UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549​

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant ☑

Filed by a Party other than the Registrant ☐

Check the appropriate box:

 

Ethan Allen Interiors Inc.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the Appropriate Box):

 

 

25 Lake Avenue Ext.
Danbury, CT 06811-5286

NOTICE OF 2023 ANNUAL MEETING OF
STOCKHOLDERS​

Thursday, November 9, 2023
11:00 A.M. Eastern Time

Virtual Meeting Site: www.virtualshareholdermeeting.com/ETH2023

To our Stockholders:

You are cordially invited to attend the 2023 Annual Meeting of Stockholders (the “Annual Meeting”) of Ethan Allen Interiors Inc. (the “Company”) at 11:00 A.M. Eastern Time on Thursday, November 9, 2023. The Annual Meeting will be conducted as a virtual meeting via live webcast at www.virtualshareholdermeeting.com/ETH2023. Questions may be submitted electronically during the meeting through the virtual meeting platform. 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, 2023.

Items of Business:

•

to elect six directors to serve until the 2024 Annual Meeting of Stockholders;

​

•

to approve, by a non-binding advisory vote, the compensation of our named executive officers;

​

•

to approve, by a non-binding advisory vote, the frequency of future advisory votes to approve the compensation of our named executive officers;

​

•

to ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for the 2024 fiscal year; and

​

•

to act upon such other business as may properly come before the meeting or any adjournment thereof.

​

Your Vote Is Important

Stockholders of record at the close of business on September 14, 2023 will be entitled to notice of and vote at the Annual Meeting. We urge you to read the proxy statement carefully and to vote as promptly as possible in accordance with the Board of Directors’ recommendations. If you vote in advance, you may still decide to attend the virtual annual meeting of stockholders and vote your shares during the meeting. To make sure your shares are represented, please cast your vote as soon as possible using one of the following methods:

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

Ginger Triscele
Corporate Secretary
September 29, 2023

​	​	Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 9, 2023:	​	​
​	​	The 2023 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com.	​	​

 

 

TABLE OF CONTENTS

 

i

 

 

ii

 

25 Lake Avenue Ext.
Danbury, CT 06811-5286

PROXY STATEMENT
2023 ANNUAL MEETING OF STOCKHOLDERS

Thursday, November 9, 2023
11:00 A.M. Eastern Time

Virtual Meeting Site: www.virtualshareholdermeeting.com/ETH2023

September 29, 2023

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 2023 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 Thursday, November 9, 2023. 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/ETH2023. 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, 2023. The meeting will begin promptly at 11:00 A.M. Eastern Time on November 9, 2023. 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, 2023 (the “Record Date”) will be entitled to vote at the Annual Meeting and any adjournments thereof. This Proxy Statement, Notice of 2023 Annual Meeting of Stockholders, accompanying proxy card and the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2023 (the “2023 Annual Report”) are available at www.proxyvote.com. This Proxy Statement has been prepared by our management and approved by the Board, and will be first mailed, delivered, or made available to our stockholders on September 29, 2023.

​	​	Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 9, 2023:	​	​
​	​	The 2023 Annual Report and Notice & Proxy Statement are available at www.proxyvote.com.	​	​

 

1

 

PROXY SUMMARY

Proposals and Voting Recommendations

Stockholders are being asked to vote on the following matters at the Annual Meeting:

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. 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. Our directors possess individual experiences that provide practical wisdom and foster mature judgment in the boardroom. Collectively, the directors bring international, retail, digital, real estate, technology, cybersecurity, ESG and marketing 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 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 is committed to strong corporate governance and 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”).

 

2

 

BOARD INDEPENDENCE

The Board determined that Gina Casar, John J. Dooner, Jr., David M. Sable, Tara I. Stacom and Cynthia Ekberg Tsai (our five 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 he served in fiscal 2023, our former director Dr. John Clark*, was an independent director 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.

Snapshot of the Independent Director Nominees for our Annual Meeting

* Effective June 30, 2023, Dr. John Clark resigned as a director of Ethan Allen Interiors Inc. Dr. Clark’s resignation from the Company’s Board, including as Chair of the Corporate Governance, Nominations and Sustainability Committee, and as a member of the Audit Committee, did not result from any dispute or disagreement with the Company.

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 into

 

3

 

account his 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 management structure, while balancing appropriate oversight by the Board.

