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

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Definitive 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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Fee paid previously with preliminary materials.

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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

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25 Lake Avenue Ext.
Danbury, CT 06811-5286

NOTICE OF 2022 ANNUAL MEETING OF STOCKHOLDERS

Wednesday, November 9, 2022
11:00 A.M. Eastern Time
Virtual Meeting Site: www.virtualshareholdermeeting.com/ETH2022

To our Stockholders:

You are cordially invited to attend the 2022 Annual Meeting of Stockholders (the “Annual Meeting”) of Ethan Allen Interiors Inc. (the “Company”) at 11:00 A.M. Eastern Time on Wednesday, November 9, 2022. The Annual Meeting will be conducted as a virtual meeting via live webcast at www.virtualshareholdermeeting.com/ETH2022.

You may attend the meeting virtually and submit questions electronically during the meeting by visiting the virtual meeting platform at www.virtualshareholdermeeting.com/ETH2022. 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 10:45 A.M. Eastern Time on November 9, 2022.

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

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

Stockholders of record at the close of business on September 14, 2022 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 September 28, 2022.

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

Eric D. Koster
Corporate Secretary
September 28, 2022

Proxy Voting

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

​	​	Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 9, 2022:	​	​
​	​	The 2022 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
2022 ANNUAL MEETING OF STOCKHOLDERS

Wednesday, November 9, 2022
11:00 A.M. Eastern Time

Virtual Meeting Site: www.virtualshareholdermeeting.com/ETH2022

September 28, 2022

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 2022 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 11:00 A.M. Eastern Time on Wednesday, November 9, 2022. 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/ETH2022. 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 in 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 10:45 A.M. Eastern Time on November 9, 2022. The meeting will begin promptly at 11:00 A.M. Eastern Time on November 9, 2022. 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 September 14, 2022 (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 September 28, 2022.

​	​	Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 9, 2022:	​	​
​	​	The 2022 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:

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 global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers its customers stylish product offerings, artisanal quality and personalized service. 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 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 vertically integrated enterprise. 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. The Board is committed to strong corporate governance, as reflected through its policies and practices.

On January 25, 2022, the Board increased its size to seven directors upon the appointment of María Eugenia (Gina) Casar to serve as an independent director of the Company for a term that will expire at the 2023 Annual Meeting of Stockholders. Prior to this appointment, the Board was previously comprised of six directors, including five independent directors.

BOARD INDEPENDENCE

The Board determined that Gina Casar, Dr. John Clark, John J. Dooner, Jr., David M. Sable, Tara I. Stacom and Cynthia Ekberg Tsai, (our six independent nominees for the Board) are independent directors within the meaning of the listing standards of the NYSE (the “NYSE rules”). Additionally, during the time that they served in fiscal 2022, our former directors James B. Carlson, Domenick J. Esposito, Mary Garrett and Dr. James W. Schmotter were independent directors within the meaning of the NYSE rules. 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.

 

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Snapshot of the Independent Director Nominees for our Annual Meeting

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 he or she is expressly authorized to exert de facto control of the Company by asserting independent leadership of the Board. John J. Dooner, Jr., an independent director, has served as the Board’s Lead Independent Director since the 2021 Annual Meeting of Stockholders. The Lead Independent 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:

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

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

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having the authority to call meetings of the independent directors;

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

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

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STOCKHOLDER ENGAGEMENT & COMMUNICATION WITH DIRECTORS

The Company is committed to transparent and active engagement with its stockholders both to share its perspectives and obtain valuable insight and feedback from stockholders on matters of mutual interest. Our stockholder engagement is a

 

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year-round process that may involve our CEO and members of executive management. Throughout the year, we meet with institutional investors and analysts to inform and share our perspectives and to solicit their feedback on our performance. This includes participation in investor and industry conferences, fireside chats, and other group and one-on-one meetings 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 fiscal 2022, the Company engaged in investor relations outreach efforts and met with over 45 investors, including three fireside chats and approximately 30 one-on-one meetings to review Company strategies, financial and operating performance, capital allocation priorities, and near-term outlook. During these interactions, stockholders most frequently raised topics concerning revenue growth initiatives, supply chain conditions, product pricing actions, gross and operating margin expansion, raw material availability, manufacturing capacity including the ability to service existing backlog, and design center openings and relocations. Feedback the Company receives from stockholders is regularly reported to the Board and its committees, as appropriate.

