or SEC to be composed entirely of independent directors.
Board’s Role in Risk Oversight
Our board of directors is responsible for overseeing our risk management process. Our board of directors focuses on our general risk management strategy, including the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our board of directors is also apprised by management of particular risk management matters in connection with the board’s general oversight and approval of corporate matters and significant transactions. In addition, each of the board committees is responsible for risk management under its area of responsibility and consistent with its charter and such other responsibilities as may be delegated to them by the board of directors from time to time.
Board DiversityBOARD ASSESSMENT & DIVERSITY
Our board of directors strongly believes its effectiveness is enhanced by being comprised of individuals with diverse backgrounds, skills and experience that are relevant to the role of the board of directors and the needs of the business. Accordingly, the board regularly reviews the changing needs of the business and the skills and experience resident in its members, with the intention that the board will be periodically “renewed” as certain directors rotate off and new directors are recruited. The board’s commitment to diversity and “renewal” will be tempered by the need to balance change with continuity and experience.
Our current board composition is highly diverse in the areas of gender, age, ethnicity and business experience. We believe that our commitment to diversity is demonstrated by the current membership composition of our board.
The State of California adopted legislation requiring companies headquartered in the state to meet specific gender diversity requirements on their board by the end of 2019. Based on our board composition, we were already in compliance with the requirements of this legislation in advance of the law becoming effective. We believe that our approach to board qualifications and selection criteria is effective in identifying strong candidates to meet the needs of the Company and its constituencies and has resulted in a diverse board of directors. See the graphic under “— Composition and Qualifications of our Board of Directors” above for further information regarding the composition and experience of our current board.
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28 | 2020 PROXY STATEMENT | CORPORATE GOVERNANCE |
BOARD LEADERSHIP STRUCTURE; LEAD INDEPENDENT DIRECTOR
Our Corporate Governance Guidelines provide that the roles of Chairman of our board of directors and Chief Executive Officer may be either separate or combined, and our board of directors exercises its discretion in combining or separating these positions as it deems appropriate. Our board of directors believes that the combination or separation of these positions should continue to be considered as part of our succession planning process. Currently, the roles are combined, with Mr. Friedman serving as Chief Executive Officer and Chairman of our board of directors.
In July 2013, the board of directors created the position of Lead Independent Director and adopted a Lead Independent Director Charter, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The Lead Independent Director Charter provides that the Lead Independent Director shall serve in a lead capacity to coordinate the activities of the other non-employee directors, to help facilitate communication between the board of directors and leadership and perform such other duties and functions as directed by the board from time to time. The Lead Independent Director presides over executive sessions of non-management directors.
Mr. Demilio currently serves as our Lead Independent Director. We believe the appointment of Mr. Demilio as our Lead Independent Director is beneficial to the Company due to Mr. Demilio’s breadth of experience and ability to facilitate communication between leadership and the board of directors and devote significant time to the Company.
Our Corporate Governance Guidelines provide the flexibility for our board of directors to modify our leadership structure in the future as appropriate. We believe that our Company is well served by this flexible leadership structure.
BOARD INDEPENDENCE
In accordance with our Corporate Governance Guidelines, the board of directors affirmatively determines that each independent director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and meets the standards for independence as defined by applicable law and the rules of the NYSE.
Our board of directors undertook its annual review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our board of directors affirmatively determined that each of Mr. Alberini, Mr. Demilio, Ms. Krane, Ms. Mitic, Mr. Rowghani and Dr. Schlesinger is an “independent director,” as defined under the applicable rules of the NYSE and the SEC, and that the other members of the board are not independent. The board’s independence determination was based on information provided by our current directors. In particular, in making its determination that Mr. Alberini is an independent director, the board of directors considered that under the rules of the NYSE and the SEC, Mr. Alberini could be deemed independent for membership on the board of directors after February 2017 given that his prior service as the Company’s Co-Chief Executive Stock Ownership GuidelinesOfficer and Chief Executive Officer had occurred more than three years prior to such date. In addition, after February 2019, Mr. Alberini also meets the enhanced independence standard for a director who has not served as an employee of the Company for more than five years. In reaching its conclusions regarding the independence of Mr. Alberini, the board of directors further considered Mr. Alberini’s time away from the management of RH, the fact that he had served as the chief executive officer of Lucky Brands, and the fact that he subsequently left Lucky Brands and is now serving as the chief executive officer of Guess?, Inc., a publicly traded company, listed on the NYSE, along with other prior and existing relationships between the Company and Mr. Alberini.
Further, the board of directors determined that each member of the board of directors’ audit committee, compensation committee and nominating and corporate governance committee satisfies independence standards applicable to each committee on which he or she serves. Although the board of directors determined that Mr. Alberini is an independent director under the applicable rules of the NYSE and the SEC, the board of directors has elected not to appoint Mr. Alberini to any of the committees of the Company that are required under applicable rules of the NYSE or SEC to be composed entirely of independent directors.
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CORPORATE GOVERNANCE | 2020 PROXY STATEMENT | 29 |
BOARD MEETINGS
Our board of directors held a total of five meetings during fiscal 2019 and our independent directors met in regularly scheduled executive sessions presided over by our Lead Independent Director. During fiscal 2019, all of our director nominees and all of our incumbent directors attended at least 75% of the total meetings of the board and of the committees on which they served during the period for which they were a director or committee member, except Carlos Alberini, who attended three out of the five meetings.
Agendas and topics for board and committee meetings are developed through discussions among leadership and members of our board of directors and its committees. Information and data that are important to the issues to be considered are distributed in advance of each meeting. Board meetings and background materials focus on key strategic, operational, financial, governance and compliance matters applicable to us.
COMMITTEE COMPOSITION & MEETINGS
In fiscal 2019, the board had the following standing committees: an audit committee; a compensation committee; and a nominating and corporate governance committee. All board committees are composed of independent directors. Committee membership and the number of meetings each committee held in fiscal 2019 are as follows:
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| | COMMITTEES | ||||
DIRECTORS | | AUDIT(3) | | COMPENSATION(3) | | NOM. & CORP. |
Mark Demilio(1)(2) |
| Chair |
| Member |
| Chair |
Hilary Krane | | Member | | | ||
Katie Mitic | | Member | | | ||
Ali Rowghani | | | | Member | ||
Leonard Schlesinger | | | Chair | | ||
Number of Meetings in Fiscal 2019 | | 6 | | 6 | | 1 |
(1) | Designated by the board as an “audit committee financial expert.” |
(2) | Mr. Demilio is currently the board’s Lead Independent Director. |
(3) | Committee members had various informal meetings in fiscal 2019. |
Our board of directors has delegated various responsibilities and authorities to its three different committees, as described below and in the committee charters. The board committees regularly report on their activities and actions to the full board of directors as they deem appropriate and as the board of directors may request. Each member of the audit committee, the compensation committee and the nominating and corporate governance committee was appointed by our board of directors, which reviews committee composition from time to time.
Audit Committee
The audit committee was established for the primary purpose of assisting the board of directors in overseeing the accounting and financial reporting processes of the Company and audits of its financial statements. The audit committee is responsible for, among other matters:
Appointing, retaining, compensating, evaluating, terminating and overseeing our independent registered public accounting firm;
Delineating relationships between our independent registered public accounting firm and our Company consistent with the rules of the NYSE and requesting information from our independent registered public accounting firm and leadership to determine the presence or absence of a conflict of interest;
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30 | 2020 PROXY STATEMENT | CORPORATE GOVERNANCE |
Reviewing with our independent registered public accounting firm the scope and results of their audit;
Approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
Overseeing the financial reporting process and discussing with leadership and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
Reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements;
Establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; and
Reviewing and approving related-person transactions.
Our audit committee currently consists of Mr. Demilio, Ms. Krane and Ms. Mitic. Rule 10A-3 of the Exchange Act, and NYSE rules require us to have at least three audit committee members, all of whom are independent. Our board of directors has affirmatively determined that each of Mr. Demilio, Ms. Krane and Ms. Mitic meets the definition of “independent director” for purposes of serving on our audit committee under Rule 10A-3 of the Exchange Act and NYSE rules. In addition, our board of directors has determined that Mr. Demilio qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.
Our board of directors has adopted a written charter for the audit committee, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The audit committee conducts an annual self-evaluation of its performance, as set forth in its charter.
Compensation Committee
The compensation committee was established for the primary purpose of assisting the board of directors in discharging its responsibilities relating to the compensation of the Company’s directors and executive officers, as further described in “Executive Compensation—Compensation Discussion & Analysis—Compensation Committee Review of Compensation.” The compensation committee is responsible for, among other matters:
Reviewing key associate compensation goals, policies, plans and programs;
Reviewing and approving the compensation of our directors, Chief Executive Officer and other executive officers;
Reviewing employment agreements and other similar arrangements between us and our executive officers; and
Appointing and overseeing any compensation consultants.
Our compensation committee currently consists of Mr. Demilio and Dr. Schlesinger. Our board of directors has affirmatively determined that each member of the compensation committee meets applicable independence requirements for membership on a compensation committee in accordance with applicable rules of the NYSE.
Our board of directors adopted a written charter for the compensation committee, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The compensation committee conducts an annual self-evaluation of its performance, as set forth in its charter.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee was established for the primary purpose of assisting the board of directors in discharging its responsibilities relating to the election of directors. The nominating and corporate governance committee is responsible for, among other matters:
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CORPORATE GOVERNANCE | 2020 PROXY STATEMENT | 31 |
Identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors;
Overseeing the organization of our board of directors to discharge the board’s duties and responsibilities properly and efficiently; and
Developing and recommending to our board of directors a set of corporate governance guidelines and principles.
Our nominating and corporate governance committee currently consists of Messrs. Demilio and Rowghani. Our board of directors has affirmatively determined that each member of the nominating and corporate governance committee meets applicable independence requirements for membership on a nominating and corporate governance committee in accordance with applicable rules of the NYSE.
Our board of directors adopted a written charter for the nominating and corporate governance committee, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The nominating and corporate governance committee conducts an annual self-evaluation of its performance, as set forth in its charter.
DIRECTOR NOMINATIONS; COMMUNICATION WITH DIRECTORS
Criteria for Nomination to the Board
In accordance with its charter, the nominating and corporate governance committee will consider candidates submitted by the Company’s shareholders, as well as candidates recommended by directors and leadership, for nomination to our board of directors. The nominating and corporate governance committee considers qualifications for the board of directors’ membership, which may include, among others:
The highest personal and professional integrity;
Demonstrated exceptional ability and judgment;
Broad experience in business, finance or administration;
Familiarity with the Company’s industry;
Ability to serve the long-term interests of the Company’s shareholders;
Sufficient time available to devote to the affairs of the Company;
Ability to provide continuing service to promote stability and continuity in the boardroom and provide the benefit of familiarity and insight into the Company’s affairs that directors would accumulate during their tenure;
Ability to help the board of directors work as a collective body; and
Experience, areas of expertise, as well as other factors relative to the overall composition of the board of directors.
The nominating and corporate governance committee further reviews and assesses the activities and associations of each candidate to ensure there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on our board of directors. In making its selection, the nominating and corporate governance committee bears in mind that the foremost responsibility of a director of a company is to represent the interests of the shareholders as a whole.
Each director’s individual biography set forth above includes the key individual attributes, experience and skills of each director that led to the conclusion that each director should continue to serve as a member of our board of directors at this time, as reflected in the summary above. We believe the range of tenures of our directors creates a synergy between institutional knowledge and new perspectives.
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32 | 2020 PROXY STATEMENT | CORPORATE GOVERNANCE |
Shareholder Proposals for Nominees
In accordance with its charter, the nominating and corporate governance committee will consider potential nominees properly submitted by shareholders. Shareholders seeking to do so should provide the information set forth in the nominating and corporate governance committee’s charter regarding director nominations. The nominating and corporate governance committee will apply the same criteria for candidates proposed by shareholders as it does for candidates proposed by leadership or other directors.
To be considered for nomination by the nominating and corporate governance committee at next year’s annual meeting of shareholders, submissions by shareholders must be submitted in writing and must be received by the Corporate Secretary between February 1, 2021 and March 3, 2021 to ensure adequate time for meaningful consideration by the nominating and corporate governance committee. Each submission must include the following information:
The candidate’s name, age, business address and residence address;
The candidate’s biographical information, including educational information, principal occupation or employment, past work experience (including all positions held during the past five years), personal references, and service on boards of directors or other material positions that the candidate currently holds or has held during the prior three years;
The class and number of shares of the Company which are beneficially owned by the candidate;
Any potential conflicts of interest that might prevent or otherwise limit the candidate from service as an effective member;
Any other information pertinent to the qualification of the candidate;
The name and record address of the shareholder making the recommendation; and
The class and number of shares of the Company which are beneficially owned by such shareholder and the period of time such shares have been held, including whether such shares have been held in excess of one year prior to the date of the recommendation.
Information regarding requirements that must be followed by a shareholder who wishes to make a shareholder nomination for election to our board of directors for next year’s annual meeting is described in this proxy statement under “Proposals — Additional Information — Shareholder Proposals for the 2021 Annual Meeting.”
Communicating with Members of the Board of Directors
Any shareholder or any other interested party who wishes to communicate directly with (i) our entire board of directors, (ii) the non-management directors as a group, or (iii) the Lead Independent Director, may do so by corresponding with the Lead Independent Director at the following address: Lead Independent Director, c/o RH, Legal Dept., 15 Koch Road, Corte Madera, CA 94925, Attn: Corporate Secretary. All communications will be received, processed and then directed to the appropriate member(s) of our board other than, at the board’s request, certain items unrelated to the board’s duties, such as customer complaints, spam, junk mail, solicitations, employment inquires and similar items.
SHAREHOLDER OUTREACH ACTIVITIES
We do not require thatactively engage with major shareholders of the Company, which has been a practice of the Company since our initial public offering in 2012. In 2016, we launched a formalized shareholder outreach program in order to solicit additional input from shareholders with respect to corporate governance and executive compensation practices. This shareholder outreach effort has continued in each subsequent year and is designed to supplement the ongoing communications between our leadership and shareholders.
