UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.           )
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Preliminary Proxy Statement

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Soliciting Material Under §240.14a-12
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Ethan Allen Interiors Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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25 Lake Avenue Ext.
Danbury, CT 06811-5286
NOTICE OF 2021 ANNUAL MEETING OF STOCKHOLDERS
Tuesday, November 30, 2021
10:00 A.M. Eastern Time
Online at www.virtualshareholdermeeting.com/ETH2021
To our Stockholders:
You are cordially invited to attend the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of Ethan Allen Interiors Inc. (the “Company”) at 10:00 A.M. Eastern Time on Tuesday, November 30, 2021. The Annual Meeting will be conducted as a virtual meeting via live webcast at www.virtualshareholdermeeting.com/ETH2021.
You may attend the meeting virtually and submit questions electronically during the meeting by visiting the virtual meeting platform at www.virtualshareholdermeeting.com/ETH2021. You will need the 16-digit control number included in the Notice of Internet Availability of Proxy Materials, on the proxy card, or in the instructions that accompanied the proxy materials to enter the Annual Meeting. If you encounter any difficulties accessing the virtual meeting at check-in or during the meeting, please call the technical support number that will be posted on the virtual meeting platform log-in page. You may log into the virtual meeting platform beginning at 9:45 A.M. Eastern Time on November 30, 2021.
The purpose of the Annual Meeting is to act upon the following matters:
Proposal 1. to elect six directors to serve until the 2022 Annual Meeting of Stockholders;
Proposal 2. to approve, by a non-binding advisory vote, our Named Executive Officer compensation;
Proposal 3. to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2022 fiscal year; and
to transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on October 11, 2021 will be entitled to vote at the Annual Meeting and any adjournments thereof. Your vote is important, and we urge you to read the proxy statement carefully and to vote as promptly as possible in accordance with the Board of Directors’ recommendations. You should vote by the deadlines specified in the proxy statement, and may do so via the Internet, by telephone or by signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided. If you vote in advance, you may still decide to attend the virtual annual meeting of stockholders and vote your shares during the meeting. Further information about how to register for and attend the virtual Annual Meeting online, vote your shares online during the meeting and submit questions online during the meeting is included in the accompanying Proxy Statement. For instructions on how to vote your shares, please refer to the attached Proxy Statement or proxy card. These proxy materials are first being made available on October 20, 2021.
On behalf of the Board of Directors, the officers, and employees of the Company, I would like to take this opportunity to thank our stockholders for their continued support of Ethan Allen. We hope you can attend the virtual Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
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Eric D. Koster
Corporate Secretary
October 20, 2021
Proxy Voting
Please vote as soon as possible using one of the following methods:
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Internet
www.proxyvote.com
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By Phone
1-800-690-6903
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By Mail
Completing, dating, signing, and returning your proxy card
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 30, 2021:
The 2021 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com

 
TABLE OF CONTENTS
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25 Lake Avenue Ext. Danbury, CT 06811-5286
PROXY STATEMENT
FOR 2021 ANNUAL MEETING OF STOCKHOLDERS
Tuesday, November 30, 2021
10:00 A.M. Eastern Time
Online at www.virtualshareholdermeeting.com/ETH2021
October 20, 2021
PROXY STATEMENT
This proxy statement (the “Proxy Statement”) and the accompanying proxy or voting instruction card are furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Ethan Allen Interiors Inc., a Delaware corporation for use at the 2021 Annual Meeting of Stockholders (the “Annual Meeting”). When used in this Proxy Statement, “we,” “us,” “our,” “Ethan Allen” or the “Company” refers to Ethan Allen Interiors Inc. and its subsidiaries collectively or, if the context so requires, Ethan Allen Interiors Inc. individually.
The Annual Meeting will be held at 10:00 A.M. Eastern Time on Tuesday, November 30, 2021. The meeting will be conducted as a virtual meeting over the Internet. Stockholders may attend the meeting virtually and submit questions electronically during the meeting via live webcast by visiting the virtual meeting platform at www.virtualshareholdermeeting.com/ETH2021. Stockholders will need the 16-digit control number included in the Notice of Internet Availability of Proxy Materials (the “Notice”), on the proxy card, or in the instructions that accompanied the proxy materials to enter the Annual Meeting. We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting at check-in or during the meeting, please call the technical support number that will be posted on the virtual meeting platform log-in page. Stockholders may log into the virtual meeting platform beginning at 9:45 A.M. Eastern Time on November 30, 2021. The meeting will begin promptly at 10:00 A.M. Eastern Time on November 30, 2021. If we determine to make any change to the date, time, or procedures of our Annual Meeting, we will announce such changes in advance on our website at https://ir.ethanallen.com.
The Board is soliciting proxies from stockholders in order to provide every stockholder an opportunity to vote on all matters submitted to a vote of stockholders at the Annual Meeting. A proxy authorizes a person other than a stockholder, called the “proxyholder,” to cast the votes that the stockholder would be entitled to cast at the Annual Meeting. Stockholders of record at the close of business on October 11, 2021 (the “Record Date”) will be entitled to vote at the Annual Meeting and any adjournments thereof. It is expected that this Proxy Statement and the accompanying proxy or voting instruction card will be first mailed or delivered to our stockholders beginning on October 20, 2021.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 30, 2021:
The 2021 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com
 
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PROXY SUMMARY
Proposals and Voting Recommendations
Stockholders are being asked to vote on the following matters at the Annual Meeting:
Our Board’s Recommendation
ITEM 1. Election of Directors
The Board and the Corporate Governance, Nominations and Sustainability Committee believe that the director nominees possess the necessary qualifications and experiences to provide quality advice and counsel to the Company’s management and effectively oversee the business and the long-term interests of stockholders.
FOR each Director
Nominee
ITEM 2. Advisory Vote to Approve Executive Compensation
The Company seeks a non-binding advisory vote to approve the compensation of its Named Executive Officers as described in the Compensation Discussion and Analysis and the Compensation Tables in this Proxy Statement. Although the vote is non-binding, the Board values stockholders’ opinions, and the Compensation Committee will take into account the outcome of the advisory vote when making future executive compensation decisions. This advisory vote will serve as an additional tool to guide the Board and the Compensation Committee in continuing to improve the alignment of the Company’s executive compensation program with the interests of Ethan Allen and its stockholders and is consistent with our commitment to high standards of corporate governance and stockholder engagement.
FOR
ITEM 3. Ratification of the Appointment of KPMG LLP as our Independent Registered Public Accounting Firm
The Audit Committee and the Board believe that the retention of KPMG LLP to serve as the independent registered public accounting firm for the 2022 fiscal year is in the best interests of the Company and its stockholders. As a matter of good corporate governance, stockholders are being asked to ratify the Audit Committee’s appointment of KPMG LLP as its independent registered public accounting firm.
FOR
The Board believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders and to enhance the creation of long-term stockholder value. The Board has adopted Corporate Governance Guidelines that support and reflect this belief, strengthen Board and management accountability, and comply with the requirements of the New York Stock Exchange (the “NYSE”).
 
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BOARD OF DIRECTORS
Ethan Allen Interiors Inc. is a vertically integrated interior design and home furnishings company, serving clients around the world. The effective management of our enterprise requires a strong governance foundation, as well as leadership with an understanding of the diverse needs of our clients and associates. We believe the composition of the Board reflects an appropriate mix of skill sets, experience, and qualifications that are relevant to the business and governance of the Company. Each individual director epitomizes the Company’s Leadership Principles, possesses the highest ethics and integrity, and demonstrates ongoing commitment to representing the long-term interests of the Company’s stockholders. Each director possesses individual experiences that provide practical wisdom and foster mature judgment in the boardroom. Collectively, the directors bring business, international, government, technology, marketing, retail operations, and other experiences that are relevant to the Company’s vertical operations. The Board has general oversight responsibility for the Company’s affairs and is deeply involved in the Company’s strategic planning process, leadership development, succession planning, and oversight of risk management. In exercising its fiduciary duties, the Board represents and acts on behalf of the Company’s stockholders and is committed to strong corporate governance, as reflected through its policies and practices.
BOARD INDEPENDENCE
The Board determined that Dr. John Clark, John J. Dooner, Jr., Cynthia Ekberg Tsai, David M. Sable and Tara I. Stacom (our five independent 2021 nominees for the Board) are independent directors within the meaning of the listing standards of the NYSE (the “NYSE rules”). The Board determined that these director nominees not only met all “bright-line” criteria under the NYSE rules, but also that, based on all known relevant facts and circumstances applicable to each individual director, there did not exist any relationship that would compromise the independence of these directors. Under the NYSE rules, in order to qualify as “independent” for general service on the Board, a director must not be disqualified under any of the per se disqualifiers in the NYSE rules, and the Board must have otherwise affirmatively determined that the director does not have any material relationship, either directly or indirectly (e.g. as a partner, stockholder or officer of an organization) with us or any of our affiliates or any of our executive officers or any of our affiliates’ executive officers.
 
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Snapshot of the Independent Director Nominees for our Annual Meeting
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BOARD LEADERSHIP STRUCTURE
The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management. The Board believes that, given the dynamic and competitive environment in which we operate, the optimal Board leadership structure may vary as circumstances warrant.
At present, the Board has chosen to continue combining the two roles of Chairman of the Board and Chief Executive Officer. The Board believes that the best interests of the Company are served by M. Farooq Kathwari serving in both roles taking account of his unique long-standing tenure with, and investment in, the Company and also the Board’s use of a strong Lead Independent Director. The Board believes that this governance structure provides the basis for clear, efficient executive authority in the Company, especially considering the Company’s flat management structure, while balancing appropriate oversight by the Board.
Lead Independent Director
Our Corporate Governance Guidelines provide that if the Chairman is not an independent director, the Board shall select a Lead Independent Director from among the members of the Board who are determined by the Board to be independent. The selection of the Lead Independent Director occurs at the annual planning meeting of the Board. Upon selection by the Board, the Director will serve as the Lead Independent Director for a period of three years. The Lead Independent Director has the clearly delineated duties and responsibilities that are set forth in our Corporate Governance Guidelines. In choosing to continue combining the two roles of Chairman and Chief Executive Officer, the Board believes that a suitably empowered Lead Independent Director further promotes the Board’s independence from management because they are expressly authorized to exert de facto control of the Company by asserting independent leadership of the Board. Domenick J. Esposito, an independent, non-executive director, served as the Board’s Lead Independent Director since the 2020 Annual Meeting. The Lead Director organizes and chairs meetings of the independent directors and organizes, facilitates, and communicates observations of the independent directors to the Chief Executive Officer, although each director is free to communicate directly with the Chief Executive Officer. The duties and responsibilities of our Lead Independent Director are set forth in our Corporate Governance Guidelines and include, among others:

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

serving as liaison between the Chairman and the independent directors, as needed;

having the authority to call meetings of the independent directors;

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

performing such other duties as the Board may from time-to-time delegate to assist the Board in the fulfillment of its duties.
STOCKHOLDER OUTREACH & COMMUNICATION WITH DIRECTORS
During fiscal 2021, the Company engaged in investor relations outreach efforts whereby members of senior management routinely met with investors to review Company strategies, financial and operating performance, capital
 
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allocation priorities, and near-term outlook. We regularly hold one-on-one meetings with stockholders and potential investors throughout the United States as well as overseas. In addition, we have telephonic meetings with stockholders and analysts and review correspondence submitted by stockholders to management and/or the Board. During these interactions, stockholders most frequently raised topics are concerning the impact of, and trends relating to, the COVID-19 pandemic, supply chain conditions, raw material pricing and availability, the ability to service existing backlog, and revenue growth opportunities.
Stockholders and interested parties may communicate with the Chairman, the Lead Independent Director, the full Board, any Board committee, individual committee members or individual directors by sending communications to the Office of the Secretary, Ethan Allen Interiors Inc., 25 Lake Avenue Ext., Danbury, Connecticut 06811-5286 for forwarding to the appropriate director(s). Please specify to whom your correspondence should be directed and the nature of your interest in the Company. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters.
The Secretary shall review any such correspondence and forward to the Board or any individual director or group of directors, as appropriate, a summary and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or committees thereof or that the Secretary otherwise determines requires the attention of the Board or such director(s). Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Typically, the Secretary would not forward to the Board or any director communications of a personal nature or not related to the duties and responsibilities of the Board, including junk mail, mass mailings, advertisements, magazines, solicitations, job inquiries, opinion surveys or polls.
Additional investor information is available at https://ir.ethanallen.com. Stockholders may also electronically submit their communications to the following e-mail address: ETHBoard@ethanallen.com.
BOARD OF DIRECTORS ROLE IN RISK OVERSIGHT
While risk management is primarily the responsibility of our management, the Board provides overall risk oversight by focusing on the most significant enterprise risks. The Board oversees an enterprise-wide approach to risk management, designed to identify risk areas and provide oversight of the Company’s risk management, to support the achievement of organizational objectives, including strategic objectives; and to improve long-term organizational performance and to enhance stockholder value. A fundamental part of the Board’s risk management is to understand the risks the Company faces and what steps management is taking to mitigate those risks. The Board participates in discussions with management concerning the Company’s overall level of, and tolerance for, risk, the Company’s business strategy and organizational objectives which are all integral components of its assessment of management’s tolerance for risk.
The Company has implemented a Company-wide enterprise risk management process to identify and assess the major risks and develop strategies for controlling, mitigating, and monitoring such risks. As part of this process, information is gathered throughout the Company to identify and prioritize major risks. While our Board is ultimately responsible for risk oversight, its committees critically assist the Board in fulfilling its monitoring responsibilities in certain areas of risk in the following ways:

Audit Committee.   The Audit Committee reviews our risk management programs and regularly reports on these items to the full Board. As part of the Company’s process to identify and assess major risks, any such identified risks and risk mitigation strategies are validated with management and discussed with the Audit Committee on an ongoing basis. Additionally, our Internal Audit group is responsible for monitoring the enterprise risk management process and in that role reports directly to the Audit Committee. Other members of senior management who have responsibility for designing and implementing various aspects of our risk management process also regularly meet with the Audit Committee. The Audit Committee discusses financial and operational risks with our Chief Executive Officer and Chief Financial Officer and receives reports from other members of senior management regarding identified risks.