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). For additional information on the requirements for submission, please refer to the Company’s Corporate Governance Guidelines, which can be found at https://ir.ethanallen.com/corporate-governance/governance-documents. 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 will 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:

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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.

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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

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incentive compensation arrangements of our executive officers to implement our pay-for-performance philosophy without encouraging or rewarding excessive or inappropriate risk-taking by our executive officers.

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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 environmental, social and corporate governance (“ESG”) perspective 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/esg/esg-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”).

The Corporate Governance, Nominations and Sustainability Committee assists the Board to pursue and report sustainability initiatives inclusive of CSR and ESG practices. 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 with our sustainability initiatives, including significant decreases in our carbon footprint, electrical usage, water usage, and landfill waste. We are working towards achieving net zero emissions and are developing methods, plans, and resources to meet this goal.

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

 

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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.

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 numerous labor compliance audits in several 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:

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

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

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

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

COMMITTEE CHARTERS, CODE OF CONDUCT AND CORPORATE GOVERNANCE GUIDELINES

The Company’s Code of Business Conduct and Ethics (the “Code of Conduct”), Corporate Governance Guidelines, Foreign Corrupt Practices Act Policy and the charters of its Audit Committee, Compensation Committee and Corporate Governance, Nominations 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 during fiscal 2022. 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 2022, the Board met in person or by telephone conference six times, including the meeting in connection with the 2021 Annual Meeting of Stockholders. Independent directors also met six 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 were nominated for re-election attended the 2021 Annual Meeting of Stockholders. During fiscal 2022, there was 100% attendance by each director at each of the six 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 seven Corporate Governance, Nominations and Sustainability Committee meetings. As set forth in our Corporate Governance

 

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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.

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, 2022, are set forth below:

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, and (ii) a non-employee director (within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Additionally, during the time that they served in fiscal 2022, our former directors James B. Carlson, Domenick J. Esposito, Mary Garrett and Dr. James W. Schmotter were independent directors and/or “non-employee directors” under the above-referenced rules applicable to the committees on which they served.

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, Cynthia Ekberg Tsai (Chairperson), Gina Casar, Dr. John Clark and Tara I. Stacom 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 2022.

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 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

 

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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, John J. Dooner, Jr. (Chairperson), David M. Sable and Cynthia Ekberg Tsai, 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 2022.

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, Dr. John Clark (Chairperson), James J. Dooner, Jr., Gina Casar, David M. Sable 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 seven meetings and individual Corporate Governance, Nominations and Sustainability Committee members communicated, when necessary, by telephone or video conference during fiscal 2022.

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 2023 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, experience, qualifications, and skills. We are proud that 50% of our independent director nominees are women and that our Board includes ethnic diversity. Refer to the sections “Board of Directors—Experience and Skills” and “Board Diversity Matrix” further below for additional information regarding the skills and diversity of the Company’s Board current members.

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

 

10

 

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.

 

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PROPOSAL 1:  ELECTION OF DIRECTORS

At the recommendation of the Corporate Governance, Nominations and Sustainability Committee, the Board has nominated the following seven directors for election at the Annual Meeting. If elected, each director will serve for a one-year term expiring at the 2023 Annual Meeting of Stockholders or until their respective successor has been duly elected and qualified or until their earlier death, resignation, disqualification, or removal. All the director nominees are current directors who were each elected by Ethan Allen’s stockholders at our 2021 Annual Meeting of Stockholders, with the exception of Gina Casar who was appointed to the Board effective January 25, 2022.

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 seven nominees.

 

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BOARD OF DIRECTORS—EXPERIENCE AND SKILLS

​

(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.

