UNITED STATES SECURITIES

AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

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:

☐  Preliminary Proxy Statement

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

☒  Definitive Proxy Statement

☐  Definitive Additional Materials

☐  Soliciting

 

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):

 

☒	No fee required.

☐   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

Title of each class of securities to which transaction applies:

 

 

Aggregate number of securities to which transaction applies:

 

 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11

     (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

Proposed maximum aggregate value of transaction:

 

 

Total fee paid:

 

 

 

☐	Fee paid previously with preliminary materials.

 

☐	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

Amount Previously Paid:

 

 

Form, Schedule or Registration Statement No.:

 

 

Filing Party:

 

 

Date Filed:

 

 

RH 2019 PROXY STATEMENT & ANNUAL MEETING OF SHAREHOLDERS

CONTENTS LETTER FROM CHAIRMAN & CEO 01ANNUAL MEETING OF SHAREHOLDERS 04SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP 10COMPANY LEADERSHIP DIRECTORS & OFFICERS 14CORPORATE GOVERNANCE 22EXECUTIVE COMPENSATION 36PROPOSAL 1 ELECTION OF DIRECTORS 75PROPOSAL 2 ADVISORY VOTE ON EXECUTIVE COMPENSATION 78PROPOSAL 3 RATIFICATION OF PUBLIC ACCOUNTING FIRM 80ANNEX A RECONCILIATION TABLES 86FORWARD LOOKING STATEMENTS 92

 

 

A LETTER FROM OUR CHAIRMAN AND CEO

TO OUR PEOPLE, PARTNERS, AND SHAREHOLDERS,

Fiscal 2018 was an extraordinary year for Team RH. We generated record revenues in excess of $2.5 billion, record GAAP operating margins of 11.5%, record adjusted operating margins of 12.1%, and industry leading ROIC of 27.8%.

Our focus on elevating the brand and architecting an integrated operating platform has resulted in our profit model leapfrogging past the home furnishings industry, and RH becoming one of the few retailers that is expanding margins, increasing operating earnings, and driving significantly higher returns on invested capital.

We’ve created separation by bringing truly innovative and disruptive strategies to life, many of which are counter to those being pursued in the broader retail industry, including:

Designing an integrated ecosystem of people, products, businesses and services that collectively amplify and render each other more valuable, creating a truly unique customer experience that would be difficult to duplicate.

Creating a global product development platform that attracts and amplifies the best designers, artisans, and manufacturers in the world.

Controlling our collections from concept to customer, rendering our products and brand more unique and valuable.

Operating a highly efficient multi-channel platform that enables customers to access our brand where and when they want with a single inventory and seamless experience.

Moving from a promotional to a membership model, elevating our brand and streamlining our business while developing a more intimate relationship with our customers.

Pivoting the brand from creating and selling products to conceptualizing and selling spaces by building the largest residential interior design firm in North America.

Opening architecturally inspiring and immersive physical experiences that blur the lines between residential and retail, indoors and outdoors, home and hospitality. Spaces that render our products and services more valuable, while doubling our retail revenues and earnings in every market.

Developing a dynamic and seamlessly integrated hospitality business that activates all of the senses, drives tremendous traffic into our galleries and generates incremental revenues and earnings for our brand.

Architecting a real estate development model that decreases occupancy costs and capital requirements while increasing earnings and returns on invested capital.

Building an integrated operating platform that is enhancing the customer experience, while reducing costs and increasing returns on invested inventory.

Redesigning our organization to break down the silos and bureaucracy that build up as businesses grow, resulting in improved focus and collaboration, and increased accountability and decision speed.

While proud of what we’ve accomplished, and how we’ve redefined our business and brand, it’s the potential to redefine our industry, create new synergistic markets, and expand globally that continues to drive us.

THERE ARE THOSE WITH TASTE AND NO SCALE, AND THOSE WITH SCALE AND NO TASTE

We believe the idea of scaling taste is large and far reaching, and see an unlimited opportunity to create value by leveraging our unique taste and scale to create large and lucrative global markets across retail, interior design, hospitality, residential, and commercial development.