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CORPORATE GOVERNANCE | 2020 PROXY STATEMENT | 33 |
Please refer to “Executive Compensation — Compensation Discussion & Analysis — Shareholder Engagement” for more information regarding our shareholder outreach program. We plan to continue various shareholder communication and outreach programs in the future.
BOARD’S ROLE IN RISK OVERSIGHT
Our board of directors is responsible for overseeing our risk management process. Our board of directors focuses on our general risk management strategy, including the most significant risks facing us, and oversees the implementation of risk mitigation strategies by leadership. Our board of directors is also apprised by leadership of particular risk management matters in connection with the board’s general oversight and approval of corporate matters and significant transactions. In addition, each of the board committees is responsible for risk management under its area of responsibility and consistent with its charter and such other responsibilities as may be delegated to them by the board of directors from time to time.
DIRECTOR & EXECUTIVE STOCK OWNERSHIP GUIDELINES
Our board has adopted stock ownership guidelines applicable to all directors and executive officers of the Company in order to further align the financial interest of our directors maintainand executive officers with the interest of our investors. The guidelines provide that executive officers should own RH stock with a minimumvalue at least equal to six times annual base salary for the Chief Executive Officer and two times annual base salary for our other executive officers. The guidelines provide that non-management directors should own RH stock with a value at least equal to two times the amount of the annual cash retainer paid to directors. Executive officers and directors are expected to achieve the stock ownership interestlevels under these guidelines by the later of five years from the effective date of the guideline or the date of their hire, promotion or appointment, except for the Chief Executive Officer for whom these guidelines were effective immediately upon their adoption in our Company. However, ourMay 2018.
All executive officers and non-management directors are in compliance with the guidelines.
Our Chairman and Chief Executive Officer, Mr. Friedman, has consistently maintained a significant equity ownership interest in the Company and, as of May 26, 2020, beneficially owns approximately 16.7%27.8% of the Company’s common stock which, as of April 28, 2017,based on the average closing price for RH stock for fiscal 2019, was valued at approximately 88610.6 times his annual base salary for fiscal 2016. Additionally, Ms. Chaya, ourCo-President, Chief Creative and Merchandising Officer and director, holds stock and equity awards with a value, as2019, far above the multiple of April 28, 2017, of approximately 10six times her annual base salary for fiscal 2016.
We encourage our directors and executive officers to maintain holdings in our stock and grant equity awards in order to promote equityminimum ownership and financial alignment with investors.requirement. Additional information regarding the stockholdingsshareholdings of our other named executive officers and directors is set forth in this proxy statement in the section entitled “Security Ownership of Certain Beneficial Owners and Management.Top Shareholders & Leadership.”
Annual Meeting Attendance
We do not have a policy that requires our directors to attend the annual meeting of stockholders. Two directors attended the 2016 annual meeting.
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COMPENSATION OF DIRECTORS
In fiscal 2016, we compensated the independent,non-employee members of our board of directors as follows:
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Annual equity grants described above are granted on the date of the annual meeting of stockholders each year.
Effective April 28, 2016, the Company began compensating allnon-employee directors on the same basis as the Company’s arrangement for compensating independent,non-employee directors as described above. Mr. Friedman and Ms. Chaya, as current Company employees, did not receive any compensation for board service for fiscal 2016, and former director Michael Chu, who resigned from the board of directors effective as of April 28, 2016, did not receive any compensation for board services for fiscal 2016. All directors receive reimbursement for reasonableout-of-pocket expenses incurred in connection with meetings of our board of directors.
The following table shows the compensation earned by allnon-employee directors during fiscal 2016:
Name | Fees Earned | Stock Awards(1) | Total | |||||||||
Carlos Alberini | $ | 96,681 | $ | 146,478 | $ | 243,159 | ||||||
Keith Belling(2) | $ | 134,500 | $ | 130,670 | $ | 265,170 | ||||||
Mark Demilio | $ | 221,316 | $ | 130,670 | $ | 351,986 | ||||||
Hilary Krane(3) | $ | 92,832 | $ | 131,637 | $ | 224,469 | ||||||
Katie Mitic | $ | 156,000 | $ | 130,670 | $ | 286,670 | ||||||
Ali Rowghani | $ | 113,250 | $ | 130,670 | $ | 243,920 | ||||||
Leonard Schlesinger | $ | 171,000 | $ | 130,670 | $ | 301,670 | ||||||
J. Michael Chu(4) | $ | — | $ | — | $ | — | ||||||
Thomas Mottola(5) | $ | 135,250 | $ | — | $ | 135,250 |
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At January 28, 2017, the last day of our 2016 fiscal year, the aggregate number of unvested restricted stock awards and unexercised stock options held by each of our directors during fiscal 2016, other than Mr. Friedman and Ms. Chaya, is set forth below. Information regarding equity awards held by Mr. Friedman and Ms. Chaya is set forth in the table entitled “Outstanding Equity Awards at FiscalYear-End” in this proxy statement.
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PROPOSAL 2
ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with Section 14A of the Securities Exchange Act of 1934, we are asking our stockholders to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission (commonly referred to as a“say-on-pay” vote).
Accordingly, we ask our stockholders to vote on the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.”
This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our board of directors or the compensation committee of the board of directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission.
Compensation Program and Philosophy
We are asking our stockholders to approve thesay-on-pay proposal as we believe that our compensation programs create the proper incentives for our executive officers. As described in greater detail under the heading “Compensation Discussion and Analysis,” our compensation programs are designed to attract and retain the best talent, use the Company’s equity to encourage an ownership mentality among our named executive officers and align the long-term financial interest of our executives with those of our Company and our investors. To achieve these objectives, our executive compensation program has three principal components: an annual base salary, a performance-based annual cash incentive and long-term equity incentive compensation.
In addition, since the date of our last annual meeting, we have engaged in stockholder outreach to solicit input on a variety of matters including our compensation of executive officers from our institutional stockholders as described under “Stockholder Outreach Activities.” Based in part on the findings of this outreach effort, we believe our executive officer compensation approach is in line with the expectations of the majority of our institutional stockholders. In addition, in response to the request of our institutional holders, we have granted equity incentive awards that incorporate performance metrics as an element of such awards and have provided disclosure regarding such equity incentive awards in this proxy statement to provide transparency regarding our intentions in the terms, incentive structure and tenor of award grants. We believe that this approach, taken together with the basis on which we determine compensation of our executive officers, as described under “Compensation Discussion and Analysis,” is consistent with the feedback we have received from our institutional stockholders.
Our compensation committee believes that the goals of our executive compensation program are appropriate and that the program is properly structured to achieve its goals. The board and the compensation committee, which is comprised solely of independent directors, will consider the outcome of this vote when making future executive compensation decisions to the extent appropriate. We intend to present this advisory vote on named executive compensation to our stockholders on an annual basis.
Required Vote for This Proposal
The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve, on an advisory basis, this Proposal 2. Abstentions and brokernon-votes will have no effect on the outcome of Proposal 2 because the advisory vote is based on the votes actually cast.
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT.
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PROPOSAL 3
RE-APPROVAL OF THE 2012 STOCK INCENTIVE PLAN FOR
PURPOSES OF SECTION 162(M)(4)(C) OF THE CODE
In connection with our initial public offering, our board of directors adopted the 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporations’ (“related entities’”) employees, and for the grant of cash, shares of our common stock,non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants. The summary of the 2012 Plan provided herein is a summary of the principal features of the 2012 Plan. This summary, however, does not purport to be a complete description of all of the provisions of the 2012 Plan. It is qualified in its entirety by reference to the full text of the 2012 Plan, a copy of which is attached as Annex A to this proxy statement. As of April 28, 2017, approximately 9 corporate officers, approximately 7 directors, approximately 5,040 employees, and approximately 156 consultants were eligible to participate in the 2012 Plan. Such persons are eligible to participate in the 2012 Plan on the basis that such participation provides an incentive, through ownership of our common stock, to continue in service to us and our related entities, and to help us compete effectively with other enterprises for the services of qualified persons. As of April 28, 2017, the closing price of our common stock was $47.97, as reported by the NYSE.
Description of the Proposal
Our board of directors has directed us to submit this proposal to our stockholders to seek approval of the material terms, share limits, dollar limits for cash-based performance awards and performance criteria applicable to awards granted under the 2012 Plan that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code (“Section 162(m)”). Approval of these terms would enable us to receive corporate income tax deductions related to certain compensation, as described below, which could substantially decrease our compensation costs and result in increased net income. No changes have been made to the 2012 Plan since its adoption and no changes are proposed at this time.
Pursuant to Section 162(m), we generally may not deduct for federal income tax purposes compensation paid to certain executive officers to the extent that any of these persons receive more than $1.0 million in compensation in any single year. Compensation includes cash compensation and ordinary income related to equity awards, including under the 2012 Plan. The executive officers whose compensation is subject to the deduction limitation are those that constitute “covered employees” within the meaning of Section 162(m), which generally includes our chief executive officer and certain of our most highly compensated officers, excluding our chief financial officer. However, if the compensation qualifies as “performance-based” for Section 162(m) purposes, we may deduct it for federal income tax purposes even if it exceeds $1.0 million in a single year. The 2012 Plan permits the administrator to design awards intended to qualify as “performance-based” compensation within the meaning of Section 162(m). We may or may not grant awards under the 2012 Plan that are intended to qualify as “performance-based” compensation under Section 162(m). However, to preserve our ability to grant equity awards that are intended to qualify as “performance-based compensation” under Section 162(m) and that are intended to provide a benefit from a corresponding tax deduction, Section 162(m) requires that stockholders must approve the material terms, share limits, dollar limits for cash-based performance awards and performance criteria of the 2012 Plan.
Because of the fact-based nature of the performance-based compensation exception under Section 162(m) and the limited availability of formal guidance thereunder, among other things, we cannot guarantee that any awards under the 2012 Plan that are intended to qualify for exemption under Section 162(m) will actually receive this treatment. However, the 2012 Plan is structured with the intention that the administrator will have the discretion to make awards under the 2012 Plan that are intended to qualify as “performance-based compensation” and that are intended to be fully deductible if we obtain stockholder approval of the material terms, share limits, dollar limits for cash-based performance awards and performance criteria under the 2012 Plan.
Subject to the requirements of Section 162(m), if the material terms under our 2012 Plan, including the annual equity grant share limitations, and the performance criteria under which performance-based awards may be granted, are notre-approved by stockholders, we will not make any further grants under the 2012 Plan to our “covered employees” as defined in Section 162(m) that are intended to qualify as “performance-based compensation” for Section 162(m) purposes, or their successors, until such time, if any, as stockholder approval of a subsequent similar proposal is obtained.
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Not all equity awards that we have granted or will grant under the 2012 Plan were or will be designed to qualify for the performance-based compensation exception under Section 162(m). We are seeking stockholder approval for the 2012 Plan in order to be able to grant “performance-based” compensation under Section 162(m) in the future. We believe that this alternative could result in substantial tax savings through increased ability to deduct certain future compensation costs as a result of the Section 162(m) exception. Notwithstanding any stockholder approval of the 2012 Plan, we may also grant equity awards in the future that are not eligible for the 162(m) exception such as restricted stock units subject to time vesting.
Share Reserve.We have reserved a total of 9,039,568 shares of our common stock (“shares”) for issuance pursuant to the 2012 Plan. In addition, the 2012 Plan provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, equal to the lowest of (x) two percent of the number of shares of our common stock outstanding on the last day of our immediately preceding fiscal year, calculated on a fully diluted basis; or (y) a lower number of shares determined by our board of directors. After giving effect to all outstanding awards made under the 2012 Plan as of April 28, 2017, 1,468,496 shares remained available for grant.
Administration.Our board of directors administers the 2012 Plan with respect to directors and officers, and our board of directors has delegated to the compensation committee thenon-exclusive authority to administer the 2012 Plan with respect to employees and consultant that are not executive officers or directors. Notwithstanding the foregoing, in the case of awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m), the administrator will consist of two or more “outside directors” within the meaning of Section 162(m). The administrator has the power to determine and interpret the terms and conditions of the awards, including the employees, directors and consultants who will receive awards, the exercise price, the number of shares subject to each such award, the vesting schedule and exercisability of the awards, the restrictions on transferability of awards and the form of consideration payable upon exercise. The administrator also has the authority to reduce the exercise prices of outstanding stock options and the base appreciation amount of any stock appreciation right and to cancel options and stock appreciation rights in exchange for new awards, in each case without stockholder approval.
Stock Options.The 2012 Plan allows for the grant of incentive stock options that qualify under Section 422 of the Code only to our employees and employees of any parent or subsidiary of ours.Non-qualified stock options may be granted to our employees, directors, and consultants and those of any parent or subsidiary of ours. The exercise price of all options granted under the 2012 Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any employee who owns more than 10% of the voting power of all classes of our outstanding stock or any parent or subsidiary corporation as of the grant date, the term must not exceed five years, and the exercise price must equal at least 110% of the fair market value on the grant date. After the continuous service of an employee, director or consultant terminates, he or she may exercise his or her option, to the extent vested, for the period of time specified in the option agreement. However, an option may not be exercised later than the expiration of its term.
Stock Appreciation Rights (“SARs”).The 2012 Plan allows for the grant of stock appreciation rights. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date. The administrator will determine the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the base appreciation amount for the cash or shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. After the continuous service of an employee, director or consultant terminates, he or she may exercise his or her stock appreciation right, to the extent vested, only to the extent provided in the stock appreciation right agreement.