​

*

Independent Director

​

BOARD DIVERSITY MATRIX

The table below provides certain highlights of the composition of our Board nominees as of June 30, 2022.

 

13

 

DIRECTOR NOMINEES FOR ELECTION

 

14

 

 

15

 

 

16

 

 

17

 

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 2022, 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 2022, 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. In fiscal 2022, each director was awarded a stock option award with the number of options equal in value to $100,000 based on the market price of the Company’s stock as of the date of grant. These stock options vest in three equal annual installments commencing on the first anniversary of the date of grant so long as the director continues to serve on our Board. All options granted to directors have an exercise price equal to the fair market value of our common stock on the date of grant and remain exercisable for a period of up to 10 years, subject to continuous service on our Board.

Meeting Fees.   If a 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 2022.

​

(1)

The fees earned or paid in cash represent the pro rata portion of the annual retainer based on the length of service for each Director during fiscal 2022. Fees earned or paid in cash to Dr. Clark, Mr. Sable and Ms. Tsai represent seven months (December 1, 2021 through June 30, 2022) of their annual retainer fee, while Ms. Casar’s represents approximately five months (as she was appointed to the Board on January 25, 2022).

​

(2)

The amounts shown in the Option Awards column 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. The total number of stock options outstanding for each non-management director as of June 30, 2022 were as follows: John J. Dooner, Jr. 42,563 options; and Tara I. Stacom 26,492 options. The total number of stock options that were vested or exercisable within 60 days of June 30, 2022 were as follows: John J. Dooner, Jr. 37,684 options; and Tara I. Stacom 21,613 options.

​

(3)

Each director, who was an active member of the Board as of the grant date of August 3, 2021, was awarded 4,235 stock options which will vest in three equal annual installments commencing on the first anniversary of the date of grant. Ms. Casar, Dr. Clark, Mr. Sable and Ms. Tsai were not directors of the Company at the time of grant, thus were not awarded any stock options during fiscal 2022.

​

(4)

In lieu of an annual cash retainer, Dr. John Clark requested his compensation be paid by the Company in the form of a donation to a charitable institution. The total dollar amount the Company donated during fiscal 2022 on behalf of Dr. Clark was $45,087 and reported within the All Other Compensation column.

​

(5)

Tenure as a Director of the Company ended on November 30, 2021, the date of the 2021 Annual Meeting of Stockholders, for Messrs. Carlson and Schmotter and Ms. Garrett, thus the fees earned or paid in cash represent the pro rata portion of the annual retainer based on their length of service during fiscal 2022.

​

(6)

Mr. Esposito’s tenure as a Director of the Company ended upon his death on September 22, 2021, thus the fees earned or paid in cash represent the pro rata portion of the annual retainer based on his length of service during fiscal 2022.

​

 

18

 

SECURITY OWNERSHIP

The following tables set forth, as of September 14, 2022, 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 September 14, 2022, 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 current directors, director nominees and NEOs, and by all current directors and executive officers as a group.

​

*

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 September 14, 2022, or upon termination of service other than for death, disability or involuntary termination.

​

(2)

Includes 1,895,747 shares owned directly by M. Farooq Kathwari, 646,140 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 32,837 shares of common stock.

​

(4)

Includes 6,300 shares owned directly by Tara I. Stacom and currently exercisable stock options to purchase 21,613 shares of common stock.

​

(5)

Includes 18,786 shares owned directly by Corey Whitely, determined as of the date of termination of employment.

​

(6)

Includes 322 shares owned directly by Eric D. Koster and currently exercisable stock options to purchase 6,667 shares of common stock.

​

(7)

Includes 649 shares owned directly by Amy Franks.

​

(8)

Includes 567 shares owned directly by Matthew J. McNulty.

​

(9)

Includes 280 shares owned directly by Ashley Fothergill.

​

(10)

No shares of Ethan Allen common stock are owned and no outstanding stock options exercisable within 60 days of September 14, 2022.