We also believe, “We have to think until it hurts, until we can see what others can’t see, so we can do what others can’t do.” The separation we’ve created in our market reflects the efforts of a team of people who have thought deeply for decades about the brand we are building and the opportunities we carefully choose to pursue. A team that understands that great brands are built based on a long term view and willingness to make the investments that lead to innovation and value creation.

The path we’ve chosen, while at times in conflict with current thinking and conventional wisdom, has proven to be significantly more right than wrong, and oftentimes shapes new paradigms. As an example, the simplifying assumption that digital was more profitable than physical, and online retail brands should somehow be confused with technology companies we believe will prove to be misplaced as digital brands rush to build physical stores in search of growth and profitability.

Speaking of profitability, which is surprisingly absent in the narrative of digitally native brands that are birthed online, we believe what many have overlooked is the cost of marketing an invisible store is proving to be more expensive than physical experiences. While it’s certainly in vogue to launch a retail business online, the numbers do not reflect that it is more capital efficient and surely not more profitable.

THE LOST DECADE OF RETAIL

We believe that the past ten years will be looked back upon as “The lost decade of retail,” a period where many brands have proclaimed a consultant coined “Digital first strategy” allocating the vast majority of their capital towards building unnecessary and complex “Omni-channel capabilities,” while leaving their retail stores to rot. It should not be a surprise that the vast majority have simply shifted business from offline to online, with increased costs and free shipping, destroying their operating margins.

We will instead follow our own unique path, one led by our vision and values, and an obsession for building a brand with no peer. We will sharpen our focus on elevating versus expanding, pursue quality over quantity, and prioritize innovation over duplication. We will continue our quest to revolutionize physical retailing by bringing architecturally inspiring, immersive, and profit generating brand experiences to life. Spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality. Spaces that create emotional physical connections in a world moving towards social digital connections. Spaces that activate all of the senses, and experiences that cannot be replicated online. Experiences like RH New York, a six story adaptive reuse of a historic brick building on an iconic corner in the Meatpacking District, with a rooftop restaurant, barista bar, wine terrace, the art installation New York Night by Allison Berger, and an onsite interior design firm; and spaces like RH Yountville, a five building compound that is an integration of food, wine, art, and design in the heart of the Napa Valley that respects and amplifies the local culture. Spaces that are a refuge from technology, serving to elevate humanity and create a sense of harmony in our world.

LEADERS HAVE TO BE COMFORTABLE, MAKING OTHERS UNCOMFORTABLE

We believe leadership is about pursuing a vision, something you’ve never seen, that’s somewhere you’ve never been. As creatures of habit, change is uncomfortable for humans, but for the people of Team RH, a culture of leadership and innovation is at the core of who we are, and reflected in everything we do.

We’ve grown comfortable making ourselves and others uncomfortable for nearly two decades, and hope to continue for the foreseeable future. It’s what leaders do, and how we know we’re on the right path. It’s why you should count on us to take the road less traveled, and make the long term decisions that we believe will continue to inspire our customers and generate the highest returns in our industry.

18 years ago we began this journey with a vision of transforming a nearly bankrupt business that had a $20 million market cap and a box of Oxydol laundry detergent on the cover of its catalog, into the leading luxury home brand in the world. The lessons and learnings, the insights and the intricacies, the sacrifices you make and scar tissue that you develop by getting knocked down 10 times and getting up 11, leads to the development of the mental and moral qualities that build character in individuals and form cultures in organizations. Lessons that can’t be learned in a classroom, or by managing a business, but must be earned by building one. Our culture will continue to drive us to destroy our current reality to create tomorrow’s future, while remaining completely comfortable, making others uncomfortable.