Compensation Committee.   The Compensation Committee is responsible for overseeing any risks relating to our compensation policies and practices. Specifically, the Compensation Committee oversees the design of incentive compensation arrangements of our executive officers to implement our pay-for-performance philosophy without encouraging or rewarding excessive or inappropriate risk-taking by our executive officers.

Corporate Governance, Nominations and Sustainability Committee.   The Corporate Governance, Nominations and Sustainability Committee is responsible for overseeing risks with respect to environmental, social and governance matters. In particular, the Corporate Governance, Nominations and Sustainability Committee reviews the Company’s impacts, risks, and opportunities from an ESG perspective so as to address any potential risks that the Company’s operations pose to the environment or to society.
 
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Finally, cybersecurity is a critical part of risk management for the Company. The Board appreciates the rapidly evolving nature of threats presented by cybersecurity incidents and is committed to the prevention, timely detection, and mitigation of the effects of any such incidents on the Company. With respect to cybersecurity, the Board receives regular reports from management, including updates on the internal and external cybersecurity threat landscape, incident response, assessment and training activities, and relevant legislative, regulatory, and technical developments.
Our management regularly conducts additional reviews of risks, as needed, or as requested by the Board or the Audit Committee.
CORPORATE RESPONSIBILITY
Sustainability practices are a fundamental part of our Company’s operations. We define sustainability as being inclusive of both corporate social responsibility (“CSR”) and ESG practices, and believe that our sustainability, environmental and social values are intrinsic to our long-standing authentic American name and brand. Our Board, along with our clients, investors, employees, and other stakeholders, understand that a modern approach to running our Company must be aligned with a commitment to sustainability. We believe that integrating our social and environmental values into our business generates long-term value for our business, our stockholders, and the global community at large. In addition to our overall dedication to ethical and accountable business practices, our corporate social responsibility commitments include the areas of environmental sustainability and community connections. We believe that these commitments create value for our stockholders and help position us to continuously improve business performance. Our strategy focuses our efforts on those areas most significant to our business, including health and safety, environmental stewardship, community and stakeholder engagement, human rights, and transparency. As part of our commitment, the Board and its committees are actively engaged in overseeing our sustainability practices and to ensure focus on these topics starts from the top. The Board oversees policies, positions and systems for environment, health, safety and social responsibility, compliance, and risk management. The Company’s Corporate Responsibility Report is available at https://ir.ethanallen.com/corporate-governance/responsibility. The information provided on the Company’s website is referenced in this Proxy Statement for information purposes only. Neither the information on the Company’s website, nor the information in the Company’s Corporate Responsibility Report, shall be deemed to be a part of or incorporated by reference into this Proxy Statement or any other filings we make with the Securities and Exchange Commission (“SEC”).
During fiscal 2021, the Corporate Governance, Nominations and Sustainability Committee charter was amended to rename the Committee and to assist the Board to pursue and report sustainability initiatives inclusive of CSR and ESG practices. Expanded responsibilities include (i) review of the Company’s impacts, risks, and opportunities from an environmental, social and governance perspective to effectively address the potential risks posed by the Company’s operational impact on the environment and society, (ii) oversight of the Company’s CSR and ESG initiatives and practices on a regular and continuing basis and (iii) review of the Company’s sustainability reports setting forth how the Company manages and addresses sustainability matters. The Corporate Governance, Nominations and Sustainability Committee shall consider the Company’s business decisions in terms of sound environmental, social and governance practices and their impacts to long-term stockholder returns. The Corporate Governance, Nominations and Sustainability Committee shall also assist the Board and the Company to evaluate decisions based upon factors such as energy consumption; reduction of waste and emissions; effect of the Company’s operations on climate change; equality, equity and inclusion in the workforce; employee safety and security in the workplace; compliance with national and international legal standards for the conduct of business; and enforcing the most rigorous social standards in every jurisdiction in which it conducts business.
Environmental Impact and Community
We are pleased with what we have accomplished in the first 10 years of our sustainability initiatives, including significant decreases in our carbon footprint, electrical usage, water usage, and landfill waste. We are currently setting our new 10-year goals through 2030. As part of those goals we have established a commitment to achieving net zero emissions by 2050 and are developing methods, plans, and resources to meet this commitment.
The Carbon Footprint Calculator is the core tool that Ethan Allen uses across every location, from Design Centers to manufacturing plants to our corporate headquarters, to record and analyze environmental data. It is based on the United States Environmental Protection Agency’s Waste Reduction Model (WARM), which was designed to help businesses quantify how smarter materials use, recycling, and other activities affect greenhouse gas emissions, create energy savings, and impact economic activities.
We have updated the calculator several times over the past decade to reflect a better understanding of our environmental profile: how our company’s unique mix of air emissions and waste products add carbon and other greenhouse gases to our atmosphere. For example, to measure CO2e (carbon dioxide equivalent), we multiply the emissions of six greenhouse gases, plus other fuel emissions (such as emissions from the type of fuel our local electrical supplier uses to generate power) by each compound’s global warming potential (GWP), or carbon factor.
 
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The Company has taken several environmental measures, including the expanded use of responsibly harvested Appalachian hardwoods, water-based finishes, organic cotton textiles, and recycled materials. In addition, the Company uses only CertiPUR-US® certified foams in its mattresses and custom upholstery.
Every facility at Ethan Allen has its own environmental goals, targets, and responsibilities related to emissions, waste disposal, and electricity and water usage. A designee at each location records the data in the Carbon Footprint Calculator and submits it quarterly. The data is then reviewed annually by the members of Ethan Allen’s corporate Environmental, Health and Safety (EH&S) team, who compare it to data from the appropriate baseline year to measure each facility’s progress toward achieving the Company’s set environmental goals.
Electricity
To reduce the amount of electricity we use to heat our workspaces and dry our lumber, the wood-fired boilers in our plants use scrap wood to make steam. At some locations, we also use that same steam to cogenerate the electricity, heat, and air pressure needed to run our production equipment. We also use energy-efficient lighting, and we have implemented coordinated startups of our heavy equipment to reduce peak electrical demand.
Water
To control and reduce water use, we have installed low-flow restroom fixtures in our facilities. We also use flow restrictors to limit water use in certain operations. Logs for example, must be kept moist until milled to prevent cracks or splits; flow restrictors ensure logs are sprinkled with just the right amount of water. Additionally, steam leak surveys have helped us reduce the escape of steam into the air, further reducing water waste.
Greenhouse Gas (GHG) Emissions
To meet our carbon footprint reduction goals, we continually review and investigate ways to reduce our carbon dioxide emissions in our operations. We set annual carbon footprint reduction goals for our domestic manufacturing division, based on data compiled from each manufacturing facility.
Recycling
Recycling is embraced by our management and employees alike and implemented through corporate initiatives and grassroots efforts. All locations work to minimize landfill waste, and our operations focus on recycling paper, glass, cardboard, plastics, and metals. Our goal is to reuse and recycle materials, including glass, paper, metal, plastic, foams, and textiles, as much as we can.
Social Responsibility
Ethan Allen’s Manufacturing Code of Conduct is the standard against which Ethan Allen, in partnership with independent auditors, measures vendor compliance related to ethical business practices and the fair treatment of workers. We are committed to working with and educating our supplier network as a way of improving labor conditions worldwide. Our business partners are also subject to our Manufacturing Code of Conduct.
To assess vendor compliance at individual production facilities, Ethan Allen partners with industry-recognized third-party auditing companies known for their professionalism, consistency, and credibility. These vendors, including Bureau Veritas and Elevate Limited, have conducted over 100 labor compliance audits in eleven countries on our behalf in the past five years.
Independent auditors also offer continuing education opportunities, in the vendor’s country and in the vendor’s own language. These include the following:

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

additional compliance training for factory managers that explains the need for transparency, capacity building, and improvement in their labor compliance systems.
The Company’s goal is to obtain 100% compliance. As it works to meet that goal, the Company consistently addresses the root causes of noncompliance within each facility. Our teams also attend labor compliance seminars and meetings, where they collaborate across international and industry lines to address labor compliance topics throughout the global supply chain.
The Company also offers a wide variety of career opportunities and paths to advancement through on-the-job coaching, training, and education. We are proud to be a company where an associate can start in an entry-level position and turn it into a successful career.
 
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COMMITTEE CHARTERS, CODE OF CONDUCT AND CORPORATE GOVERNANCE GUIDELINES
The Company’s Code of Business Conduct and Ethics (the “Code of Conduct”), Corporate Governance Guidelines, Foreign Corrupt Practices Act Policy and the charters of its Audit Committee, Compensation Committee and Corporate Governance, Nominations and Sustainability Committee are available on the Company’s website at https://ir.ethanallen.com/corporate-governance/governance-documents. You may also request printed copies of these documents, free of charge, by sending a written request to our Corporate Secretary at Ethan Allen Interiors Inc., 25 Lake Avenue Ext., Danbury, CT 06811-5286.
The Board has approved a set of Corporate Governance Guidelines in accordance with the NYSE rules. These Corporate Governance Guidelines set forth the key policies relating to corporate governance, including director qualification standards, director responsibilities and director compensation. The Corporate Governance Guidelines cover, among other things, the duties, and responsibilities of and independence standards applicable to our directors. The Corporate Governance Guidelines also cover the Board’s role in overseeing executive compensation, compensation and expenses of non-management directors, communications between stockholders and directors, and Board committee structures and assignments.
Our Code of Conduct was adopted to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; promotion of full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company; compliance with applicable governmental laws, rules and regulations; protection of Company assets, including corporate opportunities and confidential information; promotion of fair dealing practices; deterring wrongdoing and ensuring accountability for adherence to the provisions of the Code of Conduct. The Code of Conduct prohibits any employee, officer and director taking unfair advantage of any clients, suppliers, competitors or other officers and employees through manipulation, concealment, abuse of privileged information or misrepresentation of material facts. It imposes an express duty to act in the best interests of the Company and to avoid influences, interests or relationships that could give rise to an actual or apparent conflict of interest. Further, the Code of Conduct prohibits directors, officers, and employees from taking for themselves (i.e. personally) opportunities that properly belong to the Company or are discovered through using corporate property, information, or one’s position; using corporate property, information, or position for personal gain; and competing directly or indirectly with the Company. This Code of Conduct may be amended, modified, or waived by the Board of Directors. Waivers of the Code of Conduct must be explicit. Any waiver of the Code of Conduct for directors or executive officers may only be made by the Board or the Corporate Governance, Nominations and Sustainability Committee. We will disclose any future amendments to, or waivers from, provisions of the Code of Conduct affecting our executive officers or directors on our website within four business days, as may be required under applicable SEC and NYSE rules. We granted no waivers under our Code of Conduct in fiscal 2021. With respect to any person other than any executive officer or director, waivers may be granted by the General Counsel.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 2021, the Board met in person or by telephone conference four times, including the meeting in connection with the 2020 Annual Meeting of Stockholders. Independent directors also met four times in executive session without management present. The Lead Independent Director chaired the executive sessions.
All directors are expected to attend all regularly scheduled and special Board meetings, including the annual meeting of stockholders, independent director meetings and committee meetings, as appropriate. The Board realizes that scheduling conflicts may arise from time to time which prevent a director from attending a particular meeting. However, it is the Board’s explicit policy that each director shall give priority to his or her obligations to the Company. All directors who then held office attended the 2020 Annual Meeting of Stockholders. In fiscal 2021, there was 100% attendance by each director at each of the four Board meetings, and for directors serving on such committees, there was 100% attendance at the six regularly scheduled Audit Committee meetings, four regularly scheduled Compensation Committee meetings, and four regularly scheduled Corporate Governance, Nominations and Sustainability Committee meetings. As set forth in our Corporate Governance Guidelines, the Company’s policy is to expect the resignation of any director who is absent from more than 25% of regularly scheduled Board meetings or committee meetings in a fiscal year.
 