Lead Independent Director

Our Corporate Governance Guidelines provide that if the Chairman is not an independent director, the Board shall select a Lead Independent Director from among the members of the Board who are determined by the Board to be independent. The selection of the Lead Independent Director occurs at the annual planning meeting of the Board. Upon selection by the Board, the Director will serve as the Lead Independent Director for a period of three years. The Lead Independent Director has the clearly delineated duties and responsibilities that are set forth in our Corporate Governance Guidelines. In choosing to continue combining the two roles of Chairman and Chief Executive Officer, the Board believes that a suitably empowered Lead Independent Director further promotes the Board’s independence from management because they are expressly authorized to exert de facto control of the Company by asserting independent leadership of the Board. 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:

•

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

​

•

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

​

•

having the authority to call meetings of the independent directors;

​

•

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

​

•

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

​

STOCKHOLDER 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 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 2023, the Company engaged in investor relations outreach efforts and met with 45 investors and analysts, including fireside chats and one-on-one meetings both virtually and in-person to review Company strategies, financial and operating performance, capital allocation priorities, and near and long-term outlook. During these interactions, stockholders most frequently raised topics concerning industry perspective, growth initiatives, gross and operating margin expansion, product pricing actions, raw material availability, backlog, promotional and marketing activity, competition, new product introductions and design center openings, relocations and projections. Feedback the Company receives from stockholders is regularly reported to the Board and its committees, as appropriate. In addition, the Company hosted an external analyst event in May 2023 at its Corporate Headquarters located in Danbury, CT. The event covered key areas of focus including retail design center operations, manufacturing operations, a tour of the recently redesigned Danbury, CT design center, marketing and merchandising deep dives, and a financial overview.

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 Corporate 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 to 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.

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.

 

4

 

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 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 business strategies 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 assist the Board in fulfilling its monitoring responsibilities in certain areas of risk in the following ways:

Cybersecurity and Information Security

Cybersecurity and information security are critical components 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 and information security risks, the Board receives regular reports from senior management, including updates on the internal and external cybersecurity threat landscape, incident response, assessment and training activities, and relevant legislative, regulatory, and technical developments. In addition, at least annually, the Vice President of Information Technology attends a Board meeting to discuss cybersecurity and information security matters with the Board.

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 environmental, social and governance (“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, understands 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 Corporate Governance, Nominations and Sustainability Committee considers the Company’s business decisions in terms of sound ESG practices and their impacts to long-term stockholder returns. In particular, the committee evaluates the

 

5

 

Company’s business 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 business is conducted. The Company’s Corporate Responsibility Report, which outlines the story of corporate citizenship at Ethan Allen and how it shapes and informs the business, is made available online 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”).

Environmental Impact and Community

We remain focused on our sustainability initiatives, including to further decrease 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 Company has taken several environmental measures, including the expanded use of responsibly harvested Appalachian hardwoods, water-based finishes, organic cotton textiles, and recycled materials as well as using CertiPUR-US® certified foams in our mattresses and custom upholstery. Most recently, during fiscal 2023, we undertook initiatives designed to convert, where and when reasonably feasible, to becoming PFAS-free throughout all business categories including area rugs, broadloom, draperies and fabrics.

The Carbon Footprint Calculator is the core tool that Ethan Allen uses across every location, from Design Centers to manufacturing plants to our corporate headquarters, to record and analyze environmental data. It is based on the United States Environmental Protection Agency’s Waste Reduction Model (WARM), which was designed to help businesses quantify how smarter materials use, recycling, and other activities affect greenhouse gas emissions, create energy savings, and impact economic activities. We have updated the calculator several times over the past decade to reflect a better understanding of our environmental profile: how the 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.

Ethan Allen strives to maintain environmental goals, targets, and responsibilities related to emissions, waste disposal, electricity, and water usage. Each manufacturing facility is responsible for the collection and management of key data, which is reviewed by Ethan Allen’s Environmental, Health and Safety (“EH&S”) team. The EH&S team is responsible for the measurement of each facility’s progress toward achieving the Company’s goals.

Social Responsibility

The Ethan Allen leadership principles define our commitment to excellence. These principles are the compass that enables us to achieve our full potential, both as individuals within the company, standard-bearers in our industry, and how we service our

 

6

 

clients and communities. We encourage all of our vendors worldwide to share the standards and principles that are important to our company and our clients. It is important that all of our business partners and any facilities manufacturing Ethan Allen Products share our commitment to labor compliance, ethical standards of business practice, and the fair treatment of workers worldwide. We created the Ethan Allen Manufacturing Code of Conduct to educate supplier and factory management. We are committed to working with and educating our supplier network as a way of improving labor conditions worldwide.

Ethan Allen partners with industry-recognized third-party auditing companies known for their professionalism, consistency, and credibility to periodically measure vendor compliance related to ethical business practices and the fair treatment of workers. Independent auditors also offer continuing education opportunities, in the vendor’s country and in the vendor’s own language. These include the following:

•

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

​

•

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

​

The Company 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.

Throughout our history, philanthropy has been a core value to Ethan Allen. We strive to develop exceptional programs based on partnerships where employees feel a sense of connection and pride in their communities, and our mission is to enhance the quality of life in the communities in which we work and live. For the fourth year in a row, Ethan Allen’s upholstery workshop in Mexico was awarded the prestigious designation “Empresa Socialmente Responsable” ​(meaning “Socially Responsible Company,” which is based on standards of conduct on social and environmental issues) by the Mexican Center for Corporate Philanthropy and the Alliance for Corporate Social Responsibility. These organizations recognize corporate policies that promote a positive social impact in Mexico and Latin America.