​

 

19

 

Security Ownership of Principal Stockholders

The following table provides information about persons that have reported that they beneficially own or have voting power and/or dispositive power over, more than 5% of the Company’s common stock, as of September 14, 2022, the record date for the Annual Meeting.

​

(1)

BlackRock, Inc. (“BlackRock”), a parent holding company, had sole voting power over 4,114,697 shares of common stock and sole dispositive power over 4,193,865 shares of common stock according to BlackRock’s Schedule 13G/A filed with the SEC on January 27, 2022. 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 1,783,711 shares of common stock and sole dispositive power over 1,822,060 shares of common stock according to Dimensional Funds’ Schedule 13G/A filed with the SEC on February 8, 2022. 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 31,017 shares of common stock, sole dispositive power over 1,580,517 shares of common stock and shared dispositive power over 44,217 shares of common stock according to Vanguard’s Schedule 13G/A filed with the SEC on February 10, 2022. 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 2022, its directors, officers and 10% stockholders complied with all applicable Section 16(a) filing requirements applicable to such individuals, other than one late Form 3 filing for Ashley Fothergill with respect to his promotion to Senior Vice President, Merchandising (an executive officer) on March 15, 2022, which was subsequently filed on July 20, 2022.

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 with the Company in which they or their immediate family members had, have or will have a material interest. 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 2022.

 

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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 2021 Annual Meeting of Stockholders, our stockholders were asked to approve the Company’s executive compensation program. A substantial majority (97.6%) of the votes on the “say-on-pay” proposal 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 2021 Annual Meeting was approved by 97.6% 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. Our fiscal 2022 NEO compensation decisions continue to illustrate the application of our pay-for-performance philosophy, with NEO pay being driven by another year of solid financial performance, as well as continued positive developments in other significant areas of our operations including our response to the COVID-19 pandemic and our efforts to ensure employee safety.

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 2022 are as follows:

•

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

​

•

Matthew J. McNulty, Senior Vice President, Chief Financial Officer and Treasurer (our Principal Financial Officer)

​

•

Amy Franks, Executive Vice President, Retail Network and Business Development

​

•

Ashley Fothergill, Senior Vice President, Merchandising

​

•

Eric D. Koster, Vice President, General Counsel and Secretary

​

Our NEOs for fiscal 2022 also include Corey Whitely, who previously served as our Executive Vice President, Administration and Chief Financial Officer (insofar as SEC rules require disclosure of the compensation of anyone who served as a principal financial officer during fiscal 2022). Mr. Whitely resigned with the Company effective January 14, 2022. This CD&A focuses on the compensation earned by our NEOs listed above, but also describes the compensation earned by Mr. Whitely where appropriate.

Fiscal Year 2022 Performance at a Glance

As we celebrate our ninth decade as an innovative interior design, manufacturing and retail enterprise, we remain focused on constant reinvention and maintaining an entrepreneurial attitude. We believe our vertically integrated business structure is key to our success and continues to produce positive results and position us for future growth. In what was a dynamic and volatile fiscal year marked by rising costs and global supply chain challenges, we delivered strong sales growth and record earnings for fiscal 2022. We continue to develop relevant product offerings, of which about 75% are made in our North American manufacturing workshops.

During fiscal 2022, we executed on several key initiatives, including: introduced new product offerings in many areas including upholstery, home office, lighting, outdoor living, decorative accents and added a new LVP flooring product category; expanded our upholstery manufacturing in North Carolina; opened multiple new design centers that project our unique vision of American style while combining complimentary interior design services with technology; celebrated our 90 years of innovation by holding a virtual convention under the theme of “Vertical Integration: the Key to Our Service”; launched the state-of-the-art immersive 3D Virtual Design Center which showcases our vast product portfolio while fostering collaboration between interior designers and clients; reaffirmed our commitment to maintain and grow our North American manufacturing including wage increases and the creation of new jobs; increased our regular quarterly cash dividend by 16% in November 2021 and then another 10% in April 2022; and paid a special cash dividend of $0.75 per share in August 2021.