BUILDING A BRAND WITH NO PEER

We do understand that the strategies we are pursuing - opening the largest specialty retail experiences in our industry while most are shrinking the size of their retail footprint or closing stores; moving from a promotional to a membership model, while others are increasing promotions, positioning their brands around price versus product; continuing to mail inspiring Source Books, while many are eliminating catalogs; and refusing to follow the herd in self-promotion on social media, instead allowing our brand to be defined by the taste, design, and quality of the products and experiences we are creating - are all in direct conflict with conventional wisdom and the plans being pursued by many in our industry.

We believe when you step back and consider: one, we are building a brand with no peer; two, we are creating a customer experience that cannot be replicated online; and three, we have total control of our brand from concept to customer, you realize what we are building is extremely rare in today’s retail landscape, and we would argue, will also prove to be equally valuable.

WE’RE LOOKING FOR PEOPLE WHO DON’T KNOW WHAT CAN’T BE DONE

Doing truly great work is not for the faint of heart. It takes people with high energy, who have the ability to energize others. People who are smart, creative, and have a point of view. People who see the answer in every problem, versus those who see the problem in every answer. People who are driven, determined, and won’t take no for an answer. It takes team players, people who are more concerned with what’s right, rather than who’s right.

I want to express my gratitude to all of our people and partners around the world who truly don’t know what can’t be done. People with the passion and persistence to bring our vision and values to life each and every day, as we continue our quest to become one of the most admired brands in the world.

Carpe Diem,

 

 

Gary Friedman

Chairman & Chief Executive Officer

ANNUAL MEETING OF SHAREHOLDERS

NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

July 24, 2019     10:30 a.m. Pacific Time

RH, 15 Koch Road, Corte Madera, CA 94925

Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholder Meeting to be Held on July 24, 2019: The Company’s 2019 Proxy Statement, its fiscal 2018 Annual Report on Form 10-K and its proxy card are available for review online at www.proxyvote.com

RH SHAREHOLDER,

We are holding the Annual Meeting for the following purposes, which are more fully described in the proxy statement:

 

1.	To elect the three nominees named in the proxy statement to our board of directors;

 

2.	To vote, on an advisory basis, on our named executive officer compensation;

 

3.	To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 1, 2020; and

 

4.	To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

Only shareholders of record as of the close of business on June 14, 2019 are entitled to notice and to vote at the Annual Meeting or any postponement or adjournment thereof. A list of shareholders entitled to vote will be available for inspection at our offices for ten days prior to the Annual Meeting. If you would like to view this shareholder list, please contact the Corporate Secretary at (415) 945-4998.

Each share of stock that you own represents one vote, and your vote as a shareholder of RH is very important. For questions regarding your stock ownership, you may contact the Corporate Secretary at (415) 945-4998 or, if you are a registered holder, our transfer agent, Computershare Investor Services, by email through their website at www.computershare.com/contactus or by phone at (800) 962-4284 (within the U.S. and Canada) or (781) 575-3120 (outside the U.S. and Canada).

The Board of Directors has approved the proposals described in the accompanying proxy statement and recommends that you vote “FOR” the election of all nominees for director in Proposal 1, “FOR” the approval of compensation of our named executive officers in Proposal 2, and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP in Proposal 3.

By order of the board of directors,

 

 

Gary Friedman

Chairman & Chief Executive Officer

Your Vote Is Important. Instructions for submitting your proxy are provided in the Proxy Statement and your proxy card. It is important that your shares be represented and voted at the Annual Meeting. Please submit your proxy through the Internet, by telephone, or by completing the enclosed proxy card and returning it in the enclosed envelope. You may revoke your proxy at any time prior to its exercise at the Annual Meeting.

Certain forward-looking statements and non-GAAP financial measures are included in this Proxy Statement including in the letter from our Chairman and CEO. Please see the section titled “Forward Looking Statements” for further information and Annex A for a reconciliation of GAAP to non-GAAP measures referenced in this Proxy Statement.