COMMITTEE CHARTERS, CODE OF CONDUCT AND CORPORATE GOVERNANCE GUIDELINES

The Company’s Code of Conduct, Corporate Governance Guidelines, Foreign Corrupt Practices Act Policy, Insider Trading Policy, Policy Governing the Recovery of Erroneously Awarded Compensation and the charters of its Audit Committee, Compensation Committee and Corporate Governance, Nominations and Sustainability Committee are publicly made 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-employee directors, communications between stockholders and directors, and Board committee structures and assignments.

We are committed to conducting business ethically and lawfully. All of our directors, executive officers, and employees are required to act with honesty and integrity. Our Code of Conduct was adopted to promote honest and ethical conduct, and establishes expectations to guide ethical decision-making, including putting ethics into action, working together, maintaining trust, conducting business fairly, safeguarding what’s ours, and caring for our world. Included within those topics is how we address conflicts of interest, fair dealing, protection of Company assets, required information disclosures and compliance with laws, rules and regulations, and prompt reporting. Our Code of Conduct also describes the means by which an anonymous report of an actual or apparent violation of our Code of Conduct can be submitted. This Code of Conduct may be amended, modified, or waived by the Board of Directors. 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 2023.

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

The Board has established three standing committees: the Audit Committee; the Compensation Committee; and the Corporate Governance, Nominations and Sustainability Committee. The Board determined that each member of the standing committees is (i) independent within the meaning of the NYSE rules, including the additional requirements applicable to members of the audit and compensation committees, as applicable, and (ii) a non-employee director (within the meaning of Rule 16b-3 under

 

7

 

the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Each Committee operates under a written charter, a current copy of which is available on the Company’s website as described in the previous section “Committee Charters, Code of Conduct and Corporate Governance Guidelines”.

During fiscal 2023, the Board met in person or virtually four times, including the meeting in connection with the 2022 Annual Meeting of Stockholders. Independent directors also met four times in executive session without management present. The Lead Independent Director chaired each executive session. There was 100% attendance by each director at each of the four Board meetings. For directors serving on the standing committees, there was 100% attendance for each of the regularly scheduled committee meetings. As set forth in our Corporate Governance Guidelines, the Company’s policy is to expect the resignation of any director who is absent from more than 25% of regularly scheduled Board meetings or committee meetings in a fiscal year.

The following table summarizes for each of the committees, the current membership, chair, and the number of meetings held.

C = Chair              ● = Member

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 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.

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 the section titled “Compensation Discussion and Analysis” in this Proxy Statement. In addition, the Compensation Committee reviews and approves stock-based compensation for our directors, officers, and employees, and oversees the administration of our Stock Incentive Plan. The Compensation Committee also approves the “Compensation Discussion and Analysis” with respect to compensation of the Company’s Named Executive Officers as defined therein (“Named Executive Officers” or “NEOs”) in accordance with applicable rules of the SEC. The Compensation Committee is authorized to retain and terminate compensation consultants, legal counsel, or other advisors to the Committee and to approve the engagement of any such consultant, counsel, or advisor, to the extent it deems necessary or appropriate after specifically analyzing the independence of any such consultant retained by the Committee.

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

 

8

 

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 and clawback policies 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.

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 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 2024 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 provides 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 an important criteria that the Corporate Governance, Nominations and Sustainability Committee uses to evaluate nominees and includes, but is not limited to, consideration of viewpoints, background, and experience, including diversity of race, 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 demonstrate diversity due to their varied backgrounds, experience, qualifications, and skills. We are proud that 60% of our independent director nominees are women and that our Board includes ethnic diversity. Refer to the section “Board of Directors 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 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, it 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 they could bring to the Board, including in light of the particular areas summarized in the matrix under “Proposal 1: Election of Directors.”

 

9

 

PROPOSAL 1:   ELECTION OF DIRECTORS

At the recommendation of the Corporate Governance, Nominations and Sustainability Committee, the Board has nominated the following six directors for election at the Annual Meeting. If elected, each director will serve for a one-year term expiring at the 2024 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 of the director nominees are current directors who were each elected by Ethan Allen’s stockholders at our 2022 Annual Meeting of Stockholders. The six director nominees are as follows:

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, their age, present principal occupation, specific expertise, qualifications, and skills along with other business experience, directorships in other publicly held companies, membership on committees of the Board and period of service as a director of the Company. Also set forth below is a brief discussion of the specific experience, qualifications, attributes, or skills that led to each nominee’s nomination as a director, in light of the Company’s business.