Restricted Stock Awards.The 2012 Plan allows for the grant of restricted stock. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant. The administrator may impose whatever conditions on vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock Units.The 2012 Plan allows for the grant of restricted stock units. Restricted stock units are awards that will result in payment to a recipient at the end of a specified period only if the vesting criteria established by the
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administrator are achieved or the award otherwise vests. The administrator may impose whatever conditions to vesting, or restrictions and conditions to payment that it determines to be appropriate. The administrator may set restrictions based on the achievement of specific performance goals or on the continuation of service or employment. Payments of earned restricted stock units may be made, in the administrator’s discretion, in cash, with shares of our common stock or other securities, or a combination thereof.
Terms of Awards and Performance Goals. Subject to the terms of the 2012 Plan, the administrator will determine the provisions, terms, and conditions of each award including, but not limited to, the award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares, or other consideration) upon settlement of the award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the administrator for any awards intended to be performance-based compensation exempt from the Section 162(m) deduction limit described above will be one of, or combination of: net earnings or net income (before or after taxes); earnings per share; revenues or sales (including net sales or revenue growth); net operating profit; return measures (including return on capital, invested capital, assets, net assets, equity, sales, or revenue); cash flow (including operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); earnings before or after taxes, interest, depreciation, and/or amortization; gross or operating margins; productivity ratios; share price (including growth measures and total stockholder return); expense targets; margins; operating efficiency; market share; working capital targets and change in working capital; economic value added or EVA® (net operating profit after tax minus the sum of capital multiplied by the cost of capital); net operating income; customer satisfaction; or employee satisfaction. The performance criteria may be applicable to the Company, related entities and/or any individual business units of the Company or any related entity and may be measured annually or cumulatively over a period of years, on an absolute basis or relative to apre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the administrator. Performance criteria will be calculated in accordance with generally accepted accounting principles, but excluding, unless otherwise specified by the administrator, the effect (whether positive or negative) of any change in accounting standards and any extraordinary, unusual or nonrecurring item occurring after the establishment of the performance criteria.
Per-Person Limits. The maximum number of shares with respect to which options and SARs may be granted to any grantee in any calendar year is 2,535,815 shares. The foregoing limitation will be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to the 2012 Plan. To the extent required by Section 162(m), in applying the foregoing limitations with respect to a grantee, if any option or SAR is canceled, the canceled option or SAR will continue to count against the maximum number of shares with respect to which options and SARs may be granted to the grantee. For this purpose, the repricing of an option (or in the case of a SAR, the base appreciation amount) will be treated as the cancellation of the existing option or SAR and the grant of a new option or SAR. For awards of restricted stock and restricted stock units that are intended to be performance-based compensation exempt from the Section 162(m) deduction limit described above, the maximum number of shares with respect to which such awards may be granted to any grantee in any calendar year is 1,901,861 shares. The foregoing limitation will be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to the 2012 Plan. For cash-based awards that are intended to be performance-based compensation exempt from the Section 162(m) deduction limit described above, with respect to each twelve (12) month period that constitutes or is part of each performance period, the maximum amount that may be paid to a grantee pursuant to such awards is $10,000,000. The foregoing limitation will be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to the 2012 Plan. In addition, the foregoing limitation will be prorated for any performance period consisting of fewer than twelve (12) months.
Transferability of Awards.The 2012 Plan allows for the transfer of awards under the 2012 Plan only (i) by will, (ii) by the laws of descent and distribution and (iii) for awards other than incentive stock options, to the extent authorized by the administrator. Only the recipient of an incentive stock option may exercise such award during his or her lifetime.
Certain Adjustments.In the event of certain changes in our capitalization, to prevent enlargement of the benefits or potential benefits available under the 2012 Plan, the administrator will make adjustments to one or more of the number of shares that are covered by outstanding awards, the exercise or purchase price of outstanding awards, the numerical share limits contained in the 2012 Plan, and any other terms that the administrator determines require adjustment. In the event of our complete liquidation or dissolution, all outstanding awards will terminate immediately upon the consummation of such transaction.
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Corporate Transactions and Changes in Control.The 2012 Plan provides that except as otherwise provided in an individual award agreement, in the event of a corporate transaction or change in control, as such terms are defined in the 2012 Plan, the portion of each outstanding award that is neither assumed nor replaced will automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value) immediately prior to the specified effective date of such corporate transaction or change in control. In addition, any incentive stock option, as defined in the 2012 Plan, accelerated in connection with a corporate transaction or change in control, will remain exercisable as an incentive stock option only to the extent the dollar limitation under the Code is not exceeded.
Plan Amendments and Termination.The 2012 Plan will automatically terminate ten years following the date it becomes effective, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the 2012 Plan provided such action does not impair the rights under any outstanding award.
Certain U.S. Federal Tax Consequences
The following summary of the federal income tax consequences of 2012 Plan transactions is based upon federal income tax laws in effect on the date of this proxy statement. This summary does not purport to be complete, and does not discussnon-U.S., state or local tax consequences. As such, please refer to the applicable provisions of the Code for additional information.
Non-Qualified Stock Options. Except as provided under Section 409A of the Code discussed below (“Section 409A”), the grant of anon-qualified stock option under the 2012 Plan generally will not result in any U.S. Federal income tax consequences to the grantee or to the Company. Upon exercise of anon-qualified stock option, the grantee is generally subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option exercise price and the fair market value of the shares on the date of exercise. This income is generally subject to withholding for U.S. Federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the grantee, subject to possible limitations imposed by Section 162(m) and so long as the Company withholds the appropriate taxes with respect to such income, if required, and the grantee’s total compensation is deemed reasonable in amount. Any gain or loss on the grantee’s subsequent disposition of the shares of the Company’s common stock will receive long or short-term capital gain or loss treatment, depending on whether the shares are held for more than one year following exercise. The Company does not receive a tax deduction for any such gain.
Absent special limitations on exercisability, in the event a nonqualified stock option is granted with an exercise price less than 100% of the fair market value of the common stock on the date of grant or amended in certain respects, such option may be considered deferred compensation and subject to Section 409A, which provide rules regarding the timing of payment of deferred compensation. An option subject to Section 409A which fails to comply with the rules of Section 409A can result in the acceleration of income recognition, an additional 20% tax obligation, plus potential penalties and interest, and similar treatment under state law.
Incentive Stock Options.The grant of an incentive stock option under the 2012 Plan will not result in any U.S. Federal income tax consequences to the grantee or to the Company. A grantee recognizes no U.S. Federal taxable income upon exercising an incentive stock option (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an incentive stock option, the tax consequences depend upon how long the grantee has held the shares of the Company’s common stock. If the grantee does not dispose of the shares within two years after the incentive stock option was granted, nor within one year after the incentive stock option was exercised, the grantee will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. The Company is not entitled to any deduction under these circumstances.
If the grantee fails to satisfy either of the foregoing holding periods, he or she must recognize ordinary income in the year of the disposition, which is referred to as a “disqualifying disposition.” The amount of such ordinary income generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the difference between the fair market value of the stock on the exercise date and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the stock was held for more than one year. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the
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amount of ordinary income recognized by the grantee, subject to possible limitations imposed by Section 162(m) and so long as the Company withholds the appropriate taxes with respect to such income, if required, and the grantee’s total compensation is deemed reasonable in amount.
The “spread” under an incentive stock option—i.e., the difference between the fair market value of the shares at exercise and the exercise price—is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax. If a grantee’s alternative minimum tax liability exceeds such grantee’s regular income tax liability, the grantee will owe the larger amount of taxes. In order to avoid the application of alternative minimum tax with respect to incentive stock options, the grantee must sell the shares within the same calendar year in which the incentive stock options are exercised. However, such a sale of shares within the same year of exercise will constitute a disqualifying disposition, as described above.
In the event that an incentive stock option is amended in certain respects, such option may be considered deferred compensation and subject to the rules of Section 409A, which provides rules regarding the timing of payment of deferred compensation. An option subject to Section 409A which fails to comply with the rules of Section 409A can result in the acceleration of income recognition, an additional 20% tax obligation, plus potential penalties and interest, and similar treatment under state law. In addition, the amendment of an incentive stock option may convert the option from an incentive stock option to a nonqualified stock option.
Restricted Stock and Performance Stock. The grant of restricted stock and performance shares will generally subject the recipient to ordinary compensation income on the difference between the amount paid for such stock and the fair market value of the shares on the date that the restrictions lapse. This income is generally subject to withholding for U.S. Federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by the recipient, subject to possible limitations imposed by Section 162(m) and so long as the Company withholds the appropriate taxes with respect to such income, if required, and the grantee’s total compensation is deemed reasonable in amount. Any gain or loss on the recipient’s subsequent disposition of the shares will receive long or short-term capital gain or loss treatment depending on how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction for any such gain.
Recipients of restricted stock and performance shares may make an election under Section 83(b) of the Code, which is referred to as a “Section 83(b) Election,” to recognize as ordinary compensation income in the year that such restricted stock or performance shares are granted, the amount equal to the spread between the amount paid for such stock (if any) and the fair market value on the date of the issuance of the stock. If such an election is made, the recipient recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long or short-term capital gain to the recipient. The Section 83(b) Election must be made within thirty days from the time the restricted stock or performance share is issued.
Stock Appreciation Rights. Recipients of stock appreciation rights generally should not recognize income until such rights are exercised, assuming there is no ceiling on the value of the right and Section 409A does not apply. Upon exercise, the grantee will normally recognize taxable ordinary income for U.S. Federal income tax purposes equal to the amount of cash and fair market value the shares, if any, received upon such exercise. Grantees who are employees will be subject to withholding for U.S. Federal income and employment tax purposes with respect to income recognized upon exercise of a SAR. Grantees will recognize gain upon the disposition of any shares received on exercise of a SAR equal to the excess of (i) the amount realized on such disposition over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long or short-term capital gain depending on whether the shares were held for more than one year.
The Company will be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the grantee, subject to possible limitations imposed by Section 162(m) and so long as the Company withholds the appropriate taxes with respect to such income, if required, and the grantee’s total compensation is deemed reasonable in amount.
A SAR can be considered deferred compensation and subject to Section 409A. A SAR that does not meet the requirements of Section 409A, such as with respect to the timing of the delivery of cash or shares following vesting, can result in the acceleration of income recognition, an additional 20% tax obligation, plus potential penalties and interest, and similar treatment under state law.
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Performance Units. Recipients of performance units generally should not recognize income until such units are converted into cash or shares of stock unless Section 409A applies. Upon conversion, the grantee will normally recognize taxable ordinary income for federal income tax purposes equal to the amount of cash and fair market value the shares, if any, received upon such conversion. Grantees who are employees will be subject to withholding for federal income and employment tax purposes with respect to income recognized upon conversion of the performance units. Grantees will recognize gain upon the disposition of any shares received upon conversion of the performance units equal to the excess of (i) the amount realized on such disposition over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long or short-term capital gain depending on whether the shares were held for more than one year.
The Company will be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the grantee, subject to possible limitations imposed by Section 162(m) and so long as the Company withholds the appropriate taxes with respect to such income (if required) and the grantee’s total compensation is deemed reasonable in amount.
Performance units also can be considerednon-qualified deferred compensation and subject to the rules of Section 409A, which provide rules regarding the timing of payment of deferred compensation. A grant of performance units that does not meet the requirements of Code Section 409A can result in the acceleration of income recognition, an additional 20% tax obligation, plus potential penalties and interest to such grantee, and similar treatment under state law.
Dividends and Dividend Equivalents. Recipients of stock-based awards that earn dividends or dividend equivalents will recognize taxable ordinary income on any dividend payments received with respect to unvested shares subject to such awards, which income is generally subject to withholding for U.S. Federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by a grantee, subject to possible limitations imposed by Section 162(m) and so long as the Company withholds the appropriate taxes with respect to such income, if required, and the individual’s total compensation is deemed reasonable in amount.
The foregoing is only a summary of the U.S. Federal income tax consequences of 2012 Plan transactions, and is based upon U.S. Federal income tax laws in effect on the date of this proxy statement. Reference should be made to the applicable provisions of the Code. This summary does not purport to be complete, and does not discuss the tax consequences of a grantee’s death or the tax laws of any municipality, state or foreign country to which the grantee may be subject.
New Plan Benefits and History of Grants
The number of grants, if any, to be made afterre-approval of the 2012 Plan to specific employees, consultants, directors or groups thereof cannot currently be determined. The number of securities underlying grants made to our named executive officers, all current executive officers as a group, all currentnon-executive directors as a group, each director nominee, and all currentnon-executive employees as a group, from the inception of the 2012 Plan through April 28, 2017 totaled 2,250,794, as follows: 1,000,000 shares to Gary Friedman, Chairman and Chief Executive Officer; 520,000 shares to Karen Boone,Co-President, Chief Financial and Administrative Officer; 365,000 shares to Eri Chaya,Co-President, Chief Creative and Merchandising Officer and Director; 280,000 shares to DeMonty Price,Co-President, Chief Operating, Service and Values Officer; 85,794 to all currentnon-executive directors (7 persons); 4,768 shares to Hilary Krane, nominee for director; 9,319 shares to Katie Mitic, nominee for director; and 6,829 shares to Ali Rowghani, nominee for director.
Required Vote for This Proposal
The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve this Proposal 3. Brokernon-votes will have no effect on the outcome of Proposal 3 because the vote is based on the votes actually cast. Under the rules of the NYSE, abstentions are counted as votes cast for Proposal 3, and therefore abstentions will have the same effect as a vote “against” Proposal 3.
THE BOARD RECOMMENDS A VOTE “FOR” THERE-APPROVAL OF THE 2012 STOCK INCENTIVE PLAN FOR PURPOSES OF SECTION 162(M)(4)(C) OF THE CODE.