 

ANNUAL MEETING OF SHAREHOLDERS		2019 PROXY STATEMENT  |  5

2019 ANNUAL MEETING OF SHAREHOLDERS

PROXY STATEMENT SUMMARY

INFORMATION ABOUT SOLICITATION AND VOTING

The accompanying proxy is solicited on behalf of the board of directors of RH (the “Company”) for use at the Company’s 2019 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at the Company’s headquarters located at 15 Koch Road, Corte Madera, CA 94925 on July 24, 2019, at 10:30 a.m. (Pacific Time), and any adjournment or postponement thereof.

On or about June 19, 2019, we will mail to our shareholders our 2019 Proxy Statement and our fiscal 2018 Annual Report on Form 10-K filed on March 29, 2019 (the “2018 Annual Report”). Our 2018 Annual Report and our proxy card are first being made available online on or about June 19, 2019.

ABOUT THE ANNUAL MEETING

What is the purpose of the Annual Meeting?

At our Annual Meeting, shareholders will vote upon the three proposals described in this proxy statement.

What proposals are scheduled to be voted on at the Annual Meeting?

Shareholders will be asked to vote on three proposals. The proposals are:

1.	The election to our board of directors of the three nominees named in this proxy statement;

2.	An advisory vote on our named executive officer compensation; and

3.	The ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the fiscal year ending February 1, 2020 (“fiscal 2019”).

What is the recommendation of the board of directors on each of the proposals scheduled to be voted on at the Annual Meeting?

The board of directors recommends that you vote:

FOR each of the nominees to the board of directors (Proposal 1);

FOR the advisory vote on named executive officer compensation (Proposal 2); and

FOR the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2019 (Proposal 3).

Could other matters be decided at the Annual Meeting?

Our Bylaws require that we receive advance notice of any proposal to be brought before the Annual Meeting by shareholders of the Company. There are no shareholder proposals to be voted on at the Annual Meeting. If any other matter were to come before the Annual Meeting, the proxy holders appointed by our board of directors will have the discretion to vote on those matters for you.

Who can vote at the Annual Meeting?

Shareholders as of the record date for the Annual Meeting, the close of business on June 14, 2019, are entitled to vote at the Annual Meeting. At the close of business on the record date, there were 18,369,502 shares of the Company’s common stock outstanding and entitled to vote.

Shareholder of Record: Shares Registered in Your Name

If on June 14, 2019, your shares were registered directly in your name with our transfer agent, Computershare Investor Services, then you are considered the shareholder of record with respect to those shares.

 

6  |  2019 PROXY STATEMENT		ANNUAL MEETING OF SHAREHOLDERS

As a shareholder of record, you may vote at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to vote over the Internet or by telephone, or, if you request paper proxy materials, by filling out and returning the proxy card.

Beneficial Owner: Shares Registered in the Name of a Broker or Nominee

If on June 14, 2019, your shares were held in an account with a brokerage firm, bank or other nominee, then you are the beneficial owner of the shares held in street name. As a beneficial owner, you have the right to direct your nominee on how to vote the shares held in your account, and your nominee has enclosed or provided voting instructions for you to use in directing it on how to vote your shares. However, the organization that holds your shares is considered the shareholder of record for purposes of voting at the Annual Meeting. Because you are not the shareholder of record, you may not vote your shares at the Annual Meeting unless you request and obtain a valid proxy from the organization that holds your shares giving you the right to vote the shares at the Annual Meeting.

How do I vote?

If you are a shareholder of record, you may:

VOTE IN PERSON—we will provide a ballot to shareholders who attend the Annual Meeting and wish to vote in person;

VOTE BY MAIL—if you request a paper proxy card, simply complete, sign and date the enclosed proxy card, then follow the instructions on the card; or

VOTE VIA THE INTERNET or VIA TELEPHONE—follow the instructions on the proxy card and have the proxy card available when you access the internet website or place your telephone call.

Votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on July 23, 2019. Submitting your proxy, whether via the Internet, by telephone or by mail if you requested a paper proxy card, will not affect your right to vote at the Annual Meeting should you decide to attend the meeting.