The Board unanimously recommends that you
vote FOR each of the six nominees.

 

10

 

BOARD OF DIRECTORS MATRIX

The following matrix provides information regarding the members of our Board, including certain types of knowledge, skills, experiences, and attributes possessed by one or more of our directors, which our Board believes are relevant to our business and industry. The matrix does not encompass all of the knowledge, skills, experiences or attributes of our directors, and the fact that a particular knowledge, skill, experience, or attribute is not listed does not mean that a director does not possess it or that the Corporate Governance, Nominations and Sustainability Committee and the Board did not evaluate it. In addition, the absence of a particular knowledge, skill, experience or attribute with respect to any of our directors does not mean the director in question is unable to contribute to the decision-making process in that area. The type and degree of knowledge, skill and experience listed below may vary among the members of the Board. With the exception of M. Farooq Kathwari, all other directors are independent directors.

 

11

 

DIRECTOR NOMINEES FOR ELECTION

 

12

 

 

13

 

 

14

 

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 2023, the Board approved a combination of cash and option awards as compensation for our non-employee directors, as outlined and shown in the table below.

Annual Cash Retainer. For fiscal 2023, 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 2023, each director was awarded a stock option award with the number of options equal in value to $100,000 based on the closing market price of the Company’s stock on 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 virtually) 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 2023.

​

(1)

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 2023 Annual Report for valuation assumptions with respect to stock option grants. As of June 30, 2023, the total number of stock options outstanding and stock options that were vested or exercisable within 60 days of June 30, 2023 for each non-employee director were as follows:

​

•

Ms. Casar held 3,995 stock options outstanding, of which 1,332 were vested or exercisable within 60 days.

​

•

Mr. Dooner held 41,711 stock options outstanding, of which 37,637 were vested or exercisable within 60 days.

​

•

Mr. Sable held 3,995 stock options outstanding, of which 1,332 were vested or exercisable within 60 days.

​

•

Ms. Stacom held 30,487 stock options outstanding, of which 26,413 were vested or exercisable within 60 days.

​

•

Ms. Tsai held 3,995 stock options outstanding, of which 1,332 were vested or exercisable within 60 days.

​

(2)

Each director who was a member of the Board as of the grant date of August 9, 2022, was awarded 3,995 stock options, which will vest in three equal annual installments commencing on the first anniversary of the date of grant.

​

(3)

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 2023 on behalf of Dr. Clark was $68,000 and is reported within the All Other Compensation column.

​

(4)

Dr. John Clark resigned as a director of Ethan Allen Interiors Inc. during fiscal 2023. His tenure as a Director ended upon his resignation, effective June 30, 2023, therefore all outstanding unvested stock options were forfeited as of June 30, 2023.

​

 

15

 

SECURITY OWNERSHIP

The following tables set forth, as of September 14, 2023, 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 06811-5286.

Security Ownership of Directors and Executive Officers

The following table sets forth, as of September 14, 2023, the record date for the Annual Meeting, the beneficial ownership of the Company’s common stock reported to Ethan Allen by each of the Company’s directors, director nominees and NEOs, and by all 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, 2023, or upon termination of service other than for death, disability or involuntary termination.

​

(2)

Includes 1,785,193 shares owned directly by M. Farooq Kathwari, 115,364 shares owned indirectly, 8,565 shares held in the Ethan Allen Retirement Savings Plan, 644,776 shares held indirectly within The Irfan Kathwari Foundation 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 34,280 shares of common stock.

​

(4)

Includes 6,300 shares owned directly by Tara I. Stacom and currently exercisable stock options to purchase 26,413 shares of common stock.

​

(5)

Includes 1,673 shares owned directly by Amy Franks.

​

(6)

Includes 1,522 shares owned directly by Matthew J. McNulty.

​

(7)

Includes no shares owned directly by Gina Casar and currently exercisable stock options to purchase 1,332 shares of common stock.

​

(8)

Includes no shares owned directly by David M. Sable and currently exercisable stock options to purchase 1,332 shares of common stock.

​

(9)

Includes no shares owned directly by Cynthia Ekberg Tsai and currently exercisable stock options to purchase 1,332 shares of common stock.

​

(10)

Includes 436 shares owned directly by Eric D. Koster, determined as of the date of termination of employment.

​

(11)

Includes 280 shares owned directly by Ashley Fothergill, determined as of the date of termination of employment.

​

(12)

Dr. John Clark resigned from the Board, effective June 30, 2023; therefore, all outstanding unvested stock options were forfeited as of June 30, 2023.

​

 

16

 

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, 2023, the record date for the Annual Meeting.