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Board Committee Memberships
The Board has established three standing committees: the Audit Committee; the Compensation Committee; and the Corporate Governance, Nominations and Sustainability Committee. Committee memberships as of June 30, 2021, are set forth below:
Name
Audit
Committee
Compensation
Committee
Corporate
Governance,
Nominations and
Sustainability
Committee
Lead
Independent
Director
James B. Carlson (1)
Member
Chairperson
Dr. John Clark (2)
John J. Dooner, Jr.
Member
Chairperson
Cynthia Ekberg Tsai (2)
Domenick J. Esposito (3)
Chairperson
Member
Mary Garrett (1)
Member
David M. Sable (2)
Dr. James W. Schmotter (1)
Member
Member
Tara I. Stacom
Member
(1)
Tenure ends as of the Annual Meeting
(2)
New director nominee who has not yet been assigned to any standing committees of the Board
(3)
Mr. Esposito’s tenure ended upon his death on September 22, 2021; subsequently, John J. Dooner, Jr. was named Lead Independent Director and Dr. James W. Schmotter was named Chairperson of the Audit Committee
The Board determined that each member of the standing committees is (i) independent within the meaning of the NYSE rules, including the additional requirements applicable to members of the audit and compensation committees, as applicable, (ii) non-employee directors (within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and (iii) outside directors (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”)).
Audit Committee
The Audit Committee operates under a written charter, which was adopted by the Board. Pursuant to its charter, on behalf of the Board, the Audit Committee oversees the Company’s consolidated financial statements, independent auditors, financial statement audits, financial reporting process, system of internal accounting and financial controls, and internal audit function. In so doing, the Audit Committee seeks to maintain free and open communication between the Audit Committee and the Company’s independent registered public accounting firm, the internal auditors and management. The Audit Committee is also responsible for reviewing and approving of any related party transactions required to be disclosed pursuant to Item 404(a) of Regulation S-K. The responsibilities and activities of the Audit Committee are discussed more fully under “Audit Committee Report” in this Proxy Statement, and in the Audit Committee charter.
Each member of the Audit Committee, James B. Carlson, Domenick J. Esposito (Chairperson), Mary Garrett and Dr. James W. Schmotter, is an independent director within the meaning of the applicable rules and regulations of the SEC and the NYSE rules, including the additional independence requirements applicable to members of audit committees. The Board has determined that each member of the Audit Committee is financially literate within the meaning of the NYSE rules and that each qualifies as an “audit committee financial expert” as defined under Item 407(d)(5)(ii) of SEC Regulation S‐K. The Audit Committee is required to meet a minimum of four times each fiscal year and may hold such additional meetings as it deems necessary to perform its functions. The Audit Committee met in person or by telephone conference six times during fiscal 2021.
The Audit Committee charter is located on the Company’s Investor Relations website, at https://ir.ethanallen.com/corporate-governance/governance-documents.
Compensation Committee
The Compensation Committee operates under a written charter, which was adopted by the Board. Pursuant to its charter, on behalf of the Board, the Compensation Committee determines our compensation policies and the level and forms
 
9

 
of compensation provided to our Board members and executive officers, as discussed more fully under “Compensation Discussion and Analysis” in this Proxy Statement. In addition, the Compensation Committee reviews and approves stock-based compensation for our directors, officers, and employees, and oversees the administration of our Stock Incentive Plan. The Compensation Committee also approves the “Compensation Discussion and Analysis” with respect to compensation of the Company’s Named Executive Officers as defined therein (“Named Executive Officers” or “NEOs”) in accordance with applicable rules of the SEC. The Compensation Committee is authorized to retain and terminate compensation consultants, legal counsel, or other advisors to the Committee and to approve the engagement of any such consultant, counsel, or advisor, to the extent it deems necessary or appropriate after specifically analyzing the independence of any such consultant retained by the Committee.
Each member of the Compensation Committee, James B. Carlson (Chairperson), John J. Dooner, Jr. and Domenick J. Esposito, is an independent director within the meaning of the applicable NYSE rules, including the additional independence requirements applicable to members of compensation committees. The Compensation Committee meets a minimum of two times a year and holds such additional meetings as it deems necessary to perform its responsibilities. The Compensation Committee held four meetings and individual Compensation Committee members communicated, when necessary, by telephone or video conference during fiscal 2021.
Corporate Governance, Nominations and Sustainability Committee
The Corporate Governance, Nominations and Sustainability Committee operates under a written charter, which was adopted by the Board. Pursuant to its charter, on behalf of the Board, the Corporate Governance, Nominations and Sustainability Committee’s duties include, but are not limited to, (i) developing qualification criteria for the members of the Board and recommending to the Board individuals to serve on the Board; (ii) reviewing, on an annual basis, the qualifications of each member of the Board; (iii) reviewing and monitoring the Company’s corporate governance policies and guidelines, including the Company’s insider trading policy for its directors and executive officers; (iv) annually assessing of the Board’s performance and reporting such assessment to the Board; and (v) assisting the Board to pursue and report sustainability initiatives, which, as noted above under “Corporate Responsibility,” comprises both CSR and ESG matters.
Each member of the Corporate Governance, Nominations and Sustainability Committee, James J. Dooner, Jr. (Chairperson), Dr. James W. Schmotter and Tara I. Stacom, is an independent director within the meaning of the NYSE rules. The Corporate Governance, Nominations and Sustainability Committee meets a minimum of two times a year and holds such additional meetings as it deems necessary to perform its responsibilities. The Corporate Governance, Nominations and Sustainability Committee held four meetings and individual Corporate Governance, Nominations and Sustainability Committee members communicated, when necessary, by telephone or video conference during fiscal 2021.
Proxy Access and Director Nominations.   The Corporate Governance, Nominations and Sustainability Committee follows the procedure concerning nominations or consideration of director candidates recommended by stockholders set forth in our Amended and Restated By-Laws (the “By-Laws”). The By-Laws of the Company permit stockholders, as of the Record Date, to nominate director candidates at the Annual Meeting, subject to certain notification requirements. Our By-Laws permit a stockholder, or a group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years to nominate and include in our proxy materials up to the greater of two directors or 20% of our Board. Stockholders and nominees must satisfy the requirements set forth in the By-Laws in connection with such nominations. We believe that this By-law provision provides meaningful, effective, and accessible proxy access rights to our stockholders, and balances those benefits against the risk of misuse or abuse by stockholders with special interests that are not shared by all or a significant percentage of our stockholders. Our By-Laws also allow for nominations of directors outside of this proxy access framework who will not be included in our proxy materials. Refer to “How do I submit a proposal or nominate a director candidate for the 2022 Annual Meeting of stockholders?” under “Questions and Answers about our Annual Meeting and Voting” further below for information on how to submit a proposal or nominate a director.
Board Qualifications and Diversity.   The Corporate Governance, Nominations and Sustainability Committee seeks director candidates who demonstrate a willingness and ability to prepare for, attend and participate in all Board and committee meetings and whose experience and skill would complement the then-existing mix of directors. The Board believes that a Board comprised of members with diverse qualities provide varied perspectives which will help to promote active and constructive dialogue among Board members and between the Board and management, resulting in more effective oversight. Therefore, diversity is among the criteria that the Corporate Governance, Nominations and Sustainability uses to evaluate nominees and includes, but is not limited to, consideration of viewpoints, background, and experience, including diversity of race, self-identified gender, ethnicity, age, and cultural background. In the Board’s executive sessions and in annual performance evaluations conducted by the Board and its committees, the Board will periodically consider whether the members of the Board reflect such diversity and whether such diversity contributes to a constructive and collegial environment. We believe that the current and proposed members of our Board amply demonstrate diversity due to their varied backgrounds,
 
10

 
experience, qualifications, and skills. In particular, we are proud that 40% of our independent director nominees are women and that our Board includes ethnic diversity, namely through Mr. Kathwari, our Chairman of the Board and Chief Executive Officer, who is South Asian.
In recommending director candidates, the Corporate Governance, Nominations and Sustainability Committee gathers suggestions as to individuals who may be available to meet the Board’s future needs from a variety of sources, such as past and present directors, stockholders, colleagues, and other parties with which a member of the Corporate Governance, Nominations and Sustainability Committee or the Board has had business dealings. The Corporate Governance, Nominations and Sustainability Committee then undertakes a preliminary review of the individuals suggested. Candidates recommended by stockholders will be considered in the same manner as other candidates. At such times as the Corporate Governance, Nominations and Sustainability Committee determines that a relatively near-term need exists and the Corporate Governance, Nominations and Sustainability Committee believes that an individual’s qualities and skills would complement the then-existing mix of directors, the Corporate Governance, Nominations and Sustainability Committee or its Chair will contact the individual. After such contact, the members of the Corporate Governance, Nominations and Sustainability Committee will discuss (or, where the Chair makes contact, the Chair will discuss with the other members) the individual and all relevant qualifications. Based on the Corporate Governance, Nominations and Sustainability Committee’s evaluation of potential nominees and the Company’s needs, the Corporate Governance, Nominations and Sustainability Committee determines whether to nominate the individual for election as a director. While the Corporate Governance, Nominations and Sustainability Committee has not, in the past, engaged any third-party firm or consultant to identify or evaluate nominees, in accordance with its charter, may do so in the future.
The Corporate Governance, Nominations and Sustainability Committee unanimously recommended to the Board for approval the nominees named in this Proxy Statement and believe that these individuals are best qualified with the experience, industry knowledge, integrity, ability to devote time and energy, and commitment to the interests of all stockholders to execute our strategic plan and create value for all of our stockholders. In considering each director nominee, the Corporate Governance, Nominations and Sustainability Committee and the Board evaluated such person’s key qualifications, skills, experience, and perspectives that he or she could bring to the Board, including in light of the particular areas summarized in the matrix under “Proposal 1: Election of Directors.”
The Corporate Governance, Nominations and Sustainability Committee charter is located on the Company’s Investor Relations website, at https://ir.ethanallen.com/corporate-governance/governance-documents.
 
11

 
PROPOSAL 1:   ELECTION OF DIRECTORS
At the recommendation of the Corporate Governance, Nominations and Sustainability Committee, the Board has nominated the following six directors for election at the Annual Meeting. If elected, each director will serve for a one-year term expiring at the 2022 Annual Meeting of Stockholders or until their respective successor has been duly elected and qualified or until their earlier death, resignation, disqualification, or removal. Three of the director nominees are current directors, each elected by Ethan Allen’s stockholders at our 2020 Annual Meeting of Stockholders. The Board is also nominating three new director nominees for election at the Annual Meeting: Dr. John Clark, Cynthia Ekberg Tsai, and David M. Sable. Dr. James W. Schmotter notified the Board on August 3, 2021 of his intent to retire at the end of his current term, and James B. Carlson and Mary Garrett will be rotating off the Board at the end of their current terms, which expire on the date of the Annual Meeting. We appreciate each of their contributions during their years of service to the Company. Additionally, Domenick J. Esposito, Lead Independent Director and Chairperson of the Audit Committee, unexpectedly passed away on September 22, 2021. The Company will miss the leadership and contributions Mr. Esposito made to the Board throughout his years of service and our thoughts and prayers are with his family.
Each of the director nominees included in this Proxy Statement has consented to being named as a nominee and has accepted the nomination and agreed to serve as a director if elected by our stockholders. The Board believes that each nominee will be able and willing to serve if elected as a director. However, if any nominee becomes unable or unwilling to serve between the date of this Proxy Statement and the Annual Meeting, the Board may designate a new nominee, and the persons named as proxy holders may vote for the substitute nominee. Alternatively, the Board may reduce the size of the Board.
The information set forth below includes, with respect to each nominee for election as director, his or her age, present principal occupation, specific expertise, qualifications, and skills along with other business experience, directorships in other publicly held companies, membership on committees of the Board and period of service as a director of the Company. Also set forth below is a brief discussion of the specific experience, qualifications, attributes, or skills that led to each nominee’s nomination as a director, in light of the Company’s business.
The Board unanimously recommends that you vote FOR each
of the six nominees.
 
12

 
BOARD OF DIRECTORS—EXPERIENCE AND SKILLS
Ethan Allen Director Nominees (1)
CEO or
Senior
Executive
Level
Experience
Risk
Management
International
Experience
Operating
Experience
Retail and
Digital
Experience
Finance
Experience
Real
Estate
Experience
Marketing
and
Brand
Building
Expertise
M. Farooq Kathwari
Dr. John Clark *(2)
John J. Dooner, Jr. *
Cynthia Ekberg Tsai *(2)
David M. Sable *(2)
Tara I. Stacom *
(1)
The fact that a particular qualification, skill, experience, or perspective is not listed in this matrix does not mean that the nominee does not possess it or that the Corporate Governance, Nominations and Sustainability Committee and the Board did not evaluate it.
(2)
New director nominee who has not yet been assigned to any subcommittees of the Board
*
Independent Director
DIRECTOR NOMINEES FOR ELECTION
M. Farooq KathwariENTREPRENURIAL AND DISCIPLINED LEADER
[MISSING IMAGE: ph_farooqkathwari-bw.jpg]
Mr. Kathwari is the Chairman, President and Chief Executive Officer of Ethan Allen Interiors Inc. He has been President since 1985 and Chairman and Chief Executive Officer since 1988. He holds a Bachelor of Arts in both English Literature and Political Science from Kashmir University and an MBA in International Marketing from New York University. He is also the recipient of three honorary doctorate degrees.
Director since 1985
Age: 77
Board Committees:

Chairperson of the
Board
Specific Qualifications, Attributes, Skills and Experience:
Mr. Kathwari serves in numerous capacities at several nonprofit organizations. He is an advisory member of the New York Stock Exchange; former chairman of the National Retail Federation; a member of the Board of Overseers of the International Rescue Committee; Chairman Emeritus of Refugees International; a member of the International Advisory Council of the United States Institute of Peace; and a member of the advisory board of the Center for Strategic and International Studies.
Among his recognitions, Mr. Kathwari is a recipient of the 2018 Ellis Island Medal of Honor, has been inducted into the American Furniture Hall of Fame and recipient of the National Retail Federation Gold Medal. He has been recognized as an Outstanding American by Choice by the U.S. government. He has received the Yale School of Management’s Chief Executive Leadership Institute Lifetime of Leadership Award. He has also been recognized by Worth magazine as one of the 50 Best CEOs in the United States. He is the author of Trailblazer: from the Mountains of Kashmir to the Summit of Global Business and Beyond.
Mr. Kathwari has extensive knowledge of the history of both the Company and the furniture industry as well as extensive experience in growing and managing a business. Mr. Kathwari possesses insight into retailing, marketing, manufacturing, finance, and strategic planning. In addition, his work with both for-profit and not-for-profit organizations has given him perspectives from other industries, which have proven valuable throughout his service to the Company.
 