If you are not a shareholder of record, please refer to the voting instructions provided by your nominee to direct it how to vote your shares.

Your vote is important. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure that your vote is counted. You may still attend the Annual Meeting if you have already voted by proxy.

What if I return my proxy card directly to the Company, but do not provide voting instructions?

If a signed proxy card is returned to us without any indication of how your shares should be voted on a particular proposal at the meeting, your shares will be voted in accordance with the recommendations of our board of directors stated above. For example, if you return a signed proxy card with no indication of your vote on any of the proposals, your votes will be cast “FOR” the election of the three director nominees named in this proxy statement, “FOR” the approval, on an advisory basis, of the compensation of our named executive officers, and “FOR” the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2019.

If you hold your shares in street name and do not vote, and your broker does not have discretionary power to vote your shares, your shares may constitute “broker non-votes” (as described below) and may not be counted in determining the number of shares necessary for approval of a proposal. However, shares that constitute broker non-votes will be counted for the purpose of establishing a quorum for the Annual Meeting. Voting results will be tabulated and certified by the inspector of elections appointed for the meeting.

What is the quorum requirement for the Annual Meeting?

A majority of our outstanding shares as of the record date must be present at the meeting in order to hold the meeting and conduct business. This presence is called a quorum. Your shares are counted as present at the meeting if you are present and vote in person at the meeting or if you have properly submitted a proxy.

 

ANNUAL MEETING OF SHAREHOLDERS		2019 PROXY STATEMENT  |  7

How are abstentions and broker non-votes treated?

Abstentions (i.e., shares present at the meeting and voted “abstain”) are counted for purposes of determining whether a quorum is present, and have no effect on the election of directors (Proposal 1), on the advisory vote to approve our named executive officer compensation (Proposal 2) or on the ratification of appointment of auditors (Proposal 3).

Broker non-votes occur when shares held by a broker for a beneficial owner are not voted because (i) the broker did not receive voting instructions from the beneficial owner, and (ii) the broker lacked discretionary authority to vote the shares. Broker non-votes are counted for purposes of determining whether a quorum is present. Note that if you are a beneficial holder and do not provide specific voting instructions to your broker, the broker that holds your shares will not be authorized to vote on the election of directors (Proposal 1) or to vote on an advisory basis to approve our named executive officer compensation (Proposal 2). Ratification of the appointment of auditors (Proposal 3) is considered to be a routine matter and, accordingly, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 3, brokers will be permitted to exercise their discretionary authority to vote for the ratification of the appointment of auditors. Accordingly, we encourage you to provide voting instructions to your broker, whether or not you plan to attend the Annual Meeting.

What is the vote required for each proposal?

The votes required to approve each proposal are as follows:

Proposal 1. Shareholders’ choices for Proposal 1 (Election of Directors) are limited to “for” and “withhold.” A plurality of the shares of common stock voting in person or by proxy is required to elect each of the three nominees for director under Proposal 1. Under plurality voting, the three nominees receiving the largest number of votes cast (votes “FOR”) will be elected. Because the election of directors under Proposal 1 is considered to be a non-routine matter under the rules of the New York Stock Exchange (“NYSE”), if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 1, brokers will not be permitted to exercise their voting authority and uninstructed shares may constitute broker non-votes. Abstentions and broker non-votes will have no effect on the outcome of Proposal 1 because the election of directors is based on the votes actually cast.

Proposal 2. The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to approve, on an advisory basis, the compensation of our named executive officers described under Proposal 2 (Advisory Vote to Approve Executive Compensation). Because the advisory vote under Proposal 2 is considered to be a non-routine matter under the rules of the NYSE, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 2, brokers will not be permitted to exercise their voting authority and uninstructed shares may constitute broker non-votes. Abstentions and broker non-votes will have no effect on the outcome of Proposal 2 because the advisory vote is based on the votes actually cast.