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PROPOSAL 4
APPROVAL OF THE CASH INCENTIVE BONUS PLAN FOR PURPOSES OF SECTION 162(M)(4)(C) OF THE CODE
Our board of directors adopted the RH Cash Incentive Bonus Plan (the “Cash Incentive Bonus Plan”) on May 16, 2017, to be effective June 27, 2017. The summary of the Cash Incentive Bonus Plan provided herein is a summary of the principal features of the Cash Incentive Bonus Plan. This summary, however, does not purport to be a complete description of all of the provisions of the Cash Incentive Bonus Plan. It is qualified in its entirety by reference to the full text of the Cash Incentive Bonus Plan, a copy of which is attached as Annex B to this proxy statement. As of the date of the adoption of the Cash Incentive Bonus Plan, approximately four officers were eligible to be selected to participate in the Cash Incentive Bonus Plan. Such persons are eligible to participate in the Cash Incentive Bonus Plan on the basis that such participation helps us attract and retain highly qualified officers and to provide such officers with additional financial incentives to promote our success.
Description of the Proposal
Our board of directors has directed us to submit this proposal to our stockholders to seek approval of the material terms, dollar limits and performance criteria applicable to awards granted under the Cash Incentive Bonus Plan that are intended to qualify as “performance-based compensation” under Section 162(m). Approval of these terms would enable us to receive corporate income tax deductions elated to certain compensation, as described below, which could result in tax savings to us in future periods.
Pursuant to Section 162(m), we generally may not deduct for federal income tax purposes compensation paid to certain executive officers to the extent that any of these persons receive more than $1.0 million in compensation in any single year. Compensation includes cash compensation under the Cash Incentive Bonus Plan. The executive officers whose compensation is subject to the deduction limitation are those that constitute “covered employees” within the meaning of Section 162(m), which generally includes our chief executive officer and certain of our most highly compensated officers, excluding our chief financial officer. However, if the compensation qualifies as “performance-based” for Section 162(m) purposes, we may deduct it for federal income tax purposes even if it exceeds $1.0 million in a single year. The Cash Incentive Bonus Plan permits the plan administrator to design awards intended to qualify as “performance-based” compensation within the meaning of Section 162(m). We may or may not grant awards under the Cash Incentive Bonus Plan that are intended to qualify as “performance-based” compensation under Section 162(m). However, to preserve our ability to grant cash awards that are intended to qualify as “performance-based compensation” under Section 162(m) and that are intended to provide a benefit from a corresponding tax deduction, Section 162(m) requires that stockholders must approve the material terms, dollar limits and performance criteria of the Cash Incentive Bonus Plan.
Because of the fact-based nature of the performance-based compensation exception under Section 162(m) and the limited availability of formal guidance thereunder, among other things, we cannot guarantee that any awards under the Cash Incentive Bonus Plan that are intended to qualify for exemption under Section 162(m) will actually receive this treatment. However, the Cash Incentive Bonus Plan is structured with the intention that the plan administrator will have the discretion to make awards under the Cash Incentive Bonus Plan that are intended to qualify as “performance-based compensation” and are intended to be fully deductible if we obtain stockholder approval of the material terms, dollar limits and performance criteria under the Cash Incentive Bonus Plan.
Subject to the requirements of Section 162(m), if the material terms under our Cash Incentive Bonus Plan, including the dollar limits and the performance criteria under which performance-based awards may be granted, are not approved by stockholders, we will not make awards under the Cash Incentive Bonus Plan to our “covered employees” as defined in Section 162(m) that are intended to qualify as “performance-based compensation” for Section 162(m) purposes, or their successors, until such time, if any, as stockholder approval of a subsequent similar proposal is obtained.
We believe that we must retain the flexibility to respond to changes in the market for top executive talent and offer compensation packages that are competitive with alternatives available in the marketplace. To enable us to grant cash awards
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that are intended to be “performance-based” compensation under Section 162(m) in the future, our board of directors has approved the Cash Incentive Bonus Plan which would enable us to deduct such compensation for federal income tax purposes.
Administration of the Cash Incentive Bonus Plan
Except as otherwise determined by the board of directors, the Cash Incentive Bonus Plan will be administered by the compensation committee of the board of directors. Subject to applicable laws and the provisions of the Cash Incentive Bonus Plan (including any other powers given to the compensation committee), and except as otherwise provided by our board of directors, the compensation committee will have full and final authority in its discretion to establish rules and take all actions, including, without limitation, interpreting the terms of the Cash Incentive Bonus Plan and any related rules or regulations or other documents enacted thereunder and deciding all questions of fact arising in their application, determined by the compensation committee to be necessary in the administration of the Cash Incentive Bonus Plan. All decisions, determinations and interpretations of the compensation committee will be final, binding and conclusive on all persons, including us, our subsidiaries, our stockholders, the participants and their estates and beneficiaries. Awards intended to meet the performance-based compensation exemption under Section 162(m) will be made only by a committee that qualifies as a committee making awards intended to meet the performance-based compensation exemption under Section 162(m).
Amendment and Termination
Our board of directors may at any time and from time to time, alter, amend, suspend, or terminate the Cash Incentive Bonus Plan, in whole or in part.
Eligibility and Participation
Eligibility under the Cash Incentive Bonus Plan is limited to individuals who are considered “officers” under the Securities Exchange Act of 1934, as amended, and who are designated by the compensation committee to participate in the Cash Incentive Bonus Plan.
Form of Payment
Payment of incentive awards under the Cash Incentive Bonus Plan will be made in cash.
Performance Period
The performance period under the Cash Incentive Bonus Plan is our fiscal year or such shorter or longer period as determined by our compensation committee.
Designation of Participants, Performance Period and Performance Measures
The compensation committee will select the participants to whom incentive awards will be granted, designate the applicable performance period, establish the target incentive award for each participant, if applicable, and establish the performance objective or objectives that must be satisfied in order for a participant to receive an incentive award for such performance period. Any such performance objectives will be based upon one or more of the following performance measures, or, if the incentive award is not intended to meet the performance-based compensation exemption under Section 162(m), such other performance measures (including, without limitation, individual measures) as determined by the compensation committee: (i) earnings per share, (ii) economic value created, (iii) market share (actual or targeted growth), (iv) net income (before or after taxes) (actual or adjusted), (v) operating income and/or earnings or any metric derived from earnings, including earnings before taxes, earnings before interest, taxes, depreciation and amortization (EBITDA) (actual or adjusted) and adjusted EBITDA,(vi) sales contract growth, (vii) return on assets (actual or targeted growth), (viii) return on capital (actual or targeted growth), (ix) return on equity (actual or targeted growth), (x) return on investment (actual or targeted growth), (xi) revenue (actual or targeted growth) or any metric derived from any element of revenue (actual or
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targeted growth), including comparable brand revenue, direct revenue, same store sales, (xii) cash flow, (xiii) operating margin, (xiv) share price or any direct or indirect measure or metric tied to share price, (xv) share price growth, (xvi) total stockholder return, (xvii) book value growth, (xviii) strategic business criteria consisting of one or more objectives based on meeting specified market penetration goals, demands, orders, or any metric derived from any element of demands or orders, productivity measures, geographic business expansion goals, cost targets, customer satisfaction or employee satisfaction goals, goals relating to merger or other transaction-related synergies, management of employment practices and employee benefits, or supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries and/or other affiliates or joint ventures, and (xix) any metrics derived from any of the foregoing metrics or derived from a combination of such metrics. The targeted level or levels of performance with respect to such performance measures may be established at such levels and on such terms as the compensation committee may determine, in its discretion, relate to the performance of us, a subsidiary of us and/or any individual business units or divisions of us or a subsidiary of us, and they may be in absolute terms, as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies.
Payment of Awards
As soon as reasonably practicable after the end of each performance period, the compensation committee will (i) determine whether the performance objectives for the performance period have been satisfied, (ii) determine the amount of the incentive award to be paid to each participant for such performance period and (iii) to the extent the incentive award is intended to meet the performance-based compensation exemption under Section 162(m), certify such determination in writing. Incentive awards will be paid to the participants following such determination (or, if applicable, certification) by the compensation committee no later than the 15th day of the third month following the close of the performance period with respect to which the awards are made.
Maximum Award
The maximum incentive award that may be paid to a participant under the Cash Incentive Bonus Plan in any fiscal year is $25,000,000.
Compensation Committee Discretion
To the extent permitted by applicable law, the compensation committee will retain discretion to adjust performance goals, measures and/or targets and the amounts payable with respect to an award, including, without limitation, the discretion to reduce the amount of any incentive award that would otherwise be payable to a participant, including a reduction in such amount to zero; provided, that the compensation committee will not exercise such discretion to increase the amount of any incentive award that would otherwise be payable to a participant to the extent the incentive award is intended to meet the performance-based compensation exemption under Section 162(m).
Termination of Employment
Unless our compensation committee determines otherwise, or as specified in an employment or other binding agreement with the participant, a participant must be actively employed by us or a subsidiary of us on the last day of the performance period to receive an incentive award under the Cash Incentive Bonus Plan for such performance period. Our compensation committee, in its discretion, may impose such additional service restrictions as it deems appropriate.
Award Information
As incentive awards under the Cash Incentive Bonus Plan are based on future performance, it is not possible at this time to determine the awards that will be made in the future. No awards will be made under the Cash Incentive Bonus Plan absent stockholder approval.
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Clawback Policies
Incentive awards under the Cash Incentive Bonus Plan are subject to cancellation or recoupment under any clawback policy we may adopt, as may be amended or superseded from time to time.
Certain U.S. Federal Tax Consequences
The following summary of the federal income tax consequences of Cash Incentive Bonus Plan awards is based upon federal income tax laws in effect on the date of this proxy statement. This summary does not purport to be complete, and does not discussnon-U.S., state or local tax consequences. As such, please refer to the applicable provisions of the Code for additional information.
Participants will recognize ordinary income equal to the amount of the award received in the year of receipt. That income will be subject to applicable income and employment tax withholding if the participant is an employee. If and to the extent that payments made under the Cash Incentive Bonus Plan satisfy the requirements of Section 162(m) and otherwise satisfy the requirements of deductibility under federal income tax law, we will receive a corresponding deduction for the amount constituting ordinary income to the participant.
Required Vote for This Proposal
The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve this Proposal 4. Brokernon-votes will have no effect on the outcome of Proposal 4 because the vote is based on the votes actually cast. Under the rules of the NYSE, abstentions are counted as votes cast for Proposal 4, and therefore abstentions will have the same effect as a vote “against” Proposal 4.
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE CASH INCENTIVE BONUS PLAN FOR PURPOSES OF SECTION 162(M)(4)(C) OF THE CODE.
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PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee has appointed PricewaterhouseCoopers (“PwC”) as the Company’s principal independent registered public accounting firm to perform the audit of the Company’s consolidated financial statements for fiscal 2017. The audit committee has decided to submit its selection of independent audit firm to stockholders for ratification. In the event that this appointment of PwC is not ratified by a majority of votes cast, whether in person or by proxy, the audit committee will review its future selection of PwC as the Company’s independent registered public accounting firm.
The audit committee first approved PwC as our independent auditors in fiscal 2008.
Representatives of PwC are expected to attend the Annual Meeting, will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to questions.
Principal Accountant Fees and Services
We regularly review the services and fees from our independent registered public accounting firm, PwC. These services and fees are also reviewed with the audit committee annually. In accordance with standard policy, PwC periodically rotates the individuals who are responsible for the Company’s audit.
In addition to performing the audit of the Company’s consolidated financial statements, PwC provided various other services during fiscal 2016 and fiscal 2015. The Company’s audit committee has determined that PwC’s provision of these services, which are described below, does not impair PwC’s independence with respect to the Company.
The aggregate fees billed for fiscal 2016 and fiscal 2015 for each of the following categories of services are as follows:
Fees Billed to the Company | Fiscal 2016 | Fiscal 2015 | ||||||
Audit fees(1) | $ | 1,870,276 | $ | 1,389,805 | ||||
Audit related fees(2) | 85,472 | 263,070 | ||||||
Tax fees(3) | 251,006 | 237,620 | ||||||
All other fees(4) | 483,953 | — | ||||||
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Total fees | $ | 2,690,707 | $ | 1,890,135 | ||||
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Policy on Audit CommitteePre-Approval of Audit and PermissibleNon-Audit Services of Independent Registered Public Accounting Firm
The audit committee’s policy is topre-approve all audit and permissiblenon-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with thispre-approval, and the fees for the services performed to date. All of the services relating to the fees described in the table above were approved by the audit committee in accordance with the audit committee’spre-approval policy.
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Required Vote for This Proposal
The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve Proposal 5. Proposal 5 is considered to be a routine matter and, accordingly, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 5, brokers will be permitted to exercise their discretionary authority to vote for the ratification of the appointment of auditors. Abstentions and brokernon-votes will have no effect on the outcome of Proposal 5 because the ratification of appointment of auditors is based on the votes actually cast.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2017.
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REPORT OF THE AUDIT COMMITTEE
The information contained in the following report of the Company’s audit committee is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing by the Company under the Exchange Act or the Securities Act of 1933 unless and only to the extent that the Company specifically incorporates it by reference.
The Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial statements for the year ended January 28, 2017 with the Company’s management and PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm (“PwC”).
2. The Audit Committee has also discussed with PwC the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (United States).
3. The Audit Committee also has received and reviewed the written disclosures and the letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence, and has discussed with PwC its independence from the Company.
4. Based on the reviews and discussions referred to above, the Audit Committee recommended to our board of directors that the financial statements referred to above be included in the Company’s Annual Report onForm 10-K for the fiscal year ended January 28, 2017 for filing with the SEC.
Respectfully submitted by the members of the Audit Committee of the board of directors for the fiscal year ended January 28, 2017.
33
EXECUTIVE OFFICERS
Below is a list of the names and ages, as of April 28, 2017, of our executive officers and a description of their business experience.