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Dr. John Clark EDUCATOR AND ADMINISTRATION LEADER
[MISSING IMAGE: ph_drjohnclark-bw.jpg]
Dr. John Clark is the President of Western Connecticut State University since 2015. He previously was the Acting University Executive Director of the City University of New York’s (CUNY) Office of Business and Industry Relations. Before joining CUNY, he was a visiting professor at Stony Brook University. Prior to that, he was Interim Chancellor of the State University of New York (SUNY). During his career at SUNY, Dr. Clark was the interim president of four of its colleges; Plattsburgh, Brockport, Alfred State and Optometry. He also served as Interim Vice Chancellor for Enrollment Management and University Life at SUNY System Administration.
Independent
Director since
Newly Nominated
Age: 70
Board Committees:

N/A - New nominee
Specific Qualifications, Attributes, Skills and Experience:
Before joining SUNY, Dr. Clark had an 18-year Wall Street career as an analyst and investment banker specializing in health and higher education. Dr. Clark held various positions in New York City and state government and is a Vietnam-era veteran. He also has wide-ranging experiences as a board member with various not-for-profit organizations providing educational, healthcare, and housing services. Dr. Clark holds five degrees, including a Bachelor of Arts degree in history cum laude from Providence College, a Master of public administration degree from the John Jay College of Criminal Justice (CUNY), a Master of Arts degree in economics from Fordham University, a Master of Arts degree in philosophy from New York University, and a Doctorate in education from Teachers College, Columbia University. Dr. Clark brings to the Board his strategic thinking, people development skills and unique hands-on experience in investment banking and administration management.
John J. Dooner, Jr. MARKETING AND STRATEGIC COMMUNICATIONS LEADER
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Mr. Dooner founded The Dooner Group, a marketing communication consultancy in 2012, and serves as Chairman Emeritus of McCann Worldgroup, a company he formed in 1997, and of which he had been Chief Executive Officer from its founding until 2011.
Lead Independent
Director
Director since 2011
Age: 73
Board Committees:
•   Nominations - Chair
•   Compensation
Specific Qualifications, Attributes, Skills and Experience:
Under Mr. Dooner’s leadership, McCann grew to be one of the world’s largest marketing communications organizations, with operations in over 125 countries with a client roster that includes preeminent global marketers and many of the world’s most famous brands. Prior to assuming that position, Mr. Dooner was Chief Executive Officer of McCann Erickson Worldwide, a post he assumed in 1992. Mr. Dooner serves on several not-for-profit organizations including as Chairman of St. Thomas University based in Miami, Florida. He is Past Chairman Board of Trustees and Past Brand Platform Chairman of United Way Worldwide based in Washington, DC. In April 2019, Mr. Dooner was inducted into the American Advertising Federation Hall of Fame. In May 2019 he received an honorary doctorate from St. Thomas University. Mr. Dooner brings extensive advertising and branding expertise to the Board.
 
14

 
Cynthia Ekberg Tsai FINANCE AND MANAGEMENT DEVELOPMENT LEADER
[MISSING IMAGE: ph_tsaicynthia-bw.jpg]
Ms. Ekberg Tsai is the CEO of Tana Systems, a global software and IT company based in the U.S. and India. She is also CEO of Healthquest, a global biotechnology and medical technologies advisory firm, where she specializes in providing strategic introductions and advice to rising executives.
Independent
Director since
Newly Nominated
Age: 65
Board Committees:
N/A - New nominee
Specific Qualifications, Attributes, Skills and Experience:
Ms. Tsai spent 16 years on Wall Street as a Vice President with Merrill Lynch and Kidder Peabody. She is the former Founder and CEO of HealthExpo, the largest consumer healthcare event in the U.S., where she grew the enterprise from concept to execution, attracting more than 50 million consumers to HealthExpo. Previously, Ms. Tsai was a General Partner in MassTech Ventures, a multi-million-dollar equity fund focused on technology development at Massachusetts Institute of Technology. Ms. Tsai currently serves on the Board of Selectors for the Jefferson Foundation Awards and is on the board of the Prix Galien Foundation. In 1999, the Harvard Business School Alumni Chapter in New York recognized Ms. Tsai with an Early-Stage Honor Roll Award for Entrepreneurship. In 2004, she also received a “Leading Woman Entrepreneur of the World” Award from the Star Foundation in Overland Park, Kansas. She earned a Bachelor of Arts in Psychology from the University of Missouri. Ms. Tsai brings to the Board her strategic thinking and unique hands-on experience in investment banking and brand building.
David M. Sable MARKETING AND DIGITAL LEADER
[MISSING IMAGE: ph_davidmsable-bw.jpg]
Mr. Sable is Co-Founder and Partner of DoAble, a Marketing Consultancy focused on branding, positioning, and big ideas. As Senior Advisor to WPP plc (“WPP”), a multinational communications, advertising, public relations, technology, and commerce holding company, he mentored and consulted across the company. Previously he was Chairman of VMLY&R. He propelled Y&R to a top-five global creative firm at Cannes, developed new resources and practices, expanded the global footprint of subsidiary company VML, and ultimately helped unify Y&R and VML into VMLY&R, one of the most successful agencies in the industry today.
Independent
Director since
Newly Nominated
Age: 68
Board Committees:
N/A - New nominee
Specific Qualifications, Attributes, Skills and Experience:
Mr. Sable serves as a board member and member of the Audit, Compensation and Nominating Committees of American Eagle Outfitters (NYSE: AEO). Prior to his time at Y&R, Mr. Sable served at Wunderman, Inc., a leading customer relationship manager and digital unit of WPP, as Vice Chairman and Chief Operating Officer, from August 2000 to February 2011. Mr. Sable was a Founding Partner and served as Executive Vice President and Chief Marketing Officer of Genesis Direct, Inc., a pioneer digital omni-channel retailer, from June 1996 to September 2000. Mr. Sable attended New York University and Hunter College in New York. In 2013, Fast Company named Mr. Sable one of the 10 Most Generous Marketing Geniuses. He currently serves on the Board of Directors of both UNICEF/USA and the International Special Olympics, as well as on the Executive Board of UNCF and he was Executive Producer on MTV’s highly acclaimed REBEL MUSIC series. Mr. Sable brings to the Board more than 30 years of experience and strategic insight in digital leadership and marketing communications. The Board also benefits from his extensive involvement with community programs.
 
15

 
Tara I. Stacom REAL ESTATE AND FINANCIAL INDUSTRIES LEADER
[MISSING IMAGE: ph_tarastacom-bw.jpg]
Ms. Stacom is an Executive Vice Chairman of Cushman & Wakefield since 2013, a worldwide commercial real estate firm with 50,000 employees. During her 40-year career, Ms. Stacom has been responsible for executing in excess of 60 million square feet and some of the largest and most complex leasing, sales, and corporate finance real estate transactions.
Independent
Director since 2015
Age: 63
Board Committees:

Nominations
Specific Qualifications, Attributes, Skills and Experience:
Ms. Stacom earned her Bachelor of Science degree in Finance at Lehigh University where she later served on the Board of Trustees. She is a director of the Realty Foundation of New York and a member of the Real Estate Board of New York having served on numerous committees including Ethics and the Commercial Brokerage Division. Ms. Stacom is a “Director’s Circle Member” of Girls, Inc., a board member of Right to Dream and recipient of Crain’s New York Business 100 Most Influential Women in New York City. She was awarded “Woman of the Year” of the New York Executives in Real Estate (WX), and Real Estate New York and Real Estate Forum’s Women of Influence. She received Northwood University’s Distinguished Women’s Award in recognition of the enormous contribution she has made to communities, businesses, volunteer agencies, and public and private sector services worldwide. Ms. Stacom was honored with the Real Estate Board of New York’s highest achievement, the 2011 Most Ingenious Deal of the Year (First Place Henry Hart Rice Award) for the leasing of One World Trade Center. Ms. Stacom brings extensive knowledge of commercial real estate and finance to the Board.
 
16

 
DIRECTOR COMPENSATION
Only our non-employee (independent) directors receive compensation for service on the Board. Employee directors do not receive additional compensation for serving on the Board. Non-employee director compensation is approved by the Board, after considering a recommendation from the Compensation Committee. Mr. Kathwari, as Chief Executive Officer of the Company, is not compensated separately for his service as a director on the Board. For information on Mr. Kathwari’s compensation as our Chief Executive Officer, refer to the Summary Compensation Table. For fiscal 2021, the Board approved as compensation for our non-employee directors a combination of cash and option awards, as shown in the table below.
Annual Cash Retainer.   For fiscal 2021, each non-employee director received $60,000 per annum. Additional quarterly fees are paid to the chair of each of the committees as follows: Audit Committee $4,000; Compensation Committee $2,000; and Corporate Governance, Nominations and Sustainability Committee $2,000. The Lead Independent Director of the Board is paid an additional cash fee of $2,000 per quarter.
Equity Compensation.   Non-employee directors are eligible to receive equity compensation in amounts determined by the Compensation Committee, which generally would be paid in the form of stock options. As part of the Company’s action plan in response to the COVID-19 pandemic, in April 2020, based on the recommendation of the Compensation Committee, the Board approved a reduction in the non-employee director annual equity compensation to reduce the fiscal 2021 stock option grant by 20%. As such, in fiscal 2021, each director was awarded a stock option award with the number of options equal in value to $80,000 (as compared to $100,000 during fiscal 2020) based on the market price of the Company’s stock as of the date of grant. These stock options vest in three equal annual installments commencing on the first anniversary of the date of grant so long as the director continues to serve on our Board. All options granted to directors have an exercise price equal to the fair market value of our common stock on the date of grant and remain exercisable for a period of up to 10 years, subject to continuous service on our Board.
Meeting Fees.   If a standing committee of the Board holds more than four meetings (either in person or telephonically) on days when the full Board does not meet, members of that committee will be paid an additional $1,000 for each additional meeting beginning with the fifth such meeting. Directors serving on committees for part of a year receive a pro rata share of fees. There were no additional meeting fees paid to directors during fiscal 2021.
Name
Fees Earned or
Paid in Cash (1)
Option
Awards (2)(3)
Total
James B. Carlson (4)
$    68,000
$    19,707
$    87,707
John J. Dooner, Jr. (5)
$    68,000
$    19,707
$    87,707
Domenick J. Esposito (6)
$    82,000
$    19,707
$   101,707
Mary Garrett (7)
$    60,000
$    19,707
$    79,707
Dr. James W. Schmotter (8)
$    62,000
$    19,707
$    81,707
Tara I. Stacom (9)
$    60,000
$    19,707
$    79,707
(1)
Fees earned or paid in cash during fiscal 2021 include the annual cash retainer of  $60,000 plus additional compensation for a director’s role as a Committee Chair and/or as the Lead Independent Director, as noted below.
a.
Mr. Carlson: $8,000 as Chairperson of the Compensation Committee
b.
Mr. Dooner: $8,000 as Chairperson of the Corporate Governance, Nominations and Sustainability Committee
c.
Mr. Esposito: $16,000 as Chairperson of the Audit Committee and $6,000 as Lead Independent Director for the last three quarters of fiscal 2021
d.
Dr. Schmotter: $2,000 as Lead Independent Director during the first quarter of fiscal 2021
(2)
Each director was awarded 6,168 stock options on August 12, 2020 vesting in three equal annual installments commencing on the first anniversary of the date of grant.
(3)
The amounts shown for stock option awards represent the aggregate grant date fair values, computed in accordance with Accounting Standards Codification Topic 718. For financial statement reporting purposes these fair values are charged to expense over the vesting period of three years. The actual values realized, if any, will not be known until the vesting date and could differ significantly from the amounts disclosed in the table. Refer to note 17 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for valuation assumptions with respect to stock option grants.
(4)
Mr. Carlson held 29,397 stock options outstanding, of which 23,385 were vested or exercisable within 60 days of June 30, 2021.
(5)
Mr. Dooner held 38,328 stock options outstanding, of which 32,316 were vested or exercisable within 60 days of June 30, 2021.
(6)
Mr. Esposito held 25,738 stock options outstanding, of which 19,726 were vested or exercisable within 60 days of June 30, 2021.
(7)
Ms. Garrett held 22,257 stock options outstanding, of which 16,245 were vested or exercisable within 60 days of June 30, 2021.
(8)
Dr. Schmotter held 38,328 stock options outstanding, of which 32,316 were vested or exercisable within 60 days of June 30, 2021.
(9)
Ms. Stacom held 22,257 stock options outstanding, of which 16,245 were vested or exercisable within 60 days of June 30, 2021.
 