During fiscal 2022 year we continued to benefit from the heightened consumer focus on the home, which since the onset of the COVID-19 pandemic has created strong demand for our product offerings and interior design services. Through

 

22

 

the collective efforts of our associates, the Company was able to execute on many initiatives that helped lead to strong full year fiscal 2022 results. Many of the changes implemented in recent years, such as manufacturing and optimization initiatives, reductions in employee headcount, increased use of technology and automation, and the elimination of non-essential spending, have allowed us to control expenses and improve our operating leverage. We expanded manufacturing production capacity during fiscal 2022, which is now above pre-COVID-19 pandemic levels and helped us to significantly improve delivery lead-time and reduce our high backlogs. Our custom upholstery products, made in our North American workshops, ship in about 6 weeks, as compared to 14 weeks a year ago. Our wood products, made in our North American workshops, now average about 14 weeks as compared to 16 weeks a year ago.

For the full fiscal 2022 year, we delivered consolidated net sales growth of 19.4%, an operating margin of 16.9%, diluted EPS of $4.05, cash from operations of $69.4 million and returned $48.3 million to shareholders through cash dividends. While our retail segment written orders were down 4.6% compared to a strong fiscal 2021, retail orders were up 14.9% compared to fiscal 2019 (prior to the start of the COVID-19 pandemic). Wholesale segment written orders were lower by 0.5% compared to fiscal year 2021, but up 7.6% compared with fiscal 2019. The positive net sales growth within both our wholesale and retail segments combined with our ability to operate more efficiently through the use of technology and reduced headcount (when compared to pre-COVID-19 pandemic levels) helped us expand consolidated gross margin, operating margin and diluted earnings per share. We ended the fiscal 2022 year with a strong balance sheet, including cash and investments of $121.1 million as of June 30, 2022 compared to $104.6 million as of June 30, 2021. Our ending inventory balance of $176.5 million was up 22.6% over last year in order to further support higher levels of production and quicker shipping to our customers. Our Board increased our regular quarterly cash dividend twice during the fiscal year and paid a special cash dividend, bringing the total amount of dividends paid to $48.3 million in fiscal 2022.

Selected Financial Data and Key Metrics

​

(1)

See Appendix A for the reconciliation of U.S. GAAP to adjusted key financial measures.

​

Impact of COVID-19 on our Business

The global coronavirus (“COVID-19”) pandemic continues to disrupt several segments of the economy and has caused, and continues to cause, impact to our business. In response to the COVID-19 pandemic and for the protection of our associates 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. All of our retail design centers had reopened by fiscal 2021 and since that time, we have experienced strong demand for our products as customers allocated greater amounts of discretionary spending to home furnishings than at the start of the COVID-19 pandemic. Since our manufacturing facilities re-opened in May 2020, we have ramped up and increased production capacity by adding headcount as well as second shifts and weekend production shifts to our North American plants. In addition, during the third quarter of fiscal 2022, we completed the purchase of property, plant and equipment from Dimension Wood Products, Inc., located in Claremont, North Carolina, to further increase our control over raw materials and labor costs while maintaining our high-quality standards.

We have been fortunate to experience a limited number of cases of COVID-19 throughout our enterprise, each of which resulted in no significant disruptions to our operations. Although we continue to actively manage the impact of COVID-19

 

23

 

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 believe that we have a strong balance sheet with $121.1 million of cash and investments, no outstanding borrowings as of June 30, 2022, and a credit agreement that provides for a $125 million revolving credit facility, which we believe will provide sufficient liquidity to continue business operations in the long-term. We also continue to actively manage our global supply chain and manufacturing operations, which have been adversely impacted with respect to availability and pricing of raw materials and freight based on uncontrollable factors as well as COVID-19 related constraints on our manufacturing capacity as we continue to prioritize the health and safety of our associates. The need for, or timing of, any future actions in response to COVID-19 is largely dependent on the mitigation of the spread of the virus along with the adoption and continued effectiveness of vaccines, status of government orders, directives and guidelines, recovery of the business environment, global supply chain conditions, economic conditions, and consumer demand for our products, all of which are highly uncertain.