​

(1)

BlackRock, Inc. (“BlackRock”), a parent holding company, had sole voting power over 4,422,611 shares of common stock and sole dispositive power over 4,519,231 shares of common stock according to BlackRock’s Schedule 13G/A filed with the SEC on January 26, 2023. 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 1,934,167 shares of common stock and sole dispositive power over 1,964,635 shares of common stock according to Dimensional Funds’ Schedule 13G/A filed with the SEC on February 10, 2023. 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 20,036 shares of common stock, sole dispositive power over 1,479,168 shares of common stock and shared dispositive power over 40,126 shares of common stock according to Vanguard’s Schedule 13G/A filed with the SEC on February 9, 2023. Vanguard’s address is 100 Vanguard Blvd., Malvern, PA 19355.

​

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. Since the beginning of fiscal 2023, there have been no related person transactions requiring approval, ratification or disclosure pursuant to Item 404 of Regulation S-K.

 

17

 

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 best 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 2022 Annual Meeting of Stockholders, our stockholders were asked to approve the Company’s executive compensation program. A substantial majority (97.4%) 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.

We believe that our executive compensation program 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. Although the Board and the Compensation Committee will consider the outcome of the stockholder advisory vote on the frequency of future advisory votes to approve executive compensation in Proposal 3, we expect the next executive compensation advisory vote will occur at the 2024 Annual Meeting of Stockholders.

The Board unanimously recommends that you vote FOR the approval,
on an advisory basis, of the compensation of the Company’s Named
Executive Officers.

 

18

 

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 proposal regarding compensation of our NEOs submitted to stockholders at our 2022 Annual Meeting was approved by 97.4% 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 2023 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.

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 2023 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 and Accounting Officer)

​

•

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

​

Our NEOs for fiscal 2023 also include Ashley Fothergill, who previously served as our Senior Vice President, Merchandising and Eric D. Koster, who previously served as our Vice President, General Counsel and Secretary. Mr. Fothergill entered into a separation of employment and general release agreement, pursuant to which he remained an employee until February 1, 2023 and Mr. Koster retired from the Company effective April 28, 2023. This CD&A focuses on the compensation earned by our NEOs listed above, but also describes the compensation earned by Messrs. Fothergill and Koster, where appropriate.

Fiscal Year 2023 Performance at a Glance

Our financial results for fiscal year 2023 are highlighted by strong gross and operating margins, improving lead times from decreasing backlog, disciplined cost and expense controls, strong operating cash flow, increased cash dividends and a robust balance sheet. Our net sales of $791.4 million declined 3.2% compared to the prior year due to lower delivered unit volumes from softening incoming order demand and reduced manufacturing production from lower backlogs. Sales in the prior year set a near record pace which led to a difficult prior year comparison as we had built up a significant backlog as a result of the heightened demand driven by the impact of COVID-19. While our retail segment written orders were down 12.3% compared to fiscal 2022, retail orders were up 0.8% compared to fiscal 2019 which was prior to the COVID-19 pandemic and more reflective of historical levels. Wholesale segment written orders were lower by 9.0% compared to last year, and down 2.1% when compared to fiscal 2019. We ended the fiscal 2023 year with wholesale backlog of $74.0 million, down 27.7% from a year ago as we were able to reduce the number of weeks of backlog. Consolidated gross margin was 60.7% compared to 59.3% a year ago due to favorable sales mix, disciplined promotional activity and lower input costs partially offset by lower delivered unit volume. GAAP operating margin was 17.3% compared to 16.9% last year and adjusted operating margin was 16.9% compared to 16.4% a year ago as we carefully managed expenses. GAAP diluted earnings per share (“EPS”) increased 2.0% to $4.13. Adjusted diluted EPS increased 2.5% to $4.03. See Appendix A for the reconciliation of U.S. GAAP to adjusted key financial measures.

We ended fiscal 2023 with a strong balance sheet, including cash, cash equivalents and investments of $172.7 million and no outstanding debt. We generated $100.7 million of cash from operating activities, a 45.1% increase over the prior year driven by strong profit performance and a reduction in inventory carrying levels and accounts receivable partially offset by a decline in customer deposits. Our inventory levels decreased $27.3 million during fiscal 2023 as we restore our operating inventory levels to more historical levels as backlog decreases while also ensuring appropriate amounts of inventory are on hand to service our customers. Our Board increased our regular quarterly cash dividend by 12.5% and declared a special cash dividend of $0.50 per share, bringing the total amount of dividends paid to $46.4 million during fiscal 2023.

 

19

 

Ethan Allen was recently named to Newsweek’s list of America’s Best Retailers 2023, a prestigious award presented by Newsweek and Statista Inc., a leading statistics portal and industry ranking provider. The final assessment and rankings were the result of an independent survey of more than 9,000 customers who have shopped at retail stores in person in the past three years and based on the likelihood of recommendation and the evaluation of products, customer service, atmosphere, accessibility and store layout. We are pleased to be recognized as one of America’s Best Retailers 2023, including being named the #1 retailer of Premium Furniture. This award is a reflection of our associates, who continue each day to uphold the Ethan Allen reputation for quality, craftsmanship, and exemplary service.