17

 
SECURITY OWNERSHIP
The following tables set forth, as of October 11, 2021, the record date for the Annual Meeting, information known to Ethan Allen with respect to beneficial ownership as defined by SEC rules of the Company’s common stock for (i) directors and executives officers, (a) each director and director nominee, (b) the Company’s Named Executive Officers as defined in the “Compensation Discussion and Analysis” and named in the table entitled “Summary Compensation Table,” and (c) all directors and executive officers as a group and (ii) each principal stockholder of more than 5% of Company common stock. The Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common Stock indicated as beneficially owned by them, except as otherwise noted. The address for each listed director and Named Executive Officers is Ethan Allen Interiors Inc., 25 Lake Avenue Ext., Danbury, CT 06811.
Security Ownership of Directors and Executive Officers
The following table sets forth, as of October 11, 2021, the record date for the Annual Meeting, the beneficial ownership of the Company’s common stock reported to Ethan Allen by each of the Company’s directors, director nominees and NEOs, and by all directors and executive officers as a group.
Name
Amount and
Nature of
Beneficial
Ownership (1)
Common Stock
Percentage
Ownership (1)
M. Farooq Kathwari
(2)
2,644,974 10.5%
John J. Dooner, Jr.
(3)
43,416 *
James B. Carlson
(4)
41,469 *
Dr. James W. Schmotter
(5)
35,016 *
Domenick J. Esposito
(6)
23,406 *
Tara I. Stacom
(7)
22,545 *
Mary Garrett
(8)
16,445 *
Corey Whitely
(9)
18,786 *
Daniel E. Grow
(10)
10,973 *
Eric D. Koster
(11)
6,828 *
Rodney A. Hutton
(12)
1,515 *
Clifford Thorn
(13)
1,374 *
Dr. John Clark
(14)
*
Cynthia Ekberg Tsai
(14)
*
David M. Sable
(14)
*
All Directors and Executive Officers as a Group (16 persons)
2,872,369 11.3%
*
Indicates beneficial ownership of less than 1% of shares of Company common stock
(1)
Information presented herein for each director, director nominee and NEO reflects beneficial share ownership and includes shares that can be acquired upon the exercise of stock options or the vesting of restricted stock units and performance stock units within 60 days of October 11, 2021.
(2)
Includes 2,009,269 shares owned directly by M. Farooq Kathwari, 501,140 shares owned indirectly, 8,565 shares held in the Ethan Allen Retirement Savings Plan and 126,000 stock units issued in connection with Mr. Kathwari’s 1997 employment agreement and for which payment has been deferred until termination of employment.
(3)
Includes 11,100 shares owned directly by John J. Dooner, Jr. and currently exercisable stock options to purchase 32,316 shares of common stock.
(4)
Includes 18,084 shares owned directly by James B. Carlson and currently exercisable stock options to purchase 23,385 shares of common stock.
(5)
Includes 2,700 shares owned directly by Dr. James W. Schmotter and currently exercisable stock options to purchase 32,316 shares of common stock.
(6)
Includes 3,680 shares owned directly by Domenick J. Esposito and currently exercisable stock options to purchase 19,726 shares of common stock.
(7)
Includes 6,300 shares owned directly by Tara I. Stacom and currently exercisable stock options to purchase 16,245 shares of common stock.
(8)
Includes 200 shares owned directly by Mary Garrett and currently exercisable stock options to purchase 16,245 shares of common stock.
(9)
Includes 18,786 shares owned directly by Corey Whitely.
(10)
Includes 2,472 shares owned directly by Daniel E. Grow and currently exercisable stock options to purchase 8,501 shares of common stock.
(11)
Includes 161 shares owned directly by Eric D. Koster and currently exercisable stock options to purchase 6,667 shares of common stock.
(12)
Includes 1,515 shares owned directly by Rodney A. Hutton.
(13)
Includes 1,374 shares owned directly by Clifford Thorn, determined as of the date of termination of employment.
(14)
New director nominee for the Annual Meeting, such that no shares of common stock are owned.
 
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Security Ownership of Principal Stockholders
The following table provides information about persons that have reported that they beneficially own or have voting power and/or dispositive power over, more than 5% of the Company’s common stock, as of October 11, 2021, the record date for the Annual Meeting.
Name of Beneficial Owner
Amount and
Nature of
Beneficial
Ownership
Common Stock
Percentage
Ownership
BlackRock, Inc.
(1)
3,893,469 15.4%
Dimensional Fund Advisors LP
(2)
2,056,493 8.1%
The Vanguard Group
(3)
1,404,386 5.6%
(1)
BlackRock, Inc. (“BlackRock”), a parent holding company, had sole voting power over 3,829,761 shares of common stock and sole dispositive power over 3,893,469 shares of common stock according to BlackRock’s Schedule 13G/A filed with the SEC on January 25, 2021. BlackRock’s address is 55 East 52nd Street, New York, NY 10055.
(2)
Dimensional Fund Advisors LP, (“Dimensional Funds”), an investment advisor, had sole voting power over 1,966,494 shares of common stock and sole dispositive power over 2,056,493 shares of common stock according to Dimensional Funds’ Schedule 13G/A filed with the SEC on February 12, 2021. Dimensional Funds’ address is 6300 Bee Cave Road, Building One, Austin, TX, 78746.
(3)
The Vanguard Group (“Vanguard”), an investment advisor, had shared voting power over 26,632 shares of common stock, sole dispositive power over 1,359,130 shares of common stock and shared dispositive power over 45,256 shares of common stock according to Vanguard’s Schedule 13G/A filed with the SEC on February 10, 2021. Vanguard’s address is 100 Vanguard Blvd., Malvern, PA 19355.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own more than 10% of a registered class of the Company’s equity securities to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Based solely on a review of reports filed with the SEC and written representations from certain reporting persons that no other reports were required, the Company believes that, during fiscal 2021, its directors, officers and 10% stockholders complied with all applicable Section 16(a) filing requirements applicable to such individuals, other than one late Form 4 filing for Eric D. Koster with respect to his disposition of 89 shares of common stock on March 11, 2021, withheld at vesting to cover required tax withholding, which was timely filed on a Form 5 on July 2, 2021.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company’s Code of Conduct, which applies to all employees, executive officers, and directors, requires that any potential conflict of interest be either avoided or fully disclosed. The Company defines “related party” transaction as any transaction or series of related transactions in excess of $120,000 in which the Company is a party and in which a “related person” had, has, or will have direct or indirect material interest. Each year, the Company requires its directors and executive officers to disclose any transactions between them or their immediate family members and the Company. The Audit Committee reviews any reported transactions related to directors or executive officers and takes appropriate action. A related party transaction is approved or ratified only if the Audit Committee determines that it is not inconsistent with the best interests of the Company and its stockholders. There were no related person transactions requiring approval or ratification during fiscal 2021.
 
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PROPOSAL 2:   TO APPROVE, ON AN ADVISORY BASIS, NAMED EXECUTIVE OFFICER COMPENSATION
Our executive compensation program is designed to facilitate long-term stockholder value creation. Our focus on pay-for-performance and on corporate governance promotes alignment with the interests of the Company’s stockholders.
The Company seeks stockholder approval, on a non-binding basis, of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement in the Compensation Discussion and Analysis, the Compensation Tables and related narrative pursuant to Section 14A of the Exchange Act, commonly known as a “say-on-pay” vote. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensation policies and practices described in this Proxy Statement.
At the Company’s 2020 annual meeting of stockholders, our stockholders were asked to approve the Company’s executive compensation program. A substantial majority (97%) of the votes on the “say-on-pay” proposal present and entitled to vote at the meeting were voted in favor of the proposal, which demonstrates stockholders’ strong support of our executive compensation practices and pay for performance alignment. The Compensation Committee believes that these results reaffirm our stockholders’ support of the Company’s approach to executive compensation. The Compensation Committee strives to continue to ensure that the design of the Company’s executive compensation program is focused on long-term stockholder value creation (with a meaningful and growing portion of the compensation paid to our Named Executive Officers being at risk, performance‐based, tied to performance metrics that include good stewardship of the Company’s resources, and not guaranteed), emphasizes pay for performance and does not encourage the taking of short-term risks at the expense of long-term results. The Compensation Committee intends to continue to use the “say-on-pay” vote as a guidepost for stockholder sentiment and to consider stockholder feedback in making compensation decisions. See “Compensation Discussion and Analysis” for additional discussion about the Company’s approach to executive compensation and the enhancements made in recent years to strengthen the link between pay and performance, further link compensation to our business and talent strategies and clearly detail the rationale for pay decisions.
For the reasons outlined above, we believe that our executive compensation program is well designed, appropriately aligns executive pay with Company performance and incentivizes desirable behavior. Accordingly, we are asking our stockholders to endorse our executive compensation program by voting on the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the Compensation Tables and the related narrative.”
This proposal allows our stockholders to express their opinions regarding the decisions of the Compensation Committee on the annual compensation program for the Named Executive Officers. In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and Compensation Table sections. Because your vote is advisory, it will not be binding upon the Board. However, the Board values stockholders’ opinions and the Compensation Committee will consider the outcome of the advisory vote when considering future executive compensation decisions. Further, this advisory vote will serve as an additional tool to guide the Board and the Compensation Committee in continuing to improve the alignment of the Company’s executive compensation program with the interests of Ethan Allen and its stockholders and is consistent with our commitment to high standards of corporate governance and stockholder engagement.
The Board unanimously recommends that you vote FOR the approval, on an
advisory basis, of the compensation of the Company’s Named Executive Officers.
 
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COMPENSATION DISCUSSION AND ANALYSIS
Overview
The purpose of this Compensation Discussion and Analysis (“CD&A”) is to provide material information about the Company’s executive compensation objectives and policies for its NEOs and to put into perspective the tabular disclosures and related narratives. The non-binding advisory proposal regarding compensation of the NEOs submitted to stockholders at our 2020 Annual Meeting was approved by over 97% of the votes present and entitled to vote. We regularly engage in outreach efforts with our stockholders relating to a variety of topics and involve our Compensation Committee Chair or one or more independent directors in these conversations as appropriate. In 2018, our Compensation Committee Chair, along with our Executive Vice President, Administration, discussed our approach to executive compensation practices with a number of our largest and leading institutional investors, and based on those discussions and insights from other advisors and experts, we revised our approach, including the components and metrics, relating to our short-term and long-term incentive compensation for our NEOs. We use the information gathered through these outreach efforts to help inform our compensation decisions and look forward to continued dialogue on compensation matters and other issues relevant to our business.
This CD&A describes the general objectives, principles, and philosophy of our executive compensation program, focused primarily on the compensation for our NEOs, who for fiscal 2021 are as follows:

M. Farooq Kathwari, Chairman of the Board, President and Chief Executive Officer (our Principal Executive Officer)

Corey Whitely, Executive Vice President, Administration and Chief Financial Officer (our Principal Financial Officer)

Rodney A. Hutton, Chief Marketing Officer

Daniel E. Grow, Senior Vice President, Business Development

Eric D. Koster, Vice President, General Counsel and Secretary
Our NEOs for fiscal 2021 also include Clifford Thorn, who previously served as our Vice President, Upholstery Manufacturing, and who entered into a separation of employment and general release agreement, pursuant to which he remained an employee until March 19, 2021. This CD&A focuses on the compensation earned by our NEOs listed above, but also describes the compensation earned by Mr. Thorn where appropriate.
Fiscal Year 2021 Performance at a Glance
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Despite many challenges due to the COVID-19 pandemic, the Company performed well during fiscal 2021 as we were well positioned to capitalize on the increased consumer focus on the home, which created strong demand for our product offerings and interior design services. We recently passed the anniversary of the reopening of our design centers and manufacturing facilities and through the collective efforts of our associates the Company was able to report strong results. Many of the changes we implemented a year ago, such as the previously announced manufacturing and optimization initiatives, certain reductions in employee headcount, increased use and leverage of technology, streamlined certain workflows and the elimination of non-essential spending, have allowed us to control expenses and improve our operating leverage. Our strong cash position provided us flexibility to pay down 100% of our outstanding debt as well as take advantage of opportunities and advance our strategic goals. Additionally, we strengthened our business by expanding production capacity, enhanced our use of technology and brought back many associates to further our talent. For the full fiscal 2021 year, we delivered consolidated net sales growth of 16.2%, gross margin of 57.4%, operating margin of 11.3%, diluted EPS of $2.37, return on equity of 17.7%, cash from operations of $129.9 million and returned $43.3 million to stockholders through cash dividends. Both our wholesale and retail segments experienced record demand, with written orders increasing 31.7% at wholesale and 47.7% at retail. This demand has led to record order backlog as of June 30, 2021 as written orders outpaced net sales. We expect to service and reduce our order backlog during fiscal 2022. Our merchandising and supply-chain teams effectively managed raw material shortages, price increases, manufacturing delays and shipping container cost increases as we were able to achieve a gross
 
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margin of 57.4% for fiscal 2021 despite these challenges. As of June 30, 2021, our employee count was 4,188, up 24.3% in the past 12 months, as we ramped back up staffing to strengthen our manufacturing and retail teams further. Our Board reinstated our regular quarterly cash dividend in August 2020 and subsequently increased the regular quarterly cash dividend by 19% in November 2020. We also paid a special cash dividend of $0.75 per share in May 2021. Other notable events during fiscal 2021 included the opening of several new design centers including Oxnard, California; Towson, Maryland; Alpharetta, Georgia; and Portland, Oregon as well as holding our first-ever virtual celebration to congratulate associates for their exceptional interior design work.
Demand trends remain strong across the business with backlog at record levels. As we head into the fiscal 2022 year, we are focused on continuing to increase capacity and deliver product while making investments in technology solutions across the Company, all to enhance the customer experience, drive future growth and emerge stronger in a post-pandemic environment.
Selected Financial Data and Key Metrics
STATEMENT OF OPERATIONS DATA
Fiscal Year Ended June 30,
2021
2020
2019
Net sales
$   685,169
$   589,837
$   746,684
Adjusted gross margin (1)
57.5%
55.7%
55.1%
Adjusted operating income (1)
$    80,335
$    17,072
$    55,051
Adjusted net income (1)
$    60,059
$    13,512
$    41,632
Adjusted diluted EPS (1)
$      2.37
$      0.52
$      1.56
KEY METRICS
Adjusted return on equity (1)
17.7%
3.9%
11.1%
Cash flows from operating activities
$   129,912
$    52,696
$    55,247
Cash and cash equivalents
 $   104,596
$    72,276
$    20,824
Current ratio
1.32
1.65
1.76
Long-term debt to equity ratio
0.0%
15.2%
0.1%
Cash dividends paid
$    43,290
$    21,469
$    46,990
Dividend yield
3.6%
7.1%
3.6%
(1)
See Appendix A for the reconciliation of U.S. GAAP to adjusted key financial measures.
Impact of COVID-19
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid ongoing spread of COVID-19 within the United States and around the world, federal, state, and local governments imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the virus. Such measures included quarantines, shelter-in-place orders and directives, restrictions on travel, and closures of non-essential businesses, which included many sectors within retail commerce.
In response to the COVID-19 pandemic and for the protection of our employees and customers, we implemented, and continue to monitor, certain business continuity plans to ensure the ongoing availability of our products and services, while prioritizing health and safety measures, including enhanced cleaning and hygiene protocols as recommended by the Centers for Disease Control and Prevention (the “CDC”). Beginning in our third quarter of fiscal 2020, we took the following actions in response to the COVID-19 pandemic:
Fiscal 2020