Proposal 3. The affirmative vote of a majority of votes cast, whether in person or by proxy, is required to ratify the selection of the independent registered public accounting firm for fiscal 2019 under Proposal 3 (Ratification of Appointment of Auditors). Proposal 3 is considered to be a routine matter under the rules of the NYSE and, accordingly, if you do not instruct your broker, bank or other nominee on how to vote the shares in your account for Proposal 3, brokers will be permitted to exercise their discretionary authority to vote for the ratification of the appointment of auditors. Abstentions and broker non-votes will have no effect on the outcome of Proposal 3 because the ratification of appointment of auditors is based on the votes actually cast.

How can I get electronic access to the proxy materials?

The Company’s proxy materials are available at ir.rh.com. This website address is included for reference only. The information contained on the Company’s website is not incorporated by reference into this proxy statement.

Choosing to receive future proxy materials by email will save the Company the cost of printing and mailing documents to you. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it.

 

8  |  2019 PROXY STATEMENT		ANNUAL MEETING OF SHAREHOLDERS

Who is paying for this proxy solicitation?

The Company is paying the costs of the solicitation of proxies. Proxies may be solicited on behalf of the Company by our directors, officers, employees or agents in person or by telephone, facsimile or other electronic means. We will also reimburse brokerage firms and other custodians, nominees and fiduciaries, upon request, for their reasonable expenses incurred in sending proxies and proxy materials to beneficial owners of our common stock. We have retained the services of Alliance Advisors LLC (“Alliance”) to assist in the solicitation of proxies for a fee of approximately $25,500 plus reasonable out-of-pocket expenses. We may engage Alliance for additional solicitation work and incur fees greater than $25,500 depending on a variety of factors, including preliminary voting results and recommendations from Institutional Shareholder Services.

What does it mean if I receive more than one proxy card?

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

How can I change my vote after submitting my proxy?

A shareholder who has given a proxy may revoke it at any time before it is exercised at the meeting by:

Delivering to the Corporate Secretary of the Company (by any means, including facsimile) a written notice stating that the proxy is revoked;

Signing and delivering a proxy bearing a later date;

Voting again over the Internet or by telephone; or

Attending and voting at the Annual Meeting (although attendance at the meeting will not, by itself, revoke a proxy).

Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to revoke a proxy, you must contact that firm to revoke any prior voting instructions.

Where can I find the voting results?

The final results will be tallied by the inspector of elections and filed with the U.S. Securities and Exchange Commission (the “SEC”) in a current report on Form 8-K within four business days of the Annual Meeting.

 

ANNUAL MEETING OF SHAREHOLDERS		2019 PROXY STATEMENT  |  9

SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP

SECURITY OWNERSHIP OF TOP

SHAREHOLDERS & LEADERSHIP

The following table sets forth information as of June 14, 2019, regarding the beneficial ownership of our common stock by: each person or group who is known by us to own beneficially more than 5% of our outstanding shares of our common stock; each of our named executive officers; each of our current directors; and all of our current executive officers and directors as a group.

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. Percentage of beneficial ownership is based on 18,369,502 shares of common stock outstanding as of June 14, 2019. The shares outstanding as of June 14, 2019 reflects the effect of our repurchase of approximately 2.2 million shares of our common stock at an average price of $115.36 per share, for an aggregate repurchase amount of approximately $250.0 million, during our first fiscal quarter of 2019 ending May 4, 2019 pursuant to an existing share repurchase authorization. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each shareholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the shareholder. Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o RH, 15 Koch Road, Corte Madera, CA 94925.