Compensation Practices

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:

 

24

 

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”), Chief Financial Officer (“CFO”) and Vice President of Human Resources, 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.

 

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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 CEO, 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 2022, the Compensation Committee decided to continue to use operating income, revenue growth, return on equity and total stockholder return (“TSR”) as the performance metrics used in assessing executive compensation.

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.

There were no changes to the peer group for fiscal 2022 with the exception of the change in name for Herman Miller, Inc. to MillerKnoll, Inc. due to its acquisition of Knoll, Inc. The Compensation Committee believes the fiscal 2022 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 2022 NEO compensation is composed of the following 16 companies:

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.

 

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Elements of Fiscal 2022 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 2022:

 

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Fiscal 2022 Target Total Compensation Mix

The total target compensation mix for NEOs, as established at the start of fiscal 2022, 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.

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.

The Compensation Committee completed its 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, recommendation of the CEO for his direct reports, 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 2022 as they represent market competitive rates.

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 2022, the Compensation Committee evaluated two performance metrics in its annual incentive plan performance review for certain NEOs, which aligns performance metrics used to assess non-equity incentive compensation payout eligibility with our fiscal 2022 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. Refer to the section “Grants of Plan-Based Awards” further below for additional disclosure of the actual amounts for threshold, target and maximum for each NEO.

 

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The Compensation Committee established targets of 4% Consolidated Net Sales growth and 9% Adjusted Operating Income growth for fiscal 2022 compared to fiscal 2021, and established threshold and maximum performance levels as follows:

Fiscal 2022 Annual Incentive Goals and Results

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(1)

See Appendix A for a non-GAAP reconciliation showing how adjusted operating income is calculated from our financial statements.

​

Fiscal 2022 Annual Incentive Target, Achievement and Actual Payout

​

(1)

Ms. Franks and Messrs. McNulty, Fothergill and Koster did not participate in the fiscal 2022 non-equity incentive compensation plan disclosed above.

​

(2)

Mr. Whitely resigned from his position effective January 14, 2022, which was prior to the final measurement date; as a result he was not eligible to receive a payout.

​

Historical Annual Incentive Payout

Discretionary Annual Bonus

The Company maintains a discretionary bonus program for executives who do not participate in our annual non-equity incentive compensation program. For purposes of the discretionary bonus, individual performance is assessed based upon the executive’s performance relative to his or her responsibilities, goals, and objectives for each executive, which may or may not include financial metrics. Each executive develops annual business objectives for their respective areas, which are approved by the CEO and are used for this assessment. Individual performance is additionally measured by how the executive’s actions conform with and exemplify the Company’s ten “Leadership Principles”. For each executive, the executive’s impact upon initiatives of their division, department function or organization is also considered, as well as their impact on the development of their associates.

 

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For fiscal 2022, the Compensation Committee approved, at the recommendation of the CEO, the following discretionary bonus for each NEO that did not participate in the annual non-equity incentive compensation plan.

Ms. Franks and Messrs. Fothergill and McNulty did not participate in the fiscal 2022 annual non-equity incentive compensation program as each became NEOs during fiscal 2022 due to recent promotions into new executive roles. However, each will participate in the fiscal 2023 non-equity incentive compensation program, along with Mr. Koster, and thus will not participate in the fiscal 2023 discretionary annual bonus program.

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 2022, 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 Company’s peers listed in the 2021 Proxy Statement. 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 its 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 2022 Long-term Incentive Performance Metrics

The Compensation Committee awarded the fiscal 2022 performance-based stock unit grants to selected NEOs as follows:

 

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Results of 2020-2022, 2021-2023 and 2022-2024 Long-term Incentive Awards Granted

Following the end of the third performance year, 49% of the target number of fiscal 2020 performance-based stock units were earned by the NEOs as noted below.