Temporarily closed our Company-operated retail design centers and manufacturing facilities

Borrowed an aggregate principal amount of $100 million under our existing revolving credit facility to increase our cash position as a precautionary measure and to maximize financial flexibility

Announced our comprehensive action plan, which included both enhanced health and safety protocols with cost-saving initiatives; measures taken included, the furlough of 70% of our global workforce, the decision by our CEO to temporarily forego his salary, a temporary reduction in salaries of up to 40% for all senior management and up to 20% for other salaried employees, a temporary reduction of 50% in the cash compensation of the Company’s directors, the elimination of all non-essential operating expenses, a delay of
 
22

 
capital expenditures, negotiated alternative terms for lease payments, reduced inventory purchases, temporarily eliminated our regular quarterly dividend and temporarily suspended purchases under our existing share repurchase program

In May 2020, we began reopening design centers in a number of U.S. states as well as resumed production in our North American manufacturing plants in a limited capacity

Repaid $50 million of our outstanding borrowings under our existing credit facility using available cash on hand in June 2020
Fiscal 2021

All of the Company’s key financial performance metrics such as consolidated net sales, gross margin, operating expenses, and cash on hand improved during fiscal 2021

All of our Company-operated retail design centers and manufacturing facilities fully reopened

Our Board of Directors reinstated the regular quarterly dividend in August 2020 and declared a regular quarterly cash dividend of $0.21 per share, paid in October 2020

Repaid the remaining $50 million of our outstanding borrowings leaving no remaining debt
While recognizing the strong and decisive performance of the executives in leading the Company through this period, and consistent with our pay for performance philosophy, there were no adjustments made, including as a result of the COVID-19 pandemic and its disruptive impact on our business results, our retail peers, and retailers generally, to the fiscal 2021 performance targets. There were also no adjustments to the fiscal 2019, 2020 or 2021 equity incentive grants for fiscal 2021 performance period.
We continue to frequently monitor and re-evaluate our COVID-19 action plan based on guidance from the CDC, regulators and other health and safety organizations. We believe that we have a strong balance sheet with $104.6 million of cash and no bank debt as of June 30, 2021, which we believe will provide sufficient liquidity to continue business operations in the long-term. Although we continue to actively manage the impact of COVID-19 and the prospect of continuing or future outbreaks, we are unable to predict the impact that the COVID-19 pandemic will have on our financial operations in the near- and long-term. We also continue to actively manage our global supply chain and manufacturing operations, which may continue to be adversely impacted with respect to availability and pricing based on uncontrollable factors.
Compensation Practices
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Compensation Policies and Risk
Our Compensation Committee regularly conducts risk assessments to determine the extent, if any, to which our compensation practices and programs may create incentives for excessive risk taking. Based on these assessments, we concluded that our policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
As part of the risk assessments, the Compensation Committee reviewed the cash and equity incentive programs for senior executives and concluded that certain aspects of the programs reduce the likelihood of excessive risk taking. These aspects include the use of long-term equity awards to create incentives for senior executives to work for long-term growth of the Company, including claw-back provisions limiting the incentive to take excessive risk for short-term gains, imposing caps on cash bonuses, requiring compliance with our Code of Conduct and giving the Compensation Committee the power to reduce payouts under our compensation plans. More specifically, this conclusion was based on the following considerations:
Pay Mix
Compensation mix of base salary and short-term and long-term incentives provides compensation opportunities measured by a variety of time horizons to balance our near-term and long-term strategic goals.
Performance Metrics
A variety of distinct performance metrics are used in both the short-term and long-term incentive plans. This multiple-metric approach to performance metrics encourages focus on sustained and holistic overall Company performance.
Performance Goals
Goals are approved by our Compensation Committee and consider our historical performance, current strategic initiatives, and the expected macroeconomic environment. In addition, short-term and long-term incentive compensation programs are designed with payout ranges above and below target levels and within a range that support our pay for performance philosophy.
Equity Incentives
Equity incentive programs and stock ownership guidelines are designed to align management and stockholder interests by providing vehicles for executive officers to accumulate and maintain an ownership position in the Company.
Risk Mitigation Policies
We incorporate several risk mitigation policies into our officer compensation program, including:

The Compensation Committee’s ability to use “negative discretion” to determine appropriate payouts under formula-based plans.

A robust recoupment (or “claw-back”) policy covering each of our executive officers. The policy provides that if the Company is required to restate its financial results due to material noncompliance with financial reporting requirements under the securities laws, the Compensation Committee may seek reimbursement of any cash- or equity-based bonus/other incentive compensation (including vested and unvested equity) paid or awarded to the executive officer or effect cancellation of previously-granted equity awards to the extent the compensation was based on erroneous financial data and exceeded what would have been paid to the executive officer under the restatement

Stock ownership guidelines for executive officers and directors that are intended to align further the interest of our named executive officers with those of our stockholders.
Anti-Hedging and Anti-Pledging Policies
Under our insider trading policy, directors and executive officers are restricted from engaging in short sales, equity derivatives, and hedging their Company stock, whether or not involving trading on inside information. In addition, the Company prohibits employees and directors from purchasing Company securities on margin or holding Company securities in a margin account. We believe these policies further align insiders’ interests with those of our stockholders.
Process for Determining Executive Compensation
The Compensation Committee is responsible for determining the composition and value of the compensation for all of our NEOs. Our Chief Executive Officer (“CEO”) and our Executive Vice President, Administration, who is responsible for the
 
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Company’s Human Resources functions, provide input on program design and information on the Company’s and the furniture industry’s performance. The Compensation Committee also considers stockholder viewpoints on compensation.
The Compensation Committee may not delegate its primary responsibility of overseeing executive officer compensation, but it may delegate to management the administrative aspects of our compensation programs that do not involve the setting of compensation levels for executive officers.
All equity awards to executives, including stock options, PSUs, restricted stock, and restricted stock units, are approved by the Compensation Committee.
The Compensation Committee maintains sole authority to retain, terminate, approve fees and other terms of engagement of its compensation consultant and to obtain advice and assistance from internal or external legal, accounting, or other advisors.
The Compensation Committee Chair, together with the Executive Vice President, Administration, periodically engages in dialogue with a number of the Company’s larger institutional investors regarding the Company’s approach to executive compensation. The Compensation Committee also reviews executive compensation and incentive structures used by the peer companies. In fiscal 2021, the Compensation Committee decided to continue to use operating income, revenue growth, return on equity and total shareholder returns (“TSR”) as performance metrics used in assessing executive compensation.
Executive Compensation Program Changes for Fiscal 2021—Highlights
The COVID-19 pandemic has had and continues to have a significant impact on the global economy, the industry, and the Company. The following changes were made during fiscal 2021 in recognition of both the uncertain economic conditions and the negative impact COVID-19 has had on each NEO’s overall compensation, who the Compensation Committee believes executed strongly to preserve cash and liquidity and position the Company well upon global economic recovery.

The Compensation Committee restored the temporary salary reductions as of July 1, 2020 and maintained salaries for the NEOs at the same level for fiscal 2021 as in fiscal 2020. There was no recoupment of the temporary salary reductions.
In restoring the temporary salary reductions, the Compensation Committee sought to incentivize appropriately and retain the Company’s leadership as they continue to manage the Company during an unprecedented period of economic challenge and uncertainty.
Peer Group
The Compensation Committee, in setting individual NEO pay levels and opportunities, utilizes a peer group of companies that in its judgment best represents the unique nature of the Company’s vertical business model, which integrates manufacturing, merchandising, and retailing.
In developing the peer group, the population of U.S. based, publicly traded companies that were considered by the Compensation Committee included:

furniture manufacturers and/or home furnishing retailers;

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

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

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

companies that might be considered competitors for Company executives and equivalent talent.
In addition to industry, branding and supply chain considerations, the Compensation Committee filtered companies by revenues, number of employees and market capitalization. Companies with higher revenues are included in the peer group since the Company competes for executives with such other companies that are in the home furnishings industry. Based on its annual review of the peer group, the Compensation Committee removed four peers, two of which filed for bankruptcy, and added five peers for fiscal 2021 to ensure the peer group represents a similar range of the characteristics of the business, consumer innovation, use of technology, good corporate governance practices and comparability in size to the Company.
The peer group used to evaluate fiscal 2021 NEO compensation is composed of the following 16 companies:
Acco Brands Corporation Flexsteel Industries, Inc. HNI Corporation Kirkland’s, Inc.
Apogee Enterprises, Inc. Green Brick Partners, Inc.
Hooker Furniture Corporation
La-Z-Boy Incorporated
Bassett Furniture Industries, Inc. Haverty Furniture Companies, Inc. Interface, Inc. Sleep Number Corporation
Cavco Industries, Inc. Herman Miller, Inc. Kimball International, Inc. Steelcase Inc.
 
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We believe that it is appropriate to offer industry-competitive cash and equity compensation packages to all of our NEOs in order to attract and retain top executive talent. The peer group allows us to monitor the compensation practices of our primary competitors and similarly situated companies for executive talent. However, we do not target any specific pay percentile of the peer group for our executive officers. Instead, we use this information to provide a general overview of market practices and to ensure that we make informed decisions regarding our executive pay programs.
Elements of Fiscal 2021 Executive Compensation
Our compensation programs are structured to align the interests of our executive officers with the interests of our stockholders and include the following elements for fiscal 2021:
Element Key Characteristics
Link to Shareholder
Value
How we Determine Amount
Key Decisions
Fixed
Base Salary
Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate.
A means to attract and retain talented executives capable of driving superior performance.
Consider individual contributions to business outcomes, the scope and complexity of each role, future potential, market data, and internal pay equity.
There were no changes to base salaries during fiscal 2021 as the Compensation Committee believes each NEO’s current base salary reflects market competitive rates.
Service-Based Restricted Stock Unit Awards
Fixed compensation component payable in stock. Reviewed annually and granted when appropriate.
A means to retain talented executives capable of driving superior performance.
Consider individual contributions to business outcomes, the scope and complexity of each role, future potential, market data, and internal pay equity.
The Compensation Committee awarded service-based restricted stock that vests ratably over two years to each NEO during fiscal 2021. Mr. Koster was previously awarded restricted stock in fiscal 2020, thus did not receive another grant.
 