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Gary Friedman is the Chairman and Chief Executive Officer of the Company and Founder of the RH brand as we know it today. From July 2013 to January 2014, Mr. Friedman served asCo-Chief Executive Officer with Mr. Alberini, and from October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis. Mr. Friedman served as our Chairman from May 2010 to October 2012 and as ourCo-Chief Executive Officer from June 2010 to October 2012. He also served as our Chief Executive Officer from March 2001 to June 2010 and as our Chairman from March 2005 to June 2008. He served on our board of directors from March 2001 to October 2012. Prior to joining us, from 1988 to 2001, Mr. Friedman worked for Williams-Sonoma, Inc., a specialty retailer of products for the home, where he served in various capacities, including as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer and President of Retail Stores from 1995 to 2000 and as Executive Vice President and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2001. Prior to joining Williams-Sonoma, Mr. Friedman spent eleven years with Gap, Inc., a specialty retailer, in various management positions.
Karen Boone serves as ourCo-President, Chief Financial and Administrative Officer. She was appointed asCo-President, Chief Financial and Administrative Officer in May 2016. Ms. Boone joined us as our Chief Financial Officer in June 2012 and in May 2014 was promoted to Chief Financial and Administrative Officer. From December 1996 to June 2012, Ms. Boone worked for Deloitte & Touche, LLP, an accounting and consulting firm, where since 2010 she served as an audit partner. Her entire career at Deloitte was spent specializing in service to retail and consumer products companies.
Eri Chaya serves as ourCo-President, Chief Creative and Merchandising Officer and Director. She was appointed asCo-President, Chief Creative and Merchandising Officer in May 2016 and has served on our board of directors since November 2012. Ms. Chaya served as our Chief Creative Officer since April 2008. Before becoming our Chief Creative Officer, Ms. Chaya was our Vice President of Creative, beginning in July 2006. From February 2004 to June 2006, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency. From May 2000 to February 2004, Ms. Chaya was a creative director at Banana Republic, a clothing retailer. Ms. Chaya graduated from Art Center College of Design, one of the country’s preeminent design schools.
DeMonty Price serves as ourCo-President, Chief Operating, Service and Values Officer. Mr. Price was appointed asCo-President, Chief Operating, Service and Values Officer in May 2016. Mr. Price has a long history of almost 15 years with the Company. Among the positions he has held, Mr. Price was previously our Chief Service and Values Officer from September 2015 until his most recent appointment asCo-President, Chief Operating, Service and Values Officer, and he served as our Senior Vice President of Retail Galleries and Operations and Chief Values Officer from June 2006 to September 2015.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 28, 2017, regarding the beneficial ownership of our common stock by:
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. Percentage of beneficial ownership is based on 33,075,569 shares of common stock outstanding as of April 28, 2017. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o RH, 15 Koch Road, Suite K, Corte Madera, CA 94925.
Name
| Number
| Percent
| ||||||
5% Stockholders: | ||||||||
FMR LLC(1) | ||||||||
245 Summer Street, Boston, MA 02210 | 6,120,382 | 18.5 | % | |||||
T. Rowe Price Associates, Inc.(2) | ||||||||
100 E. Pratt Street, Baltimore, MD 21201 | 4,938,206 | 14.9 | % | |||||
Blackrock, Inc.(3) | ||||||||
55 East 52nd Street, New York, NY 10055 | 4,660,533 | 14.1 | % | |||||
The Vanguard Group(4) | ||||||||
100 Vanguard Blvd., Malvern, PA 19355 | 2,929,025 | 8.86 | % | |||||
Balyasny Asset Management L.P.(5) | ||||||||
181 West Madison, Suite 3600 | ||||||||
Chicago, IL 60602 | 2,205,903 | 6.7 | % | |||||
Named Executive Officers and Directors: | ||||||||
Gary Friedman(6) | 6,184,277 | 16.7 | % | |||||
Carlos Alberini(7) | 66,196 | * | ||||||
Keith Belling(8) | 18,608 | * | ||||||
Karen Boone(9) | 175,500 | * | ||||||
Eri Chaya(10) | 247,769 | * | ||||||
Mark Demilio(11) | 57,058 | * | ||||||
Hilary Krane(12) | 4,768 | * | ||||||
Katie Mitic(13) | 12,119 | * | ||||||
DeMonty Price(14) | 111,918 | * | ||||||
Ali Rowghani(15) | 6,829 | * | ||||||
Leonard Schlesinger(16) | 8,354 | * | ||||||
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All current executive officers and directors as a | 6,893,396 | 18.8 | % |
* Represents beneficial ownership of less than 1% of our outstanding common stock.
35
36
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Exchange Act requires the Company’s directors, executive officers and any person who owns more than 10% of the Company’s common stock to file initial reports of ownership and reports of changes in beneficial ownership with the SEC. Such persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file.
Except as set forth herein, based solely on its review of the copies of such forms furnished to the Company and written representations from the directors and executive officers, the Company believes that all Section 16(a) filing requirements were met in a timely manner in fiscal 2016. On May 16, 2017, Forms 4 filed on behalf of Ms. Boone, Ms. Chaya and Mr. Price were inadvertently filed late to report the vesting of restricted stock units that occurred in 2016, and an amended Form 3 was filed on behalf of Mr. Price to reflect 1,765 shares of common stock that were inadvertently not included on Mr. Price’s initial Form 3 filed on May 6, 2016.
Stock Trading PracticesTRADING PRACTICES
We maintain an insider trading policy that, among other things, prohibits our officers, including our named executive officers, directors and employeesassociates from trading during quarterly blackout periods and also contains other restrictions on trading activities designed to avoid any circumstancecircumstances where Company insiders may be deemed to have traded on material nonpublic information.
Anti-hedging
Under the insider trading policy, we also prohibit short sales, hedging and similar transactions designed to decrease the risks associated with holding the Company’s securities, pledging the Company’s securities as collateral for loans and transactions involving derivative securities relating to our common stock. Our insider trading policy also requires that all directors and employeesassociates with titles of vice president or higher, including our named executive officers, and all members of our board of directors pre-clear any proposed open market transactions.
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34 | 2020 PROXY STATEMENT | CORPORATE GOVERNANCE |
10b5-1 Trading Plans
Each of our executive officers and directors may enter into a written plan (“10b5-1 Trading Plan”) for the automatic trading of securities in accordance with Rule 10b5-1 of the Securities Exchange Act Rule10b5-1(“10b5-1 Trading Plan”of 1934, as amended (the “Exchange Act”). It has been the practice of the named executive officers to disclose on Form 4 filed with the SEC whether any sale or other transfer of shares reported has been made pursuant to a10b5-1 Trading Plan.
All10b5-1 Trading Plans entered into by our executive officers and directors must comply with our insider trading policy, and any10b5-1 Trading Plan must bepre-cleared in advance by the Company’s corporate compliance officer. A number of members of our managementleadership team and directors have adopted10b5-1 Trading Plans.
ANNUAL MEETING ATTENDANCE
We do not have a policy that requires our directors to attend the annual meeting of shareholders. One director attended the 2019 annual meeting.
37COMPENSATION OF DIRECTORS
We compensate all non-employee members of our board of directors as follows:
| ||
| | ANNUAL COMPENSATION |
Annual cash retainer | $135,000, paid quarterly in advance | |
Lead Independent Director | 30,000 stock options with a five year vesting term(1) and $30,000, paid quarterly in advance | |
Audit committee chairman | $80,000, paid quarterly in advance | |
Audit committee member | $25,000, paid quarterly in advance | |
Compensation committee chairman | $75,000, paid quarterly in advance | |
Compensation committee member | $20,000, paid quarterly in advance | |
Nominating & corporate governance committee chairman | $25,000, paid quarterly in advance | |
Nominating & corporate governance committee member | $15,000, paid quarterly in advance | |
Board meeting attendance fees | N/A | |
Annual equity grant of restricted stock | Aggregate value of $125,000(2) |
(1) | In March 2016, upon his appointment as Lead Independent Director, Mr. Demilio received a stock option for 20,000 shares, which vests in five equal installments over five years, subject to his continuing service as the Lead Independent Director. In May 2020, in connection with his service as Lead Independent Director, Mr. Demilio received a refresh stock option for 30,000 shares, which vests in five equal installments over five years, subject to his continuous service as the Lead Independent Director. |
(2) | Based on the average closing price of our common stock on the date of grant, determined using the closing prices for the ten consecutive trading days prior to and inclusive of the date of grant, which shares vest in full on the one-year anniversary of the date of grant. Grants are made for service for the period between the annual meeting of shareholders for the fiscal year in which the grant was made and the annual meeting of shareholders for the following fiscal year. |
Annual equity grants described above are granted on the date of the annual meeting of shareholders each year.
Mr. Friedman and Ms. Chaya, as current officers of the Company, did not receive any compensation for board service for fiscal 2019. All directors receive reimbursement for reasonable out-of-pocket expenses incurred in connection with meetings of our board of directors.
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CORPORATE GOVERNANCE | 2020 PROXY STATEMENT | 35 |
The following table shows the compensation earned by all non-employee directors during fiscal 2019:
| | | | | | | |
NAME |
| FEES EARNED |
| STOCK AWARDS(1) |
| TOTAL |
|
Carlos Alberini |
| $135,000 | | $129,468 | | $264,468 | |
Keith Belling |
| $135,000 | | $129,468 | | $264,468 | |
Mark Demilio |
| $290,000 | | $129,468 | | $419,468 | |
Hilary Krane |
| $160,000 | | $129,468 | | $289,468 | |
Katie Mitic |
| $160,000 | | $129,468 | | $289,468 | |
Ali Rowghani |
| $150,000 | | $129,468 | | $279,468 | |
Leonard Schlesinger |
| $210,000 | | $129,468 | | $339,468 | |
(1) | Reflects the aggregate grant date fair value of the awards of restricted stock made in fiscal 2019, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock-Based Compensation (“FASB ASC 718”). See Note 16—Stock-Based Compensation in our audited consolidated financial statements contained in our 2019 Annual Report. Amounts shown do not reflect compensation actually received or that may be realized in the future by the director. |
At February 1, 2020, the last day of our 2019 fiscal year, the aggregate number of unvested restricted stock awards and unexercised stock options held by each of our directors during fiscal 2019, other than Mr. Friedman and Ms. Chaya, is set forth below. Information regarding equity awards held by Mr. Friedman and Ms. Chaya is set forth in the table entitled “Outstanding Equity Awards at Fiscal Year-End” in this proxy statement in the section titled “Executive Compensation.”
| | | | | |
NAME | | UNVESTED | | UNEXERCISED | |
Carlos Alberini | | 1,002 | | — | |
Keith Belling |
| 1,002 |
| — | |
Mark Demilio |
| 1,002 |
| 20,000 | (2) |
Hilary Krane |
| 1,002 |
| — | |
Katie Mitic |
| 1,002 |
| — | |
Ali Rowghani |
| 1,002 |
| — | |
Leonard Schlesinger |
| 1,002 |
| — | |
(1) | All restricted stock awards listed above vest as to 100% of the shares on July 24, 2020. |
(2) | Mr. Demilio was granted options to purchase 20,000 shares of stock in connection with his appointment as Lead Independent Director on March 9, 2016. Such options vest pro rata over five years such that they will be fully vested on March 9, 2021, subject to Mr. Demilio’s continued service as Lead Independent Director. |
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36 | 2020 PROXY STATEMENT | CORPORATE GOVERNANCE |
environmental, social & governance
Our environmental, social and certain other governance efforts are implemented through our Compliance and Corporate Social Responsibility (“CSR”) programs, which consist of and are organized under four key components:
Compliance & Product Safety
Philanthropy
Responsible Sourcing
Environmental & Sustainability
We believe our CSR programs responsibly align our approach to environmental, social and governance issues with the Company’s long-term strategic goals of being a curator of design, taste and style in the luxury lifestyle market.
We are committed to sourcing safe and quality products, to being a conscientious and charitable neighbor in the communities where we live and work, to working with suppliers that help promote safe and fair working conditions, and to being responsible stewards of natural resources and of architectural legacy.
We believe that these four key components enhance our brand presence and are aligned with the interests of our people, customers and shareholders and their respective environmental, social and governance (“ESG”) concerns.
As part of these endeavors, we collaborate with a variety of third-party partners to help implement our programs, many of which are non-profit organizations. We work with Habitat for Humanity, Good360, UL, GoodWeave and Fair Working Conditions, among others. More information on our CSR program and ESG efforts and the work we do with our third-party partners is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Compliance & Corporate Social Responsibility.”
Social
Our CSR programs help to define how we treat and protect people including our associates, customers, vendors and other stakeholders. We care about the well-being of our people, customers, and communities, which informs our actions from workplace health to product safety to our philanthropic efforts.
Our goal is to have the most qualified person in every position. We have a policy that prohibits us from discriminating against any applicant or associate. This policy governs all aspects of employment, including recruitment, hiring, training, promotion, compensation, discipline, job assignments, benefits, transfer and discharge.
RH is committed to providing a productive work environment free of unlawful harassment. Our company policies prohibit any form of harassment that has the purpose or effect of unreasonably interfering with an individual’s work performance, or that creates an intimidating, hostile, abusive or offensive work environment.
We maintain an open door policy where our associates are encouraged to stop by to discuss any suggestions or address any concerns they might have. We believe that most work-related obstacles can be best addressed through open and honest communications.
We maintain an anonymous hotline where submitted complaints, concerns and grievances are reviewed and addressed and no associate submitting such complaint will be disciplined, penalized or otherwise retaliated against for raising a good-faith concern either through the hotline or under our open door policy.
Workforce Diversity
We maintain a diverse workforce. RH is an equal opportunity employer, and we believe in meritocratic hiring. We strongly believe our performance is enhanced by our workforce being comprised of individuals with diverse backgrounds, skills and experience that align with the needs of our business.
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ENVIRONMENTAL, SOCIAL & GOVERNANCE | 2020 PROXY STATEMENT | 39 |
We believe this approach naturally leads to a gender and ethnically diverse workforce. We believe that our commitment to diversity is demonstrated by the composition of our workforce.
The following charts present the gender, racial and ethnic composition of our workforce over the past three fiscal years.
Gender Diversity
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FY17 | | FY18 | | FY19 |
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Racial and Ethnic Diversity
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FY17 | | FY18 |
FY19 | ||
For topics related to the composition of our board and its diversity please refer to “—Composition and Qualifications of our Board of Directors” under the section “Corporate Governance.”