As we enter the post COVID-19 era, our focus will be to continue to strengthen the various areas of our vertically integrated structure, including further developing our teams to remain entrepreneurial and disciplined, enhancing our product offerings, repositioning our retail network as an interior design destination, finalizing each design center projection refresh and ongoing investments in technology to further enhance our marketing, our North American manufacturing and our logistics.

Selected Financial Data and Key Metrics

($ in thousands, except per share data)

​

(1)

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

​

 

20

 

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.

The Compensation Committee takes into consideration multiple components of the Company’s executive compensation practices when making their determinations, as further outlined below.

 

21

 

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 may not delegate its primary responsibility of overseeing executive officer compensation, but it may delegate to management the administrative aspects of our compensation programs that do not involve the setting of compensation levels for executive officers. All equity awards to executives, including stock options, performance stock units (“PSUs”), and restricted stock units (“RSUs”), are approved by the Compensation Committee. The Compensation Committee maintains sole authority to retain, terminate, approve fees and other terms of engagement of a compensation consultant and to obtain advice and assistance from external legal, accounting, or other advisors.

 

22

 

The Compensation Committee also reviews executive compensation and incentive structures used by its peer companies. In fiscal 2023, the Compensation Committee decided to continue to use net sales, adjusted operating income, adjusted return on equity and total shareholder 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 Company’s vertical business model, which integrates manufacturing, merchandising, logistics and retail. 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 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.

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;

​

•

vertically integrated companies in our industry;

​

•

companies that might be considered competitors for Company executives and equivalent talent.

​

In addition to those considerations, the Compensation Committee filtered companies by revenues, number of employees and market capitalization. Companies with higher or lower revenues or market capitalization were included in the peer group since the Company competes for executives with such other companies that are in the home furnishings industry.

The Compensation Committee evaluates each peer company annually to determine whether its inclusion remains appropriate. During fiscal 2023, the Compensation Committee removed Apogee Enterprises and Acco Brands and added Arhaus, Inc., Conn’s, Inc., The Aaron’s Company, Inc., and The Lovesac Co., as it concluded the business characteristics of those companies are more aligned for comparability purposes. In addition, the Compensation Committee also removed Kimball International during fiscal 2023 due to its acquisition by HNI Corporation. The Compensation Committee believes the updated fiscal 2023 peer group, as summarized below, is reflective of the Company’s current operating characteristics, consumer innovation, and use of technology.

 

23

 

Elements of Fiscal 2023 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 2023:

 

24

 

Fiscal 2023 Target Total Compensation Mix

In line with our pay-for-performance philosophy, the majority of our CEO’s target total compensation is performance-based and therefore “at risk.” The total target compensation mix for all other NEOs has a lower at risk profile and was a combination of base salary, achievement of target for the annual incentive program, long-term service-based restricted stock unit awards and achievement of target for the long-term performance-based stock unit incentive awards. The charts below show the percentage of each element in the total target compensation mix for our CEO and the average of our other NEOs.

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 2023 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 2023, 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 2023 growth strategy, focusing on 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 each NEO. The NEOs have the opportunity to earn awards between 60% of their target awards if minimum threshold performance requirements are met and a maximum of 140% of their target incentive opportunity, based on Company performance. Refer to the section “Grants of Plan-Based Awards” for additional disclosure of the actual amounts for target, maximum and threshold for each NEO.

The Compensation Committee established targets for Net Sales and Adjusted Operating Income for fiscal 2023, and established threshold and maximum performance levels as follows:

 

25

 

Fiscal 2023 Annual Incentive Goals and Results

​

(1)

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

​

Fiscal 2023 Annual Incentive Target, Achievement and Actual Payout

​

(1)

Mr. Fothergill departed from the Company effective February 1, 2023, which was prior to the final measurement date; as a result he was not eligible to receive a payout.

​

(2)

Mr. Koster retired from his position effective April 28, 2023, which was prior to the final measurement date; as a result he was not eligible to receive a 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.

For fiscal 2023, no discretionary bonuses were paid to NEOs as each NEO participated in the annual non-equity incentive compensation plan.

Long-term Incentive Compensation

To align executive officer 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 performance-based stock units, restricted stock units, and stock options, which may vest based on service or performance or a combination thereof.

The Compensation Committee establishes for the NEOs, including the CEO, the target, maximum and threshold performance-based awards as a percentage of base salary on the grant date, with percentages of base salary varying among management. The Compensation Committee is responsible to approve all equity-based compensation, but may provide our CEO limited discretion during the year to allocate such equity-based grants to various employees other than the NEOs.