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Performance-
Based
Annual Incentive Program
Variable compensation component payable in cash based on performance against annually established financial goals.
Incentive targets are tied to achievement of key annual financial measures. The financial metrics used to determine the payout of the fiscal 2021 awards were Adjusted Operating Income and Revenue growth.
Incentive award levels based on individual contributions to business outcomes, potential future contributions, historical incentive amounts, retention considerations and market data.
Total incentive awards for fiscal 2021 were earned at 109% of target. Mr. Koster did not participate in the annual non-equity incentive program, but rather received a discretionary bonus based on his individual performance results.
Performance-Based Unit Awards (PSUs)
PSUs cliff vest after a three-year performance period and payouts are based on Company performance against pre-established financial goals and other performance metrics.
PSUs recognize our executive officers for achieving superior long-term relative performance. Financial metrics for the fiscal 2021 award were based on Sales growth and Return on Equity. An additional TSR performance metric was also included.
Grant award levels based on individual contributions to business outcomes, potential future contributions, historical grant amounts, retention considerations and market data. Actual award payout is based on performance against pre-established goals over a three-year performance period.
The Compensation Committee approved PSU grants to select NEOs during fiscal 2021 with three performance metrics that were based on Sales Growth, Return on Equity and a TSR performance metric. Approximately 46% of the fiscal 2019 PSUs granted were earned during fiscal 2021.
Fiscal 2021 Target Total Compensation Mix
The total target compensation mix for NEOs, as established at the start of fiscal 2021, was based upon base salary, achievement of target for the annual incentive program, long-term service-based stock awards and achievement of target for the long-term performance-based stock unit incentive awards. The CEO’s total compensation mix was primarily performance-based to drive pay-for-performance and align stockholder interests with those of executives.
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Base Salary
We set base salaries for our NEOs based on individual contributions to business outcomes, the scope and complexity of each role, competencies, experience, leadership, performance, future potential, market data, and internal pay equity.
In July 2020, the Compensation Committee completed the annual review of the salary levels for each of the NEOs. As part of the salary review process, the Compensation Committee reviewed and considered the performance of each NEO, relevant market data, the comparison of compensation among various levels of management, and the Company’s overall performance. As a result of this review, the Compensation Committee determined no changes were needed to existing base salaries during fiscal 2021 as they represent market competitive rates.
Name
Fiscal 2020
Salary ($) (1)
Fiscal 2021
Salary ($) (2)
% Chg
M. Farooq Kathwari
$1,150,000
$1,150,000
0%
Corey Whitely
$  500,000
$  500,000
0%
Rodney A. Hutton
$  375,000
$  375,000
0%
Daniel M. Grow
$  350,000
$  350,000
0%
Eric D. Koster
$  320,000
$  320,000
0%
(1)
Due to the COVID-19 pandemic, the Compensation Committee approved temporary base salary reductions for each of the NEOs, effective March 29, 2020. These temporary base salary reductions remained in effect until June 30, 2020 and are reflected in the fiscal 2020 base salary amounts shown in the Summary Compensation Table. As a result, the amounts shown above for fiscal 2020 are higher than those shown in the Summary Compensation Table for that period. All salary reductions were lifted effective July 1, 2020.
(2)
Mr. Thorn’s base salary at the time of his termination on March 19, 2021 was $310,000.
Annual Non-Equity Incentive Compensation
NEOs are eligible to earn cash awards under our annual incentive compensation program, which is designed to motivate and reward executives for performance on key annual measures. The annual incentive compensation program is based exclusively on attainment of financial metrics, measured on the Company’s overall consolidated financial performance, that align our annual incentives with our strategy of driving growth, with an emphasis on profitability.
For fiscal 2021, the Compensation Committee evaluated two performance metrics in its annual incentive plan performance review for all NEOs, which aligns performance metrics used to assess non-equity incentive compensation payout eligibility with our fiscal 2021 growth strategy, focusing on consolidated net sales (weighted 60% of target incentive) and Adjusted Operating Income (weighted 40% of target incentive). Target, maximum and threshold awards, specified as a percentage of base salary, vary among various levels of management. The NEOs have the opportunity to earn awards between 50% of their target awards if we meet minimum threshold performance requirements and a maximum of 133% to 227% of their target incentive opportunity, based on performance.
The Compensation Committee established targets of 4% Consolidated Net Sales growth and 9% Adjusted Operating Income growth for fiscal 2021 compared to fiscal 2020, and established threshold and maximum performance levels as follows:
Fiscal 2021 Annual Incentive Goals and Results
($ in millions)
Performance Level
Consolidated
Net Sales $
Percent of
Target
Adjusted
Operating
Income $ (1)
Percent of
Target
Maximum
$631.1
103%
$22.0
118%
Target
$613.4
100%
$18.6
100%
Threshold
$589.8
96%
$17.1
92%
Actual
$685.2
112%
$80.3
432%
Individual Metric Payout
103%
118%
Individual Metric Weight
60%
40%
Overall Payout (as percent of Target)
109%
(1)
See Appendix A for a non-GAAP reconciliation showing how adjusted operating income is calculated from our financial statements.
 
28

 
Fiscal 2021 Annual Incentive Target, Achievement and Actual Payout
Name (1)
Fiscal 2021
Target Incentive
($)
Fiscal 2021
Target Incentive
(% of base
salary)
Overall
Performance
Level Achieved
(% of target
performance)
Actual
Fiscal 2021
Incentive Payout
($)
Actual Fiscal
2021
Incentive Payout
(% of base
salary)
M. Farooq Kathwari
$750,000
65%
109%
$1,700,000
148%
Corey Whitely
$125,000
25%
109%
$  166,260
33%
Rodney A. Hutton
$  75,000
20%
109%
$   99,750
27%
Daniel M. Grow (2)
$  52,500
15%
109%
$   20,000
6%
(1)
Messrs. Koster and Thorn did not participate in the fiscal 2021 non-equity incentive compensation plan disclosed above.
(2)
The Compensation Committee applied its discretion in determining Mr. Grow’s fiscal 2021 annual non-equity incentive compensation payout, adjusting from the formula-based $52,500 to $20,000 due to a change in the scope of Mr. Grow’s responsibilities.
Historical Annual Incentive Payout
Fiscal Year
Annual
Incentive
Payout (as
Percent
of Target)
2019
41%
2020
0%
2021
109%
Average Payout
50%
Discretionary Annual Bonus
The Company maintains a discretionary bonus program for executives who are not included in our annual incentive compensation program. For purposes of the discretionary bonus, individual performance is assessed based upon the executive’s performance relative to his or her responsibilities, goals, and objectives for each executive, which may or may not include financial metrics. Each executive develops annual business objectives for their respective areas, which are approved by the CEO and are used for this assessment. Individual performance is additionally measured by how the executive’s actions conform with and exemplify the Company’s ten “Leadership Principles”. For each executive, the executive’s impact upon initiatives of their division, department function or organization is also considered, as well as his impact on the development of their associates.
For fiscal 2021, the CEO recommended and the Compensation Committee approved a discretionary bonus to Mr. Koster of $50,000, equivalent to 16% of his base salary, as he did not participate in the annual non-equity incentive compensation plan. No discretionary bonus was provided to Mr. Thorn during fiscal 2021.
Long-term Incentive Compensation
To align our executive officers’ pay outcomes with long-term performance and encourage long-term strategic thinking, our annual long-term incentive grants typically feature financial-based performance metrics. The long-term incentive award provisions of our Stock Incentive Plan provide for equity-based compensation including restricted stock, restricted stock units, stock options, or other forms of equity-based compensation, which may vest based on service or performance or a combination thereof.
The Compensation Committee establishes for the NEOs, other than the CEO, the target, maximum and threshold performance-based awards as a percentage of base salary on the grant date, which percentages may vary among the various levels of management. The target, maximum and threshold awards are specified as a fixed number of shares for the CEO. Our CEO has limited discretion during the year to approve additional equity-based grants to employees other than the NEOs.
For fiscal 2021, our NEO long-term incentive compensation program reflected the grant of performance-based stock unit awards containing three performance metrics that closely align with our growth strategy, focusing on consolidated net sales, return on equity and the three-year TSR relative to the performance of the other constituents of the S&P Retail Select
 
29

 
Industry Index. The Compensation Committee selected consolidated net sales as a broad indicator of attaining strategic objectives, return on equity as a fundamental measure of the Company’s effectiveness at turning the net profits and cash put into the business into greater gains and growth for the Company and investors, and TSR to add a relative measure of performance in comparison to market peers. The vesting period for performance-based equity compensation awards was kept at a three-year cliff vesting period, similar to the prior year. The weighting of the three performance metrics was established as follows:
Fiscal 2021 Long-term Incentive Performance Metrics
Payout Metric (Total Weight)
Fiscal 2021
Weight
(50%)
Fiscal 2022
Weight
(30%)
Fiscal 2023
Weight
(20%)
Sales Growth (40%)
20%
12%
8%
Return on Equity (40%)
20%
12%
8%
Three-year Total Shareholder Return (20%)
20%
The Compensation Committee awarded the fiscal 2021 performance-based stock unit grants to selected NEOs as follows:
Name (1)
Threshold
Target
Maximum
M. Farooq Kathwari
32,500
65,000
81,250
Corey Whitely
7,146
14,292
17,865
Rodney A. Hutton
4,288
8,576
10,720
Daniel M. Grow
3,001
6,002
7,503
(1)
Messrs. Koster and Thorn did not participate in the fiscal 2021 long-term incentive compensation plan disclosed above.
Results of 2019-2021, 2020-2022 and 2021-2023 Long-term Incentive Awards Granted
Fiscal Year 2019-2021 Performance Period
Target Goals
Results
Payout as % of Target
Sales
Return on
Equity
Sales
Return on
Equity
Sales
Return on
Equity
(in millions)
(in millions)
FY 2019
$797.5
10.3%
$746.7
11.1%
0%
125%
FY 2020
$829.4
11.1%
$589.8
3.9%
0%
0%
FY 2021
$862.5
12.0%
$685.2
17.7%
0%
125%
Following the end of the third performance year, approximately 46% of the target number of fiscal 2019 performance-based stock units were earned by the NEOs as noted below.
Name (1)
Target
Actual Vested (2)
% Vested
M. Farooq Kathwari
65,000
29,798
46%
Corey Whitely
6,722
3,082
46%
Daniel M. Grow
4,894
2,244
46%
(1)
Messrs. Hutton, Koster and Thorn did not participate in the long-term incentive compensation plan during fiscal 2019, thus were excluded from the table above.
(2)
The vested amounts noted above include fiscal 2019 market-based awards that were earned. Based upon the Company’s relative TSR performance, which was measured over the three-year period (July 1, 2018 through June 30, 2021), it was determined that the Company’s TSR percentile ranking was in the 36th percentile, resulting in a payout of 54% of the target number of market-based awards granted in fiscal 2019.
 
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Fiscal Year 2020-2022 Performance Period
Target Goals
Results
Payout as % of Target
Sales
Return on
Equity
Sales
Return on
Equity
Sales
Return on
Equity
(in millions)
(in millions)
FY 2020
$776.6
11.7%
$589.8
3.9%
0%
0%
FY 2021
$807.6
12.3%
$685.2
17.7%
0%
125%
FY 2022
$839.9
12.9%
n/a
There has been no payout with respect to the performance-based stock unit awards granted in fiscal 2020 as the third-year performance measurement period has not yet lapsed. The results for the relative TSR performance metric, which is measured over the entire three-year period, will be determined following the conclusion of the third year of the 2020-2022 performance cycle.
Fiscal Year 2021-2023 Performance Period
Target Goals
Results
Payout as % of Target
Sales
Return on
Equity
Sales
Return on
Equity
Sales
Return on
Equity
(in millions)
(in millions)
FY 2021
$613.4
4.1%
$685.2
17.7%
125%
125%
FY 2022
$638.0
4.3%
n/a
FY 2023
$663.5
4.5%
n/a
There has been no payout with respect to the performance-based stock unit awards granted in fiscal 2021 as the second- and third-year performance measurement periods have not yet lapsed. The results for the relative TSR performance metric, which is measured over the entire three-year period, will be determined following the conclusion of the third year of the 2021-2023 performance cycle.
Restricted Stock Unit Awards for Fiscal 2021 (service-based)
The NEOs and other executives are eligible to receive grants of service-based restricted stock unit awards. These restricted stock units vest according to time-based criteria only. Any restricted stock units not fully vested on the date the employee separates are subject to forfeiture. For fiscal 2021, the Compensation Committee awarded selected NEOs service-based restricted stock grants that vest ratably over two years. The Compensation Committee believes having a greater portion of total compensation tied to long-term equity-based compensation better aligns the executive’s compensation with meeting the long-term goals of the Company and its stockholders.
Name (1)
$ Value
# of Units
M. Farooq Kathwari
$239,500
25,000
Corey Whitely
$ 57,480
6,000
Rodney A. Hutton
$ 28,740
3,000
Daniel M. Grow
$ 19,160
2,000
(1)
Messrs. Koster and Thorn did not receive a grant of service-based restricted stock during fiscal 2021.
The restricted stock units were granted on August 12, 2020 and vest 50% annually on the anniversary date of the grant and become fully vested after two years.
Stock Option Awards for Fiscal 2021
The NEOs and other executives are eligible to receive annual grants of stock options. The options have an exercise price of the closing price of our stock on the date of grant, vesting according to both the performance based and time-based criteria, and a ten-year term. Any stock options not fully vested on the date the employee separates are subject to forfeiture. The Compensation Committee did not approve any grants of stock options to the NEOs in fiscal 2021.
Change of Control Severance Plan for Executives
The change in control plan for NEOs, other than the CEO, was adopted to mitigate the concern that, in the event the Company is considering a change in control transaction, the employees involved in considering the transaction might otherwise
 