​

(1)

Mr. Whitely resigned from his position effective January 14, 2022, which was prior to the final measurement date, therefore his units were forfeited.

​

(2)

The vested amounts noted above include fiscal 2020 market-based awards that were earned. Based upon the Company’s relative TSR performance, which was measured over the three-year period (July 1, 2019 through June 30, 2022), it was determined that the Company’s TSR percentile ranking was in the 48th percentile, resulting in a payout of 92% of the target number of market-based awards granted in fiscal 2020.

​

There has been no payout with respect to the performance-based stock unit awards granted in fiscal 2021 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 2021-2023 performance cycle.

There has been no payout with respect to the performance-based stock unit awards granted in fiscal 2022 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 2022-2024 performance cycle.

Restricted Stock Unit Awards for Fiscal 2022 (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 service-based criteria only. Any restricted stock units not fully vested on the date the employee separates are subject to forfeiture. For fiscal 2022, the Compensation Committee awarded certain NEOs service-based restricted stock grants that vest ratably over four 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.

 

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The Compensation Committee awarded restricted stock unit grants to selected NEOs during fiscal 2022 as follows:

​

(1)

Messrs. Kathwari, Koster and Whitely did not receive a grant of service-based restricted stock during fiscal 2022.

​

(2)

The restricted stock units were granted on August 10, 2021 and vest ratably over four years on the anniversary date of the grant.

​

Stock Option Awards for Fiscal 2022

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 service-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 2022.

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 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 ceasing 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 2022, 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 2022.

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 2022, 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.

 

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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. Effective July 1, 2015, the Company entered into an employment agreement with Mr. Kathwari, which expired on June 30, 2022. In advance of the expiration date, the Company entered into a new 2022 employment agreement (the “2022 Employment Agreement”) on February 3, 2022 with Mr. Kathwari. The 2022 Employment Agreement commenced on July 1, 2022 and is for a three-year term ending June 30, 2025. Pursuant to the 2022 Employment Agreement, Mr. Kathwari is entitled to the following:

•

Base salary of $1,150,000 per annum, without increase or guaranteed adjustment.

​

•

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 $1,150,000, a threshold level of $690,000 and a maximum level of $1,610,000.

​

•

Annual grant of performance-based stock units (“Performance Units”), providing a contingent right to receive shares of the Company’s common stock, par value $0.01 per share, conditioned upon the Company’s achievement of certain performance metrics set annually by the Company, the Compensation Committee and the Board. The value of the Performance Units granted provide for a target level $1,207,500, a threshold level of $747,500 and a maximum of $1,667,500. The number of Performance Units granted shall be determined by dividing the performance unit grant value at each of the target, threshold and maximum performance achievement levels by the fair market value of the Performance Units on the date of the grant.

​

•

Annual grant of restricted stock units (“Restricted Stock Units”), providing a contingent right to receive shares of common stock conditioned upon a service based three-year ratable vesting schedule. The grant value of each annual grant of Restricted Stock Units will be equal to 27% of Mr. Kathwari’s annual base salary, or $310,500. The number of Restricted Stock Units granted shall be determined by dividing the grant value of the Restricted Stock Units grant by the fair market value of a Restricted Stock Units on the date of the grant.

​

The right to receive, or retain, any Annual Incentive Bonus, Stock Units or benefits of the Stock Units will be subject to “claw-back” or similar obligations set forth in Company’s policies duly approved by our Board of Directors. 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. Refer to the section “Potential payments upon Termination or Change in Control” further below for additional information in the event of a change in control or termination of employment.

The 2022 Employment Agreement is filed as Exhibit 10.11 in our fiscal 2022 Annual Report on Form 10-K. The former 2015 employment agreement, dated October 1, 2015, is filed as Exhibit 10.2 in our fiscal 2022 Annual Report on Form 10-K.

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.

 

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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.

JOHN J. DOONER, JR. (CHAIR)
DAVID M. SABLE
CYNTHIA EKBERG TSAI

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.

 

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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 2022, 2021 and 2020.