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40 | 2020 PROXY STATEMENT | ENVIRONMENTAL, SOCIAL & GOVERNANCE |
Responsible Sourcing
We expect our values and principles to be maintained throughout our business, including our supply chain. We require our vendors to adhere to our Vendor Code of Conduct, which can be found on our Investor Relations section of our website, which is located at ir.rh.com under “Compliance & Corporate Social Responsibility.” Our Vendor Code of Conduct is designed to promote the principles of fair and ethical treatment of workers, compliance with all applicable local laws, rules and regulations, and transparency to allow for accountability and reasonable substantiation of compliance. Through our Vendor Code of Conduct we endeavor to provide assurance that our vendors pay fair wages, to ensure freedom of association, to prevent unlawful discrimination and to promote the health, safety and dignity of those that participate in our supply chain.
We have partnered with the international non-profit organizations, Fair Working Conditions and GoodWeave, to audit for child and forced labor issues in our supply chain, and to assess and improve working conditions, treatment of workers and hours and fair pay in factories and workshops creating products for RH suppliers primarily in China and India. Our approach is to find mission-minded organizations that would not only audit our suppliers’ factories but that had programs and resources to address the underlying issues related to working conditions, including for example by (i) providing assistance to workers and their families to facilitate the return of underage workers back to school and (ii) by providing resources and training to guide management of factories used by our vendors regarding responsible practices.
We have established guidelines around the use in our supply chain of conflict minerals (which we define to include columbite-tantalite (coltan), cassiterite, gold, wolframite, and their derivatives, which are limited to tantalum, tin and tungsten) sourced from central African countries to address concerns over the exploitation and trade of minerals that supports ongoing conflicts in the region.
We require our vendors to conduct their sourcing in compliance with local and internationally recognized laws and best practices with respect to animal welfare. We monitor certain animal and natural products such as those made with mohair and down feathers, we comply with and monitor bans in certain states and municipalities on the sale of fur, and we monitor supply chain traceability with regards to the sources of our Belgian linen.
We maintain a product safety program to protect our customers and our people by ensuring our products are safe.
We test our products against the highest indoor air quality standards (IAQ) for finishes and furnishings. The GREENGUARD standard is used to determine organic emissions from building materials, finishes and furnishings. We require certain RH Baby & Child merchandise to have received GREENGUARD Gold certification, the highest level of certification under GREENGUARD, requiring that such products meet strict chemical emissions limits and screening them for over 10,000 chemicals and more than 360 volatile organic compounds (VOCs). We are in the process of expanding our offering of GREENGUARD certified collections to include products in our core brands beyond RH Baby & Child.
We have partnered with UL (Underwriters Laboratories) and have designated UL as our preferred lab partner for all testing. UL provides regulatory, safety, quality and advisory services to RH and its supply chain partners to ensure testing protocols meet industry standards and legal requirements. We believe that partnering with UL helps to ensure that products sold by RH meet our customers’ expectations of safety and quality.
In addition to product testing through our accredited lab partners, we have instituted a lead testing program with our sourcing agent in India. Metal furniture from India is screened in India by our sourcing agent to ensure it meets RH lead guidelines before being imported into the U.S.
Philanthropy
We take a strategic approach to donations and philanthropy. As part of various Gallery Development projects, to engender community goodwill, RH has donated products and design services to civic centers, local charities and schools. Over the last five years, we have donated close to $37 million of product at cost to a variety of charities and
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ENVIRONMENTAL, SOCIAL & GOVERNANCE | 2020 PROXY STATEMENT | 41 |
non-profit organizations related to the communities where we live and work. Additionally, RH sponsors a local community charity for every Gallery opening event. In relation to the establishment and opening of our Chicago gallery, we donated $125,000 to 3Arts, a non-profit organization that works to sustain and promote artists in the six-county Chicago metropolitan area. Other non-profit partners related to our Gallery openings that we have donated to in the last five years include: Art Institute Chicago, Joffrey Ballet, Chicago Children’s Choir, The Denver Art Museum, Children’s Hospital Colorado, RxArt, The Art of Elysium, Moffitt Cancer Center, Children’s Mercy Hospital Kansas City, Dell Children’s Medical Center of Central Texas, Just Keep Livin’ Foundation, After-School All-Stars Las Vegas, Seattle Art Museum, Norton Museum of Art, SickKids Foundation, Doernbecher Children’s Hospital Foundation, The First Art Museum, Free Arts NYC, Friends of the Highline, Children’s Cancer Research Fund and Columbus Museum of Art.
In 2017, we partnered with Good360 on a disaster recovery project in Lafayette, Louisiana to help flood victims. RH donated close to $300,000 of product at cost and sent volunteers to assist with the project to help get families and individuals back into their homes after massive flooding. The flood, which has been called the worst US natural disaster since Hurricane Sandy in 2012, left thousands of houses and businesses submerged in the state of Louisiana. This donation project earned RH the Circle of Good Award from Good360. The award is given to corporate and nonprofit partners who go above and beyond in creating meaningful, measurable and sustainable impact in the lives of those in need.
RH also provides local donations to communities where our associates live and work, and in the case of the recent northern California wildfires, donated goods to help support rest areas for first responders, temporary shelters for fire victims, and the relief and rebuilding efforts of those who were affected by the fires. Other organizations we have donated to include: UCSF Benioff Children’s Hospital, UCSF Dec My Room, San Francisco Toy Program, SchoolsRule Marin, Furniture Bank of Central Ohio, The Michael J. Fox Foundation for Parkinson’s Research, PlumpJack Foundation, Slide Ranch, The BreastFest, Dress for a Cure, Mercy Home for Boys & Girls, 826DC, 826Valencia, Homeward Bound of Marin, Gilead House, Make-A-Wish Foundation of Greater Bay Area and many local schools and smaller nonprofit organizations close to our Galleries, distribution centers and corporate office.
Rain Room donation to the Los Angeles County Museum of Art
As a curator of design, taste and style we also believe it is important to underwrite burgeoning artists to advance design and artistic expression. As part of the launch of our contemporary art program in 2013, RH acquired the first edition of Rain Room by the art collective Random International in 2012. The Rain Room was exhibited at London’s Barbican Centre, The Museum of Modern Art in New York and the Los Angeles County Museum of Art (LACMA). In 2016, in order to ensure greater public access to this art work, we ultimately decided to donate the Rain Room to LACMA as part of LACMA’s permanent collection.
Environmental
Sustainability
We are committed to being a responsible steward of the environment and through our sustainability programs we address a variety of environmental issues related to deforestation, waste, energy use, increasing the useful life of buildings and minimizing the use of natural resources for new building materials.
Our curated and fully-integrated product assortment and design services are presented across our Source Books and Galleries in sophisticated and unique lifestyle settings that we believe are on par with world-class interior design. We have strategically aligned our sustainability and environmental programs with the materials we use to make our products, the paper we use to print our Source Books and the iconic buildings we chose to renovate and restore as part of our portfolio of Design Galleries.
We work with our vendors to ensure that our sourcing of wood products complies with legal forestry practices such as and including the Lacey Act and where possible, encourage our vendors to use reclaimed wood and natural fibers.
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42 | 2020 PROXY STATEMENT | ENVIRONMENTAL, SOCIAL & GOVERNANCE |
As part of our Source Books and uses of paper, we source Forest Stewardship Council (or FSC) Certified Catalog Paper. FSC is a third party certification organization that evaluates those who manage the care of forests. Having our Source Books (or catalogs) FSC certified ensures that our paper is not contributing to destructive practices in forestry such as illegal logging, natural forest conversion to other land uses, the liquidation of high conservation value forests, civil rights violations and genetic modification of forest species.
We work closely with our delivery centers, distribution centers, home office facilities teams, galleries and outlets to assist them in finding resources and other options to help divert waste, food waste, packaging and product from the landfills. We have instituted recycling and composting programs and in 2019, RH diverted over 660,000 pounds (330 tons) of product from the landfill.
In 2015, we established a program with Habitat for Humanity under our philanthropy efforts that strategically also addresses our efforts around environmental issues. Habitat for Humanity takes goods that do not meet our first quality standards and diverts such useable second and third quality products from landfills, including by the deconstruction of such products for use as building materials or other uses. Our program with Habitat for Humanity started in Tracy, California and now includes our Galleries, Outlets and distribution centers across the US and Canada. In 2019, Habitat for Humanity Greater Vancouver awarded RH a Community Donor Award as a Silver Level Donor.
As mentioned earlier, we require certain RH Baby & Child merchandise to have received GREENGUARD Gold certification, the highest level of certification under GREENGUARD, requiring that such products meet strict chemical emissions limits and screening them for over 10,000 chemicals and more than 360 volatile organic compounds (VOCs).
LEED Certification
For some of our newer buildings, in conjunction with our landlord or developer, we encourage our landlord or developer to build to LEED certified standards where feasible.
In September 2016, we opened RH Austin, The Gallery at The Domain at 11720 Domain Boulevard which is a LEED Gold Certified building.
In 2015, we opened our distribution center in Patterson, California which is a LEED Gold Certified building.
Architectural & Design Legacy
As part of our environmental and sustainability programs, RH endeavors to increase the longevity of historic and storied buildings to among other things divert unnecessary waste from landfills but equally important, to save our architectural legacy. RH has great respect for architectural design and history and has restored and reestablished the relevance of several historic and landmark buildings, giving them renewed purpose and bringing them to modern use. It is often the case that developing a new building from the ground up is more economical than restoring and renovating a historic building. When we choose to renovate historic landmark buildings, we approach the project as an investment in our brand elevation and real estate transformation strategy as well as an investment in a long-term sustainable approach to Gallery development. Many of these landmark buildings are in a state of disrepair at the time we take possession of them and through our careful restoration we redevelop them into our Galleries that reinforce our luxury brand aesthetic and highly differentiated, elevated customer experience.
In April 2013, we opened RH Boston, The Gallery at the Historic Museum of Natural History at 234 Berkeley Street in Boston, Massachusetts. We restored this landmark building that was originally designed in 1862 by distinguished architect William G. Preston and was only the second building to be erected in Boston's famous Back Bay. Our restoration efforts earned us the Preservation Achievement Award through the Boston Preservation Alliance.
In May 2014, we opened RH Greenwich, The Gallery at the Historic Post Office at 310 Greenwich Avenue in Greenwich, Connecticut. We restored this storied neoclassical building that was originally built in 1917. This building sits in the heart of Greenwich Avenue’s Historic District and is listed on the National Register of Historic Places.
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ENVIRONMENTAL, SOCIAL & GOVERNANCE | 2020 PROXY STATEMENT | 43 |
In October 2015, we opened RH Chicago, The Gallery at the Three Arts Club at 1300 North Dearborn Parkway on Chicago’s famed Historic Gold Coast. We restored this landmark building, which was designed in 1914 by distinguished architectural firm Holabird & Roche and was inaugurated as a residence for young women studying music, drama and the visual arts. We restored the entire structure with great respect for its original vision in collaboration with the Commission on Chicago Landmarks. The Gold Coast district, where RH Chicago is located, is listed on the National Register of Historic Places and the Three Arts Club was named a Chicago Landmark in 1981.
In September 2018, we opened RH New York, The Gallery in the Historic Meatpacking District at the intersection of Little West 12th Street, Ninth Avenue and Gansevoort Street. We restored this historic landmark building that was originally owned by John Jacob Astor in the late 19th century. The Meatpacking District, where RH New York is located, is listed on the National Register.
In December 2018, we reopened Ma(i)sonry as RH Wine Vault as part of RH Yountville in the heart of wine country at 6711 Washington Street, Yountville, California. We restored this landmark building, which was originally designed in 1902 by its owner and vintner Charles Rovegno with the help of Angelo Brovelli, a local mason responsible for many of Napa County's idyllic stone bridges. This historic structure is listed on the National Register of Historic Places as well as on the Napa County Historic Resources Inventory.
We are developing RH San Francisco, The Gallery at the Historic Bethlehem Steel Building at Illinois & 20th Street, San Francisco, CA. The Historic Bethlehem Steel Building is listed on the National Register of Historic Places, and our restoration of this San Francisco landmark is underway. We look forward to bringing life back to this historic building of San Francisco’s past.
Governance
We have numerous governance policies and practices as noted above in this proxy statement in the section entitled “Corporate Governance” regarding our board of directors and overall governance framework. We also adhere to many other compliance and governance policies, including those described below.
Anti-Corruption Policy
Our anti-corruption policy supplements our Code of Business Conduct and requires compliance with the U.S. Foreign Corrupt Practices Act and the growing body of international anti-corruption laws and prohibits the Company and our affiliates, directors, officers, associates, agents and representatives from unduly influencing officials or foreign governments and political officials. Oversight for this policy falls under RH’s Chief Compliance Officer.
Conflict Minerals Policy
We are committed to sourcing safe, quality products made in a manner consistent with our values of ethical business conduct, the use of responsible social and environmental practices and the protection of human rights. We maintain a Conflict Minerals Policy that is incorporated into our Vendor Operation Manual, which our suppliers are able to access via a secure website. We expect that our direct suppliers will comply with our Conflict Minerals Policy and (i) provide appropriate information and conduct necessary due diligence to facilitate our disclosures under Form SD regarding sources of conflict minerals within our supply chain pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (ii) implement and communicate to their relevant personnel and suppliers policies that are consistent with our Conflict Minerals Policy, (iii) put in place procedures and contractual provisions for the traceability of conflict minerals, working with their suppliers as applicable, (iv) use reasonable efforts to source conflict minerals from smelters and refiners that have been validated by a recognized, independent third party as DRC conflict free, and (v) adopt a risk management strategy with respect to identified risks in the supply chain that is consistent with our Conflict Minerals Policy.