 

26

 

For fiscal 2023, 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 net sales, return on equity and the three-year TSR relative to the performance of the Company’s peers listed in the 2022 Proxy Statement. The Compensation Committee selected 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 performance metrics was established as follows:

Fiscal 2023 Long-term Incentive Performance Metrics

The Compensation Committee awarded the fiscal 2023 performance-based stock units to the NEOs as follows:

Results of 2021-2023, 2022-2024 and 2023-2025 Long-term Incentive Awards Granted

Following the end of the third performance year, 125% of the target number of fiscal 2021 performance-based stock units were earned as noted below.

​

(1)

The vested amounts noted above include fiscal 2021 market-based awards that were earned. Based upon the Company’s relative TSR performance, which was measured over the three-year period (July 1, 2020 through June 30, 2023), it was determined that the Company’s TSR percentile ranking was in the 81st percentile, resulting in a payout of 125% of the target number of market-based awards granted in fiscal 2021.

​

 

27

 

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

There has been no payout with respect to the performance-based stock unit awards granted in fiscal 2023 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 2023-2025 performance cycle.

Restricted Stock Unit Awards for Fiscal 2023 (service-based)

NEOs 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 2023, the Compensation Committee awarded each NEO service-based restricted stock grants that vest ratably over three 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.

The Compensation Committee awarded restricted stock unit grants to the NEOs during fiscal 2023 as follows:

​

(1)

The restricted stock units were granted on August 9, 2022 and vest ratably over three years on the anniversary date of the grant.

​

(2)

Mr. Fothergill departed from the Company effective February 1, 2023, which was prior to the initial vesting date, therefore 100% of the units granted were forfeited.

​

(3)

Mr. Koster retired from his position effective April 28, 2023, which was prior to the initial vesting date, therefore 100% of the units granted were forfeited.

​

Stock Option Awards for Fiscal 2023

NEOs are eligible to receive annual grants of stock options. These options have an exercise price equal to the closing price of our stock on the date of grant, vest according to service-based criteria, and have a ten-year expiration term. Any stock option not fully vested on the date the employee separates is subject to forfeiture. The Compensation Committee did not approve any grants of stock options to the NEOs in fiscal 2023.

 

28

 

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, (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, (iii) immediate vesting of all unvested service-based restricted stock units outstanding on the date of termination and (iv) all performance-based restricted stock unit grants outstanding on the date of termination shall fully vest at the target level as of the date 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 2023, 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. All matching contributions for each NEO immediately vested. The Company also made a $495,000 discretionary profit-sharing contribution to the Retirement Plan during fiscal 2023, which was distributed to eligible participants based on each participant’s compensation to total compensation of all participants during the year.

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 2023, 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 as perquisites.

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 Compensation Committee and ratified by 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.

​

 

29

 

•

Annual grant of performance-based stock 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 Compensation Committee and ratified by the Board. The value of the PSUs 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 PSUs 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 PSUs on the date of the grant.

​

•

Annual grant of 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 RSUs will be equal to 27% of Mr. Kathwari’s annual base salary, or $310,500. The number of RSUs granted shall be determined by dividing the grant value of the RSUs grant by the fair market value of a RSUs on the date of the grant.

​

The right to receive, or retain, any Annual Incentive Bonus, PSUs, RSUs or benefits of the Stock Units will be subject to “claw-back” or similar obligations set forth in Company’s policy governing the recovery of erroneously awarded compensation, as approved by the Board. Each grant 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 2023 Annual Report.

Separation Agreement

Mr. Fothergill entered into a separation of employment and general release agreement, pursuant to which he remained an employee until February 1, 2023. Under the terms of his agreement, Mr. Fothergill received a lump sum separation payment of $100,000, which was subsequently paid to him on February 14, 2023. In addition, the agreement provided for a complete release of any and all claims by Mr. Fothergill and other terms and conditions customary for agreements of this nature.

Deductibility Cap on Executive Compensation

In establishing individual executives’ compensation levels, we do not explicitly consider accounting and tax issues. Section 162(m) of the Internal Revenue Code places a limit of $1 million per year on the amount of compensation paid to our executive officers that we may deduct from our federal income tax return for any single taxable year. The Compensation Committee has in the past reserved the right to provide compensation that does not qualify for deduction under Section 162(m). We generally expect that compensation paid to our CEO will be in excess of $1 million, and thus not deductible. 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.

 

30

 

COMPENSATION COMMITTEE REPORT

The Compensation Committee is responsible for the compensation program the Company’s NEOs. The Committee is comprised solely of independent directors and reports regularly to 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.

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.

 

31

 

COMPENSATION TABLES

The tables below present compensation information for each of our NEOs followed by a discussion of compensation that each NEO could receive when their employment with us terminates under various circumstances or upon a change of control of the Company. The tables include footnotes and other narrative explanations important for your understanding of the compensation information in each table.

The first table below, the Summary Compensation Table, sets forth the compensation earned by the NEOs for services rendered to the Company in all capacities for each respective fiscal year. Our NEOs include our Principal Executive Officer, Principal Financial Officer and the three most highly compensated executive officers (other than the Principal Executive Officer and Principal Financial Officer) during fiscal 2023.