31

 
be motivated to act in their own interests rather than the interests of the stockholders. Thus, the change in control provisions are designed so that employees are neither harmed nor given a windfall in the event of a change in control.
The Company’s plans generally provide that a change in control may occur upon (i) any liquidation or the sale of substantially all of the assets of the Company and Ethan Allen Global, Inc. taken as a whole, or (ii) any merger, or (iii) any person becoming a beneficial owner of more than 50% of the then outstanding voting stock of the Company or Ethan Allen Global, Inc.; or (iv) the Company’s incumbent directors cease to constitute at least a majority of the Board of the Company, except in connection with the election or nomination of directors approved by a vote of at least a majority of the directors then comprising the incumbent board of directors of the Company.
For any benefits to be earned, a change in control must occur and the executive’s employment must be terminated within two years following the change in control, either by the Company without cause or the executive for good reason (often called a “double trigger”). The plan does not provide tax gross ups. Payments and benefits to the executive will be reduced to the extent necessary to result in the executive’s retaining a larger after-tax amount, considering the income, excise and other taxes imposed on the payments and benefits. Benefits provided under the program include (i) a lump sum cash payment equal to one times the sum of the executive’s base salary and the average of the prior three years’ annual Incentive Bonus and (ii) a lump sum cash payment equal to the pro-rated portion of the executive’s average of the prior three years’ annual Incentive Bonus for the year of termination. The Change in Control Severance Plan includes non-solicitation, non-disparagement and confidentiality provisions and waivers of customary claims.
Ethan Allen Retirement Savings Plan
The Company maintains the Ethan Allen Retirement Savings Plan (the “Retirement Plan”). The Retirement Plan covers all employees, including the NEOs, who have completed at least three months of service. There is no enhanced benefit for executives. The 401(k) portion of the Retirement Plan allows participants to defer up to 100% of their compensation, subject to certain statutory limitations. In fiscal 2021, the Company made matching contributions with a maximum contribution of $1,300 per participant. Matching contributions were made dollar for dollar on the first $500 of a participant’s before tax contribution and $0.50 on the next $1,600 of a participant’s before tax contributions. Participant contributions and employer matching contributions are immediately and fully vested. The Retirement Plan also allows for a discretionary profit-sharing contribution made by the Company to be distributed to eligible participants. The Company made a $495,000 profit sharing contribution to the Retirement Plan during fiscal 2021.
Executive Perquisites and Other Personal Benefits
We offer a very limited number of perquisites and other personal benefits to our NEOs. The Compensation Committee believes that these perquisites are reasonable and consistent with prevailing market practice and the Company’s overall compensation program. Perquisites are not a material part of our compensation program. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to our NEOs. In fiscal 2021, with the exception of Mr. Kathwari, the NEOs did not receive any perquisites. Mr. Kathwari received the use of a Company car (including driver, gas, registration, title, insurance, and maintenance) and reimbursement of life insurance premiums up to $50,000.
Employment Agreements
The Company generally does not enter into employment agreements and has no employment agreements in place with the exception of the employment agreement with Mr. Kathwari, the Chief Executive Officer. The Compensation Committee in 2015 initiated, negotiated and, on October 1, 2015, effective July 1, 2015, entered into the 2015 Employment Agreement, of which its incentive compensation components were subsequently approved by stockholders at our 2015 Annual Meeting of Stockholders.
Pursuant to the 2015 Employment Agreement, Mr. Kathwari is entitled to a base salary of $1,150,000 per annum, without increase or guaranteed adjustment. He is eligible for an annual non-equity incentive compensation based on annual performance targets set annually by the Company, the Compensation Committee, and the Board. The annual incentive compensation payments provide for a target level of $750,000, a threshold level of $375,000 and a maximum level of $1,700,000. The agreement provides for an annual long-term incentive compensation award grant based on performance targets set annually by the Compensation Committee and the Board with a target level of 65,000 shares, a threshold level of 32,500 shares and a maximum of 81,250 shares. The agreement, among other provisions, provides for benefits that may be earned in the event of a change of control or in the event of termination of employment. The 2015 Employment Agreement commenced July 1, 2015 for an initial five-year term, with automatic renewal provisions on a year-to-year basis through June 30, 2022. The agreement is filed as Exhibit 10.3 of the Company’s fiscal 2021 Annual Report on Form 10-K.
 
32

 
Deductibility Cap on Executive Compensation
Section 162(m) of the Internal Revenue Code places a limit of $1 million per year on the amount of compensation paid to certain of our executive officers that the company may deduct from our federal income tax return for any single taxable year. Prior to the enactment of 2017 Tax Cuts and Jobs Act, signed into law on December 22, 2017 (the “Tax Act”), there was an exception to the $1 million limitation for performance-based compensation meeting certain requirements. The material terms of our incentive plans that were previously approved by stockholders allowed us to grant certain cash incentive compensation and long-term incentive awards that were designed to meet the definition of performance-based compensation which qualified for the exception to the $1 million deduction limit. The Tax Act repealed the performance-based compensation exception described in this paragraph. Following enactment of the Tax Act, we generally expect that compensation paid to our CEO will be in excess of $1 million, and thus not deductible, subject to a transition rule for compensation provided pursuant to a binding written contract in effect as of November 2, 2017 that is not materially modified after such date. To the extent applicable to our existing plans and previously granted awards, the Company may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing plans and previously granted awards, even if in place on November 2, 2017, will meet the requirements of the transition rule. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the Company, the Compensation Committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) if the Compensation Committee determines that doing so is in the best interests of the Company and its stockholders.
 
33

 
COMPENSATION COMMITTEE REPORT
The Compensation Committee oversees our compensation program for our NEOs on behalf of the Board. In fulfilling its oversight responsibilities, the Compensation Committee has reviewed and discussed with management this Compensation Discussion and Analysis and recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report.
JAMES B. CARLSON (CHAIR)
JOHN J. DOONER, JR.
DOMENICK J. ESPOSITO
This Compensation Committee Report is not deemed “soliciting material”
and is not deemed filed with the SEC or subject to Regulation 14A
or the liabilities under Section 18 of the Exchange Act.
 
34

 
COMPENSATION TABLES
The following “Summary Compensation Table” sets forth information concerning the compensation for services rendered to the Company during the years indicated by our NEOs. Salary, bonus, and non-equity incentive plan compensation amounts reflect the compensation earned during each fiscal year. Stock awards reflect awards with a grant date during each fiscal year.
Summary Compensation Table
The following table summarizes the compensation earned by or awarded to each NEO for fiscal years 2021, 2020 and 2019.
Name and
Principal Position
Year
Salary (1)
Bonus (2)
Stock
Awards (3)
Non-Equity
Incentive Plan
Compensation (4)
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings (5)
All Other
Compensation (6)
Total
M. Farooq Kathwari
Chairman of the Board,
President and Principal
Executive Officer
2021 $  1,150,050 $        — $   809,290 (a) $  1,700,000 $        — $   121,474 $  3,780,814
2020 862,500 826,670 (b) 126,937 1,816,107
2019 1,150,050 1,186,380 (c) 314,889 121,671 2,772,990
Corey Whitely
Executive Vice President,
Administration, Principal
Financial Officer
2021 $ 500,000 $ $ 182,480 (d) $ 166,250 $ $ 2,651 $ 851,381
2020 450,000 124,999 (e) 2,302 577,301
2019 500,000 122,672 (f) 50,646 2,190 675,508
Rodney A. Hutton (7)
Chief Marketing Officer
2021 $ 375,000 $ $ 113,327 (g) $ 99,750 $ $ 2,530 $ 590,608
2020 249,375 —    249,375
Daniel M. Grow
Senior Vice President
Business Development
2021 $ 350,000 $ $ 81,234 (h) $ 20,000 $ $ 2,651 $ 453,885
2020 323,750 59,502 (i) 2,302 385,554
2019 350,000 89,306 (j) 36,871 2,190 478,367
Eric D. Koster
Vice President, General
Counsel & Secretary
2021 $ 320,000 $ 50,000 $ —    $ $ $ 2,651 $ 372,651
2020 296,000 9,150 (k) 2,302 307,452
2019 317,692 25,000 —    2,190 344,882
Clifford Thorn (8)
Former Vice President
Upholstery Manufacturing
2021 $ 265,765 $ $ —    $ $ $ 302,651 $ 568,416
(1)
Due to the COVID-19 pandemic, effective March 29, 2020, the Compensation Committee approved temporary base salary reductions for each of the NEOs, which remained in effect until June 30, 2020 and are reflected in the 2020 base salary amounts shown in the Summary Compensation Table above. The temporary base salary reductions during fiscal 2020 were as follows: Mr. Kathwari 100%; Mr. Whitely 40%; Mr. Grow 30%; Mr. Hutton 30%; and Mr. Koster 30%. These temporary base salary reductions were lifted effective July 1, 2020.
(2)
Bonus amounts represent discretionary bonus awards under the discretionary bonus program only for NEOs who did not participate in the non-equity incentive plan.
(3)
The amounts shown for stock awards represent the aggregate grant date fair values, computed in accordance with Accounting Standards Codification Topic 718. For financial statement reporting purposes these fair values are charged to expense over the vesting period. The actual values realized, if any, will not be known until the vesting date and could differ significantly from the amounts disclosed in the table. Refer to note 17 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for valuation assumptions with respect to stock awards granted.
a)
Amount reflects the fair value of all stock awards granted during fiscal 2021, which include a performance stock unit grant and a non-recurring service-based restricted stock award. As the performance awards are subject to performance conditions, the amount reported in the table above is equal to the value at the grant date based upon the probable outcome of such conditions as of the grant date. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2023. Assuming the maximum performance level was probable on the grant date, the grant date fair value for the performance awards would have been $712,238. The service-based restricted stock award vests ratably over two years and had a grant date fair value of  $239,500.
b)
Amount reflects the grant date fair value of the fiscal 2020 annual performance stock unit grant. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2022. Assuming the maximum performance level was probable on the grant date, the grant date fair value would have been $1,033,338.
c)
The final performance measurement date for awards granted in fiscal 2019 was June 30, 2021. Based on the achievement of certain performance conditions, the NEO received a stock unit payout equal to $822,425 in fair value based on the Company’s closing stock price on June 30, 2021.
 
35

 
d)
Amount reflects the fair value of all stock awards granted during fiscal 2021, which include a performance stock unit grant and a non-recurring service-based restricted stock award. As the performance awards are subject to performance conditions, the amount reported in the table above is equal to the value at the grant date based upon the probable outcome of such conditions as of the grant date. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2023. Assuming the maximum performance level was probable on the grant date, the grant date fair value for the performance awards would have been $156,250. The service-based restricted stock award vests ratably over two years and had a grant date fair value of  $57,480.
e)
Amount reflects the fair value of the fiscal 2020 annual performance stock unit grant. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2022. Assuming the maximum performance level was probable on the grant date, the grant date fair value would have been $156,248.
f)
The final performance measurement date for awards granted in fiscal 2019 was June 30, 2021. Based on the achievement of certain performance conditions, the NEO received a stock unit payout equal to $85,063 in fair value based on the Company’s closing stock price on June 30, 2021.
g)
Amount reflects the fair value of all stock awards granted during fiscal 2021, which include a performance stock unit grant and a non-recurring service-based restricted stock award. As the performance awards are subject to performance conditions, the amount reported in the table above is equal to the value at the grant date based upon the probable outcome of such conditions as of the grant date. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2023. Assuming the maximum performance level was probable on the grant date, the grant date fair value for the performance awards would have been $93,760. The service-based restricted stock award vests ratably over two years and had a grant date fair value of  $28,740.
h)
Amount reflects the fair value of all stock awards granted during fiscal 2021, which include a performance stock unit grant and a non-recurring service-based restricted stock award. As the performance awards are subject to performance conditions, the amount reported in the table above is equal to the value at the grant date based upon the probable outcome of such conditions as of the grant date. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2023. Assuming the maximum performance level was probable on the grant date, the grant date fair value for the performance awards would have been $65,623. The service-based restricted stock award vests ratably over two years and had a grant date fair value of  $19,160.
i)
Amount reflects the fair value of the fiscal 2020 annual performance stock unit grant. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2021. Assuming the maximum performance level was probable on the grant date, the grant date fair value would have been $74,377.
j)
The final performance measurement date for awards granted in fiscal 2019 was June 30, 2021. Based on the achievement of certain performance conditions, the NEO received a stock unit payout equal to $61,934 in fair value based on the Company’s closing stock price on June 30, 2021.
k)
Amounts reflects the fair value of 1,000 non-performance based restricted stock units granted to Mr. Koster during fiscal 2020. These restricted stock units vest ratably over four years, whereby 25% of the total number of shares issuable under the grant vest each year on the anniversary of the grant date, commencing on March 11, 2021.
(4)
The Non-Equity Incentive Plan Compensation amount shows actual payouts paid under the annual incentive plan for fiscal 2021 further described in the Annual Incentive Compensation section of the CD&A.
(5)
There was no change in the value of Mr. Kathwari’s retirement contract during 2019, 2020 or 2021 and no above-market interest has been earned on any non-qualified deferred compensation.
(6)
Amounts shown represent contributions by the Company pursuant to the Ethan Allen Retirement Savings Plan for each NEO other than Mr. Kathwari. The amount for Mr. Kathwari during fiscal 2021 includes costs incurred by the Company for: (i) contributions by the Company pursuant to the Ethan Allen Retirement Savings Plan of  $2,651; (ii) life insurance premiums of  $46,739; and (iii) use of a Company car $72,083.
(7)
Mr. Hutton joined the Company as its Chief Marketing Officer on January 1, 2020. Prior to his hire, Mr. Hutton was working as the Company’s third-party consultant, in the capacity as the Chief Marketing Officer and as such, was paid consulting fees from October 1, 2019 through December 31, 2019. This period provided the Company an opportunity to work closely with Mr. Hutton as well as enable him to learn more about the business operations. Total consulting fees received by Mr. Hutton during this period were $90,000 and are reported within the Salary column during fiscal 2020.
(8)
In March 2021, the Company entered into a separation of employment and general release agreement with Mr. Thorn, whereby he received a lump sum separation payment of  $300,000. No modifications were made to Mr. Thorn’s equity in connection with his departure. The amount reported within the salary column for Mr. Thorn of  $265,765 represented the pro-rated amount of base salary paid to him during fiscal 2021 while an employee of the Company. Mr. Thorn did not participate in the non-equity or equity incentive compensation plans during fiscal 2021.
Grants of Plan-Based Awards
The following table provides information on all plan-based awards granted during fiscal 2021 to each NEO. There can be no assurance that the grant date fair value of the equity awards, as listed in this table, will ever be realized. The grant date fair value of the equity awards is included in the “Stock Awards” column of the Summary Compensation Table.
Name
Grant Date
Estimated future payouts
under non-equity
incentive plan awards (1)
Estimated future payouts
under
equity incentive plan awards (2)
All Other
Stock Awards
Number of
Stock Units (3)
Grant Date
Fair Value of
Stock and
Option Awards (4)
Threshhold
($)
Target
($)
Maximum
($)
Threshhold
(#)
Target
(#)
Maximum
(#)
M. Farooq Kathwari
7/1/2020
$    375,000 $    750,000 $    1,700,000
M. Farooq Kathwari
8/12/2020
32,500 65,000 81,250 25,000 $    809,290
Corey Whitely
7/1/2020
$ 62,500 $