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44 | 2020 PROXY STATEMENT | ENVIRONMENTAL, SOCIAL & GOVERNANCE |
Information Security Incident Response Plan
Our information security incident response plan provides a framework for an appropriate response to a cyber-security incident, including by addressing procedures to identify and eliminate the source of a cyber-security breach, to minimize damage where possible and to restore normal operations as promptly as practicable.
Investment Policy
Our investment policy requires that investment assets held by RH meet the objective of safety and preservation of principal while providing sufficient liquidity to meet the operating cash requirements of the Company, investing funds at the highest possible yield with minimum risk.
U.S. Sanctions Compliance Policy
Our U.S. sanctions compliance policy requires that we properly screen our vendors and ensures that we do not engage in transactions with countries and parties that are embargoed and sanctioned by the U.S. government.
Whistleblower Policies
Our SOX whistleblower policy addresses the reporting of certain categories of misconduct including misconduct related to accounting practices, internal accounting controls or auditing matters, and prohibits retaliation against those reporting such misconduct. Submissions may be made on an anonymous basis. We also have other programs to allow for reporting of potential misconduct in other aspects of our business.
Vendor Code of Conduct
As part of our on-boarding process with our suppliers, we require our suppliers to agree to adhere to our vendor code of conduct that provides the expected ethical standards for factory working conditions of all vendors and those under their control or direction that manufacture products for sale to RH customers. RH values working with vendors that share its ethical concerns around working standards.
Political Activity
We have not used corporate funds to make contributions to nor have we provided use of any of our Galleries to support or oppose federal, state or local political parties, candidates, campaigns and/or ballot measures. Our statement on political activity is available on the Investor Relations section of our website, which is located at ir.rh.com under “Corporate Governance.”
Our Continued Efforts & Innovation
One of our core values is innovation. We value innovation, taking risks and boldly going where no company has gone before. We believe you’re either striving to get better, or allowing yourself to get worse – there is no such thing as staying the same. The power of innovation comes from leveraging the creative minds and spirit of all of our people, at all levels of the organization. We strive to build an environment that encourages people to challenge conventional thinking, and to ask “why?” and “why not?” We embrace those people who have the courage to put forth new ideas and breathe new life into our company. Innovation is at the core of what we do.
We continue to evolve and innovate our CSR programs and our approach to ESG.
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ENVIRONMENTAL, SOCIAL & GOVERNANCE | 2020 PROXY STATEMENT | 45 |
EXECUTIVE COMPENSATION
Compensation Discussion and AnalysisCOMPENSATION DISCUSSION & ANALYSIS
Executive Summary
We align our executive compensation practices withto the ongoing successbusiness objectives of our Company.Company in order to drive ongoing improvements in our financial performance. This compensation discussion and analysis (“CD&A”) explains the strategy, design, and decision-making processes of our compensation programs and practices in the fiscal 2016year ended February 1, 2020 (“fiscal 2019”) for our named executive officers. This CD&A is intended to provide perspective on the compensation information contained in the compensation tables that follow this discussion. This CD&A also discusses how the fiscal 20162019 compensation of our named executive officers aligns with the key goals of our compensation philosophy, namely, attracting and retaining the best talent.talent and driving financial performance. We also discuss how our Company uses its compensation programs including equity programs to encourage an ownership and stakeholder perspective among our named executive officers by providing them with a long-term interest in the future growth potentialand financial performance of our Company that aligns with the interests of our stockholders.shareholders.
We believe that continually analyzing and refining our compensation program enables us to achieve the key goals of our compensation philosophy.philosophy and supports ongoing improvements in our financial performance.
Fiscal 2019 Business Highlights
To assist you in reviewing the proposals to be acted upon at our Annual Meeting, we call your attention to the following information about the Company’s 2019 financial performance along with key executive compensation actions and decisions, and our key corporate governance policies and practices. The following business highlights are only a summary. For fiscal 2016,more complete information about these topics, please review the 2019 Annual Report and the entirety of this proxy statement.
RH is a curator of design, taste and style in the luxury lifestyle market. The Company offers its collections through its Galleries across North America, the Company’s multiple Source Books, and online through the Company’s primary websites at RH.com, RHModern.com, RHBabyandChild.com, RHTeen.com and Waterworks.com. The home furnishings market is large and fragmented and we believe we have an opportunity to be the home brand for the luxury consumer at scale, both nationally and internationally. We have an integrated RH Hospitality experience in eight of our named executive officers, as defined in Item 402new Design Gallery locations, which include cafes, wine vaults and barista bars. Our growth and long-term strategy is centered on the expansion of RegulationS-K promulgated underour product assortment, developing new categories, the U.S. Securities Acttransformation of 1933, as amended, were:our real estate platform and on international expansion.
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We believe that compensation paid to our executive officers should be:
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EXECUTIVE COMPENSATION | 2020 PROXY STATEMENT | 47 |
FISCAL 2019 | |
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Financial Performance(1) | GAAP diluted earnings per share of $9.07 compared to $5.12 last year, adjusted diluted earnings per share of $11.66 compared to $7.80 last year, an increase of 49%. |
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GAAP net income of $220.4 million compared to $135.7 million last year, adjusted net income of $276.3 million compared to $204.3 million last year, an increase of 35%. | |
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GAAP operating margin of 13.7% versus 10.4% last year, adjusted operating margin of 14.3% versus 11.4% last year, an increase of 25%. | |
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GAAP net revenues and adjusted net revenues increased 6% and 5%, respectively, to $2.65 billion. | |
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Key Strategies & Initiatives | We focused in fiscal 2019 on transforming our real estate platform, executing our membership business model, architecting a new operating platform and maximizing cash flow by increasing revenues and earnings while decreasing inventory and capital spending. |
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We believe that our record fiscal 2019 results demonstrate the strength of the RH brand, the power of our new business model, our focus on managing the business with a bias for earnings versus revenue growth, and our continued success revolutionizing physical retailing. | |
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While most in our industry are closing or downsizing stores, we remain committed to our quest of revolutionizing physical retailing. In the last two fiscal years, we have opened our Portland Design Gallery (March 2018), our Nashville Design Gallery (June 2018), our New York Design Gallery (September, 2018), our Yountville Design Gallery (September 2018), our Minneapolis Design Gallery (September 2019), and our Columbus Design Gallery (December 2019). Our Galleries in Nashville, New York, Yountville, Minneapolis and Columbus include integrated restaurants, wine vaults and barista bars. We continue to be pleased with the performance of our new Galleries and our integrated hospitality experience. | |
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Our efforts architecting a new operating platform, inclusive of our distribution center network redesign, the redesign of our reverse logistics and outlet business, and the reconceptualization of our home delivery and customer experience, is driving lower costs and inventory levels, and higher earnings and inventory turns. We expect this multi-year effort to result in a dramatically improved customer experience, continued margin enhancement and significant cost savings over the next several years. | |
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During fiscal 2017 and fiscal 2018 we deferred the introduction of major new product category expansions other than the ongoing development of RH Hospitality in conjunction with new Design Galleries. In fiscal 2019, we resumed introducing product expansions in our merchandise assortment including a number of new merchandise collections in both RH Interiors and RH Modern, as well as the launch of RH Beach House in the Spring and RH Ski House, in the Fall. Our investment in RH Interior Design continues to provide a significant revenue opportunity as we continue building our ability to provide world class interior design services in North America—in our continued move beyond creating and selling products to conceptualizing and selling spaces. |
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48 | 2020 PROXY STATEMENT | EXECUTIVE COMPENSATION |
FISCAL 2019 | |
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Share Price | We commenced fiscal 2019 with our common stock price trading at a price near $130 per share and ended the fiscal year with our stock trading at a price near $210 per share. We believe our stock price performance was driven by our financial performance throughout the year as well as the success of our focus on execution, architecture and cash. In each of fiscal 2017, 2018 and 2019, the Company has deeply focused on capital allocation, optimization of free cash flow and increasing the gross margins of the business. For example, our share repurchase programs since fiscal 2017 have resulted in the repurchase of $1.5 billion of our capital stock, which the Company believes will prove to be an excellent allocation of capital in the long term interest of shareholders. Although our stock price has experienced substantial volatility from quarter to quarter including during fiscal 2019, we believe over the long term investors have and will continue to experience stock price appreciation. We believe our executive compensation strategy and structure is strongly aligned with our share price performance. |
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Other Performance Metrics | In fiscal 2019 we generated record revenues in excess of $2.6 billion, record GAAP operating margin of 13.7%, adjusted operating margins reached an industry best of 14.3%(1), and adjusted diluted earnings per share increased 49% to $11.66. We also generated $330 million of free cash flow in 2019. In fiscal 2019, we achieved industry leading ROIC(2) of 35.3%, and in fiscal 2018, we achieved an ROIC of 25.3%. |
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| We have included a stock performance table below to disclose a measure of total shareholder return, reflecting positive performance, growth and the effectiveness of pay for performance alignment. |
(1) | Reconciliations of GAAP to non-GAAP financial measures for adjusted net revenues, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are provided in the tables included in Annex A to this proxy statement. |
(2) | We define Return on Invested Capital (or “ROIC”) as adjusted operating income after-tax for the most recent twelve-month period, divided by the average of beginning and ending debt and equity less cash and equivalents as well as short and long-term investments for the most recent twelve month period. ROIC is not a measure of financial performance under GAAP, and should be considered in addition to, and not as a substitute for other financial measures prepared in accordance with GAAP. Our method of determining ROIC may differ from other companies’ methods and therefore may not be comparable. |
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EXECUTIVE COMPENSATION | 2020 PROXY STATEMENT | 49 |
STOCK PERFORMANCE
The following table shows the total shareholder return for our common stock during the five fiscal year periods indicated below. The first row of the table indicates the cumulative return of an investor purchasing one share of RH common stock at the market close on January 30, 2015 and its value (percentage increase or decrease) at the associated fiscal year ends indicated in the table. The table then assumes a scenario where $100 was invested at the market close on January 30, 2015 in RH common stock, which is equivalent to 1.14 shares (if fractional shares were permitted), and its value (percentage increase or decrease) at the associated fiscal year ends indicated in the table.
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| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||
| | (Jan. 30) | (Jan. 29) | (Jan. 27) | (Feb. 2) | (Feb. 1) | (Jan. 31) | ||||||
Value of 1 share | | $87.53 | | $61.62 | | $26.09 | | $92.04 | | $133.64 | | $208.75 | |
Value of a $100 Investment | | $100 | | $70.40 | | $29.81 | | $105.15 | | $152.68 | | $238.49 | |
Percentage Change | | N/A | | -29.60% | | -70.19% | | 5.15% | | 52.68% | | 138.49% | |
This table is supplemental to the stock performance graph presented in our 2019 Annual Report.
The following table sets forth, for fiscal 2019, our named executive officers, as defined in Item 402 of Regulation S- K promulgated under the Securities Act of 1933, as amended:
NAME | TITLE |
Gary Friedman | Chairman and Chief Executive Officer |
Ryno Blignaut(1) | Former President, Chief Financial and Administrative Officer |
Jack Preston(2) | Chief Financial Officer |
Eri Chaya | President, Chief Creative and Merchandising Officer and Director |
DeMonty Price | President, Chief Operating, Service and Values Officer |
David Stanchak | President, Chief Real Estate and Development Officer |
(1) | Mr. Blignaut left the Company in March 2019. |
(2) | Mr. Preston was appointed as Chief Financial Officer on March 5, 2019. |
We believe that compensation paid to our executive officers should be:
Closely aligned with the performance of the Company, on both a short-term and long-term basis;
Linked to specific, measurable results intended to create value for stockholders;shareholders;
Transparent, accessible and
Our executive compensation programs are aligned with our stockholders’shareholders’ interests, with performance-based compensation being tied primarily to our annual earnings before taxes and our long-term stock price performance. Furthermore, in the case of our Chairman and Chief Executive Officer, we have used additional performance metrics to his stock option awards related to stock price appreciation, as described further below.
During fiscal 2016 and continuing into the second quarter of fiscal 2017, the compensation committee reviewed the long-term equity incentive compensation of our Chairman and Chief Executive Officer, Mr. Friedman. Mr. Friedman last received a multi-year stock option award in fiscal 2013 in connection with his return, at the time, as our Chairman andCo-Chief Executive Officer. Inasmuch as the 2013 option award to Mr. Friedman was structured to be a multi-year award, Mr. Friedman did not receive additional equity awards in fiscal 2014, fiscal 2015 or fiscal 2016. The compensation committee began discussions with Mr. Friedman regarding a new multi-year equity award during fiscal 2016 with particular attention to the right mix of performance incentives that would align the award with the long-term interests of the Company’s stockholders. The primary performance measure that the compensation committee focused on as a result of these discussions was stock price performance since this metric is a very good measure of overall value that is recognized by the Company’s stockholders.
During the process of discussions with Mr. Friedman concerning the terms of a new multi-year equity award, the compensation committee received advice from independent compensation consultants. In fiscal 2016, this advice was provided by Willis Towers Watson and in 2017 the advice was provided by Mercer (US) Inc. (“Mercer”). Mercer assisted the compensation committee in its discussions with Mr. Friedman concerning the final terms of the 2017 option award that was
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ultimately granted on May 2, 2017. The compensation committee requested that Mercer evaluate the overall compensation arrangements in place with Mr. Friedman in order to evaluate a possible multi-year equity award to promote retention and reward stockholder value creation. Mercer additionally performed a “market check” review of data available with respect to other multi-year equity awards granted to chief executive officers as a long-term compensation incentive. The compensation committee determined that the new equity award to Mr. Friedman should be structured as a four-year service arrangement. The compensation committee believes there are certain advantages to structuring an award to the Chairman and Chief Executive Officer as a multi-year award as the long-term nature of equity awards provides incentives for the Chairman and Chief Executive Officer to drive performance of the business over the applicable time period. By linking a combination of both performance goals and a multi-year service period, the compensation committee intends to create incentives for performance over a sustained period of time.