Summary Compensation Table

The following table summarizes the compensation earned by or awarded to each NEO for fiscal years 2023, 2022 and 2021.

​

(1)

The amount reported within the salary column for Messrs. Fothergill and Koster represent the pro-rated amount of base salary paid during fiscal 2023 while employees of the Company. Mr. Fothergill departed from the Company effective February 1, 2023 and Mr. Koster retired effective April 28, 2023.

​

(2)

Bonus amounts represent discretionary bonus awards under the discretionary bonus program only for NEOs who did not participate in the non-equity annual incentive plan.

​

(3)

The amounts shown for stock awards represent the aggregate grant date fair values, computed in accordance with Accounting Standards Codification Topic 718. For financial statement reporting purposes these fair values are charged to expense over the vesting period. The actual values realized, if any, will not be known until the vesting date and could differ significantly from the amounts disclosed in the table. Refer to note 17 to the consolidated financial statements contained in the 2023 Annual Report for valuation assumptions with respect to stock awards granted.

​

a)

Amounts reflect the fair value of all stock awards granted during fiscal 2023, which included a performance stock unit grant, at target, and a service-based restricted stock unit award. No payout has been earned in respect to the performance stock unit grant and the final performance measurement date is June 30, 2025. The service-based restricted stock unit award vests ratably over three years. The grant date fair value for the restricted stock unit awards and the performance awards, assuming the maximum performance level was probable on the grant date, would have been as follows:

​

•

Mr. Kathwari - $310,492 restricted stock unit award and $1,667,498 performance award

​

•

Mr. McNulty - $29,999 restricted stock unit award and $77,633 performance award

​

•

Ms. Franks - $32,804 restricted stock unit award and $101,861 performance award

​

•

Mr. Fothergill - $24,798 restricted stock unit award and $64,169 performance award

​

•

Mr. Koster - $15,993 restricted stock unit award and $22,091 performance award

​

b)

Amount reflects the fair value of the fiscal 2022 performance stock unit grant at target. As the performance awards are subject to performance

​

 

32

 

conditions, the amount reported in the table above is equal to the value at the grant date based upon the probable outcome of such conditions as of the grant date. No payout has been earned in respect to the grant and the final performance measurement date is June 30, 2024. Assuming the maximum performance level was probable on the grant date, the grant date fair value for the performance awards would have been $1,393,763.

c)

The final performance measurement date for awards granted in fiscal 2021 was June 30, 2023. Based on the achievement of certain performance conditions, the NEO received a stock unit payout equal to $2,297,750 in fair value based on the Company’s closing stock price on June 30, 2023.

​

d)

Amount reflects the fair value of all stock awards granted during fiscal 2023, which included a performance stock unit grant and a service-based restricted stock unit award. However, since Messrs. Fothergill and Mr. Koster departed the Company prior to the final measurement date, neither was eligible to receive a payout.

​

e)

Amount reflects the grant date fair value of service-based restricted stock units granted during fiscal 2022. These restricted stock units vest ratably over four years on the anniversary of the grant date, commencing on August 10, 2022. Mr. Fothergill departed from the Company effective February 1, 2023, therefore he is not eligible to receive a stock unit payout on the remaining unvested shares.

​

(4)

The Non-Equity Incentive Plan Compensation amounts show actual payouts paid under the annual incentive plan for each fiscal year as further described in the Annual Incentive Compensation section of the CD&A. As Messrs. Fothergill and Koster departed the Company during fiscal 2023, they were not eligible to receive a payout under the Company’s non-equity incentive compensation plan.

​

(5)

There was no change in the value of Mr. Kathwari’s retirement contract during the fiscal years 2023, 2022 or 2021, respectively, and no above-market interest has been earned on any non-qualified deferred compensation.

​

(6)

Amounts shown represent contributions by the Company pursuant to The Ethan Allen Retirement Savings Plan for each NEO other than Messrs. Kathwari and Fothergill. The amount for Mr. Kathwari during fiscal 2023 includes costs incurred by the Company for: (i) contributions by the Company pursuant to The Ethan Allen Retirement Savings Plan of  $2,379; (ii) life insurance premiums of  $15,744; and (iii) use of a Company car of  $85,848. The amount for Mr. Fothergill includes contributions by the Company pursuant to The Ethan Allen Retirement Savings Plan of  $2,379 and a severance payment of $100,000.

​

Grants of Plan-Based Awards

The following table provides information on all plan-based awards granted during fiscal 2023 to each NEO. There can be no assurance that the grant date fair value of the awards, as listed in this table, will ever be realized. The grant date fair value of the performance stock unit awards and restricted stock unit awards are included in the “Stock Awards” column of the Summary Compensation Table.