 

NAME(1)		NUMBER					PERCENT
Gary Friedman(2)				7,230,158			31.0%
FMR LLC(3) 245 Summer Street, Boston, MA 02210				3,182,368			17.3%
BlackRock, Inc.(4) 55 East 52nd Street, New York, NY 10055				2,774,620			15.1%
The Vanguard Group(5) 100 Vanguard Blvd., Malvern, PA 19355				2,744,035			14.9%
T. Rowe Price Associates, Inc.(6) 100 E. Pratt Street, Baltimore, MD 21202				1,431,521			7.8%
Susquehanna Securities(7) 401 E. City Avenue, Suite 220, Bala Cynwyd, PA 19004				1,110,369			6.0%
Miller Value Partners, LLC(8) One South Street, Suite 2550, Baltimore, MD 21202				985,635			5.4%
The Goldman Sachs Group, Inc.(9) 200 West Street, New York, NY 10282				976,926			5.3%
Carlos Alberini(10)				69,344			*
Keith Belling(11)				17,501			*
Ryno Blignaut				—			—
Karen Boone				—			—
Eri Chaya(12)				385,829			2.1%
Mark Demilio(13)				57,106			*
Hilary Krane(14)				7,916			*
Katie Mitic(15)				15,267			*
Jack Preston(16)				77,001			*
DeMonty Price(17)				210,522			1.1%
Ali Rowghani(18)				6,953			*
Leonard Schlesinger(19)				11,502			*
David Stanchak(20)				152,962			*
All current executive officers and directors as a group (14 persons)(21)				8,242,061			36.4%

 

SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP		2019 PROXY STATEMENT  |  11

*	Represents beneficial ownership of less than 1% of our outstanding common stock.

 

(1)	Under the rules of the SEC, our named executive officers include our principal executive officer, principal financial officer and the next three most highly compensated executive officers.

 

(2)	Includes 4,976,826 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of June 14, 2019. As of June 14, 2019, 666,668 of these options are subject to selling restrictions.

 

(3)	Based on the Schedule 13G/A filed by FMR LLC on February 13, 2019.

 

(4)	Based on the Schedule 13G/A filed by BlackRock, Inc. on February 11, 2019.

 

(5)	Based on the Schedule 13G/A filed by Vanguard Group, Inc. on February 12, 2019.

 

(6)	Based on the Schedule 13G/A filed by T. Rowe Price Associates, Inc. on May 10, 2019.

 

(7)

Based on the Schedule 13G filed by Susquehanna Securities on February 14, 2019. Susquehanna Advisors Group, Inc. is the investment manager to Capital Ventures International and as such may exercise voting and dispositive power over the shares directly owned by Capital Ventures International. Susquehanna Investment Group and Susquehanna Securities are affiliated independent broker-dealers which, together with Capital Ventures International and Susquehanna Advisors Group, Inc., may be deemed a group.

 

(8)	Based on the Schedule 13G/A filed by Miller Value Partners, LLC on February 14, 2019.

 

(9)	Based on the Schedule 13G/A filed by The Goldman Sachs Group, Inc. on February 12, 2019.

 

(10)	Includes 915 restricted stock awards that vest on July 18, 2019.

 

(11)	Includes 915 restricted stock awards that vest on July 18, 2019.

 

(12)	Includes 308,600 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of June 14, 2019 and 26,000 restricted stock units that vest on June 16, 2019.

 

(13)	Includes 34,425 shares of common stock held by Mr. Demilio’s family trust, 12,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of June 14, 2019 and 915 restricted stock awards that vest on July 18, 2019.

 

(14)	Includes 915 restricted stock awards that vest on July 18, 2019.

 

(15)	Includes 2,800 shares of common stock held by Ms. Mitic’s family trust and 915 restricted stock awards that vest on July 18, 2019.

 

(16)	Includes 63,500 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of June 14, 2019 and 13,500 restricted stock units that vest on June 16, 2019.

 

(17)	Includes 145,123 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of June 14, 2019 and 19,500 restricted stock units that vest on June 16, 2019.

 

(18)	Includes 915 restricted stock awards that vest on July 18, 2019.

 

(19)	Includes 915 restricted stock awards that vest on July 18, 2019.

 

(20)	Includes 118,500 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of June 14, 2019 and 3,000 restricted stock units that vest on June 16, 2019.