The objective of viewing the award as a multi-year grant tied to a service period of four years is also similar to what the compensation committee did with respect to the equity award granted to Mr. Friedman in 2013 which also was linked to a multi-year service period. Accordingly, it is not expected that compensation committee would grant annual refresh equity awards to Mr. Friedman until the end of the four-year service period. In structuring the equity award to Mr. Friedman, the compensation committee relied upon the advice of independent advisors. The compensation committee also considered the feedback from stockholders from two annual cycles of stockholder outreach campaigns conducted by RH regarding the structuring and disclosure of equity awards. In particular, the compensation committee responded to investor feedback that sought performance metrics as a key component of any new equity award to the Chairman and Chief Executive Officer. Based in part on this feedback, the compensation committee determined that the 2017 equity award should be 100% linked to the Company achieving performance objectives. The compensation committee took into account the structure of the stock options that were awarded to Mr. Friedman at the time of the initial public offering, which stock options contained restrictions on the underlying shares that were entirely linked to linked to price objectives for RH common stock that were substantially out of the money on the date of the 2012 option grant.
On May 2, 2017, the compensation committee granted a stock option to Mr. Friedman under the 2012 Stock Incentive Plan to purchase 1,000,000 shares of the Company’s common stock (the “2017 Stock Option Award”), with an exercise price of $50 per share, a premium to the market price for the common stock on the date of the grant. Shares issued upon exercise of the option will be subject to certain transfer restrictions until the twentieth anniversary of the grant date subject to certain performance objectives which will allow the shares to become unrestricted. The performance metrics that Mr. Friedman must achieve in order for these shares to become unrestricted include a combination of stock price appreciation and time of service. The compensation committee believes that the combination of time restrictions and performance restrictions tied to stock price appreciation creates a strong alignment between Mr. Friedman and the objectives of the Company’s stockholders.
In general, the stock option award is structured such that these shares would become unrestricted over a four year service period from the date of grant assuming that the Company’s common stock price also achieves the price objectives of $100 per share, $125 per share and $150 per share in each of these first four years. These price targets represent a substantial price appreciation in excess of the $48.62 price of RH common stock on the date of grant. The stock price will need to more than double from the grant date price in order to reach the first price performance objective and more than triple to reach the highest price performance objective. In addition, the stock price objectives are measured in each year of the first four years so that stock price performance must be sustained for the restrictions to lapse on the overall total aggregate award. Both the performance-based restrictions and the time-based restrictions must be met in order for selling restrictions to lapse. The following chart presents graphically the number of shares that would be eligible to have selling restrictions lapse at the various stock price objectives:
Years of Service from Award Date | Stock Price | Total | ||||||
$100 | $125 | $150 | ||||||
First Completed Year of Service | 83,333 shares | 83,333 shares | 83,334 shares | 250,000 shares | ||||
Second Completed Year of Service | 83,333 shares | 83,333 shares | 83,334 shares | 250,000 shares | ||||
Third Completed Year of Service | 83,333 shares | 83,333 shares | 83,334 shares | 250,000 shares | ||||
Fourth Completed Year of Service | 83,333 shares | 83,333 shares | 83,334 shares | 250,000 shares |
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As shown in the above chart, with respect to any performance year ending on or prior to the fourth anniversary of the grant date, if the twenty day trading price for RH common stock exceeds $100 per share, $125 per share, or $150 per share during the performance year, then the transfer restrictions will lapse as to 83,333 shares, 166,666 shares, or 250,000 shares, respectively, on the last day of such performance year, if Mr. Friedman remains in service with RH as an employee with the authority, duties, or responsibilities of a chief executive officer. A “performance year” is any twelve-month period that begins on May 2nd.Meeting the “twenty day trading price” level is calculated by determining if the volume-weighted average fair market value of the Company’s common stock for the last ten consecutive trading days has reached and remained at or above the dollar thresholds stated above for twenty consecutive trading days.
Shares that remain subject to transfer restrictions due to not achieving the price levels for a particular performance year will be carried forward to future performance years through the eighth performance year, and the transfer restrictions will be eligible to lapse in a later performance year if the missed price level is subsequently achieved during any such later performance year, provided in each case that Mr. Friedman remains in service with RH as an employee with the authority, duties, or responsibilities of a chief executive officer through the date on which such price level was achieved. For example, if none of the stated price levels are met before the fourth anniversary of the grant date, and each of the stated price levels are met during the fifth performance year, then the transfer restrictions with respect to (i) 333,332 shares will lapse on the date on which the $100 price level is met, (ii) an additional 333,332 shares will lapse on the date on which the $125 price level is met and (iii) an additional 333,336 shares will lapse on the date on which the $150 price level is met. Any share transfer restrictions that have not lapsed by the end of the eighth performance year will thereafter only lapse on the twentieth anniversary of the grant date.
If Mr. Friedman’s employment with RH is terminated without cause, by Mr. Friedman for good reason (as such terms are defined in the option award agreement), or for death or disability (as such term is defined in the option award agreement), then any transfer restrictions on shares subject to the 2017 Stock Option Award that would have been eligible to lapse at any time during the twelve-month period following such termination had such termination not occurred will be eligible to lapse based solely upon the achievement of the stated price levels at any point during such twelve-month period. For further details regarding the option award agreement, see the Company’s Current Report on Form8-K filed on May 3, 2017.
Mr. Friedman’s base salary has remained unchanged since it was last increased in June 2013 at the time he returned to the Company, at the time, as our Chairman andCo-Chief Executive Officer. The compensation committee has increased Mr. Friedman’s bonus opportunity several times since 2013 including for each of fiscal 2014 and fiscal 2015. Mr. Friedman’s bonus opportunity was not changed for fiscal 2016. The compensation committee is reviewing Mr. Freidman’s base salary and bonus opportunity and may make further adjustments during fiscal 2017.
The compensation committee has also continued to focus on balancing the alignment of our executive compensation program with our financial performance, while providing incentives for retention purposes, and rewarding the continued transformation of the business in fiscal 20162019 and fiscal 2017. In May 2016, thetailoring our compensation committee considered the changearrangements to the Company’s senior management structure and the promotion of Ms. Boone, Ms. Chaya and Mr. Price to the roles ofCo-President, as well as the desire to provide additional retention incentives to the Company’s employees,match changes in determining that the Company should make additional equity awards to Ms. Boone, Ms. Chaya and Mr. Price.
our executive leadership. In March 2017,2020, the compensation committee reviewed the Company’s financial results, corporate performance measures and the adjusted net income before tax metric goals that were set for fiscal 2019 with respect to its performance-based annual cash incentive awards. The committee reviewed the extent to which those established goals were achieved and determined that the related compensation earned was at the 175% achievement level based on its targeted fiscal 2019 performance objectives (see “—Fiscal 2019 Business Highlights” above for more information regarding the Company’s financial performance and key strategies and initiative for fiscal 2019). In the case of
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50 | 2020 PROXY STATEMENT | EXECUTIVE COMPENSATION |
Mr. Blignaut, who was hired on August 14, 2018 and left the Company in March 2019, the compensation committee determined that, notwithstandingto provide him with a discretionary bonus for fiscal 2018 in recognition of his not being eligible for a bonus under the progress made on numerous operational initiatives during fiscal 2016,LIP program due to his departure from the Company had not metas well as in consideration of his contributions to the metrics for performance-based annual cash incentive awards.Company during his tenure and his assistance with the transition of his roles and responsibilities to Mr. Preston, the Company’s current Chief Financial Officer. In addition, the base salaries for Ms. Boone, Ms. Chaya, Mr. Price and Mr. Price also remained unchangedStanchak were increased from the fiscal 20162018 base salaries.salaries, as further discussed below.
In the case of our Chairman and Chief Executive Officer, Mr. Friedman, the compensation committee has determined that no additional equity grants be made to him for fiscal 2018, fiscal 2019 and fiscal 2020 given his multi-year equity grant structure. Equity grants are the primary form of long-term incentive compensation provided to Mr. Friedman. In fiscal 2017, the compensation committee determined to grant to Mr. Friedman a multi-year equity award under the 2012 Stock Incentive Plan to purchase 1,000,000 shares of the Company’s common stock with performance conditions tied to stock price performance (the “2017 Stock Option Award”), which the committee determined to be a transparent and accessible measure of overall value that aligns Mr. Friedman’s compensation with returns experienced by investors. The multi-year structure of the 2017 Stock Option Award was similar to the multi-year structure of the prior equity grant to Mr. Friedman in 2013 and is designed to incentivize Mr. Friedman and align him with a long-term view in leading the Company. Mr. Friedman has not requested changes to his base salary or bonus since 2016.
In its fiscal 2019 annual review of executive compensation, the compensation committee affirmed the effectiveness of the multi-year equity structure. Since the date of the equity award to Mr. Friedman through the end of fiscal 2019, the financial and operational performance of RH has improved and the stock price has appreciated. The 2017 Stock Option Award required substantial stock price appreciation from the Company’s share price on the date of grant: the stock price performance targets in Mr. Friedman’s equity award were set at $100, $125 and $150 per share, measured over a minimum four year time period from the date of grant and represented premiums to the grant-date stock price of 105.7%, 157.1% and 208.5%, respectively. As of February 2, 2018, the last trading day of fiscal 2017, the closing price of our common stock was $92.04 per share, a substantial increase over the price at the time of the equity award to Mr. Friedman in May 2017. As of February 1, 2019, the last trading day of fiscal 2018, the closing price of our common stock had further increased to $133.64 per share, and as of January 31, 2020, the last trading day of fiscal 2019, the closing price of our common stock had further increased $208.75 per share. Based on the strong performance of RH’s stock price since the date of the award to Mr. Friedman, the performance hurdles and time requirements with respect to 750,000 of the shares underlying the 1,000,000 share option award have been achieved as of May 1, 2020.
See “—2017 Stock Option Award to Chairman and Chief Executive Officer” below for an explanation of the terms of the option award and a description of the performance hurdles and time requirements.
We continue to believe these examples showthat our commitmentexecutive compensation program, including the compensation of our Chairman and Chief Executive Officer, is clearly structured to set compensationreflect the best interests of shareholders and that if we continue to drive improving operational and financial performance targets for our executives that align with our long-term growth strategy and our stockholders’ interests.investors will be rewarded by stock price appreciation.
StockholderShareholder Engagement
We actively engage with major stockholdersshareholders of the Company, and have solicited input from such stockholders, which has been a practice of the Company since our initial public offering in 2012. At our prior year annual meeting, approximately 88% of the votes cast by our shareholders supported our say-on-pay proposal. We did not historically engage in a formalized
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stockholder outreach programare committed to the interests of our shareholders and the delivery of shareholder value through our focus on execution, architecture and cash, including through capital allocation, optimization of free cash flow and increasing the gross margins of the business. We believe that, as part of this commitment, it is important to maintain an ongoing dialogue with shareholders, including with respect to the corporate governance points of contact at these institutional stockholders.feedback on our executive compensation programs. In 2016, we launched a formalized stockholderannual shareholder outreach program in order to solicit additional input from stockholdersshareholders with respect to corporate governance and executive compensation practices. This shareholder outreach effort has continued in this manner.each subsequent year. Along with our annual shareholder outreach program, throughout the year, members of our leadership team, including our Chief Financial Officer and head of investor relations, engage in regular shareholder and investor communications, in which we receive feedback.
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EXECUTIVE COMPENSATION | 2020 PROXY STATEMENT | 51 |
As part of our shareholder outreach efforts, we have provided explanations of our organizational and leadership structures and our constant efforts to continue evolving our leadership structure in order to refine the organizational design and improve its alignment with the evolution of the business. In particular, we have highlighted that numerous business initiatives like the membership program have resulted in simplification of some aspects of our business, while other new initiatives require on-going leadership focus and efforts, and that the shifts in focus and responsibilities of our business and executive officers are designed to attune the organizational and leadership structures to the transformation of our business. This formal stockholderformalized shareholder outreach program is designed to solicit feedback from the Company’s stockholdersshareholders with respect to a number of topics related to our executive pay practices and corporate governance policies. This effort supplements the ongoing communications between our managementleadership and stockholders.shareholders. We believe thatcontinue to receive feedback from our formalized stockholderinvestors under our shareholder outreach program has significantly strengthenedthroughout the effectivenessyear.
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AS PART OF THE SHAREHOLDER OUTREACH CAMPAIGN: |
Every year we endeavor to solicit the views of investors that we believe represent approximately 50% or more of our stockholder engagement,issued and outstanding shares as evidenced byof December 31st, the resultsend of that applicable calendar year and endeavor to have discussions with and receive feedback from such investors, with a focus on institutional investors. Our practice and our ability to solicit 50% or more of our prior year annual meeting at whichvoting shares, depends in part on the concentration or lack of concentration of voting shares within oursay-on-pay proposal received shareholder base. For example, as our shareholder base becomes more dispersed, our ability to solicit the supportviews of over 90%approximately more than 50% may become more challenging. Since 2016, we have consistently reached out to and solicited the views of votes cast bymore than 50% of our stockholders.issued and outstanding shares.
As part of the 2016 stockholder outreach campaign,In 2020, we solicited the views of institutional investors that we believe represented approximately 94%50% of our issued and outstanding shares owned by institutional investors as of December 31, 2015,2019, and had discussions with and received feedback from investors representing approximately 61%29% of such outstanding shares.
In 2020, in as much as we had contacts with a large number of our investors in our prior annual shareholder outreach campaigns, a number of our investors that had been previously contacted indicated there was not a need to have a further round of conversations in the current annual shareholder outreach campaign as their positions on the topics discussed had not changed in any significant way from the prior year conversations.
In addition to the general feedback noted in the chart below, investors have expressed appreciation of our outreach efforts and acknowledged our quick reaction and responsiveness to the results of“against” vote recommendation two years ago from two proxy advisory firms on our prior year annual meeting at which stockholders voted against oursay-on-pay proposal. The results of the stockholdershareholder outreach campaign, including concerns and the feedback we received, were provided to our board of directors.
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