 

(21)

Includes 5,624,549 shares of common stock our executive officers and directors have a right to acquire upon the exercise of options that are exercisable within 60 days of June 14, 2019, 6,405 restricted stock awards that vest on July 18, 2019 and 62,000 restricted stock units that vest on June 16, 2019.

 

12  |  2019 PROXY STATEMENT		SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP

 

 

INTENTIONALLY LEFT BLANK

 

 

 

SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP		2019 PROXY STATEMENT  |  13

COMPANY LEADERSHIP DIRECTORS & OFFICERS

DIRECTORS

 

		GARY FRIEDMAN
		Chairman and Chief Executive Officer   Age: 61   Director since 2013   Board Committees: None   Class III Director: Continuing in office until the 2021 annual meeting		Gary Friedman has served as our Chairman and Chief Executive Officer of the Company, and Founder of the RH brand as we know it today since January 2014. Previously, Mr. Friedman served as our Co-Chief Executive Officer and Director from July 2013 to January 2014, and as Chairman and Co-Chief Executive Officer from May 2010 to October 2012. From October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis, and as Chief Executive Officer and a member of our board of directors from March 2001 to October 2012, during which time he served as our Chairman from March 2005 to June 2008. Mr. Friedman joined RH from Williams-Sonoma, Inc. where he spent 14 years serving as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer of Williams-Sonoma, Inc. and President of Retail from 1995 to 2000, and as Executive Vice President of Williams-Sonoma, Inc. and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2000 during which time Mr. Friedman was responsible for transforming Pottery Barn from a $50 million dollar table top and accessories business, into a billion dollar plus home furnishings lifestyle brand. Mr. Friedman also developed and rolled out the revolutionary Williams-Sonoma Grande Cuisine stores, growing the brand from less than $100 million to almost $1 billion. Lastly, while at Williams-Sonoma Mr. Friedman spent several years conceptualizing and developing the West Elm brand which launched shortly after he left the company. Mr. Friedman joined Williams-Sonoma in 1988 as Senior Vice President of Stores and Operations. Mr. Friedman began his retail career in 1977 as a stock-boy at the Gap store in Santa Rosa, California. He spent eleven years with Gap, and held the positions of Store Manager, District Manager and Regional Manager overseeing 63 stores in Southern California.
				Qualifications:    Mr. Friedman was selected to our board of directors because of his leadership in re-conceptualizing and developing the RH brand and business into the leading luxury home brand in the North American market, his deep and unmatched expertise in developing and rapidly growing many of the leading consumer brands in the home furnishings space, and his extensive knowledge of building and leading complex multi-branded and multi-channel organizations.
		MARK DEMILIO
		Lead Independent Director   Age: 63   Director since 2009   Board Committees: Audit, Compensation, Nominating and Corporate Governance   Class I Director: Continuing in office until the 2019 annual meeting		Mark Demilio has served as a member of our board of directors since September 2009 and currently serves as the board’s Lead Independent Director. Since September 2015, Mr. Demilio has served as a member of the board of directors and Chairman of the audit committee of Schumacher Clinical Partners, a privately-held provider of emergency medicine and hospitalist services through physician staffing and management. Since June 2018, Mr. Demilio has served as a member of the board of directors and Chairman of the audit committee of Nurse Assist, a privately-held FDA registered manufacturer of medical device products. Mr. Demilio was a member of the board of directors of Cosi, Inc., a national restaurant chain, from April 2004 to May 2017, served on its audit committee, its compensation committee and its nominating and corporate governance committee, and served for a time as Chairman of the board of directors of Cosi and as the interim Chief Executive Officer of Cosi. From February 2014 through March 2016, Mr. Demilio served as a member of the board of directors and Chairman of the audit committee of The Paslin Company, a private company that designs, assembles and integrates robotic assembly lines for the automotive industry.

 

COMPANY LEADERSHIP, DIRECTORS & OFFICERS		2019 PROXY STATEMENT  |  15

		MARK DEMILIO
				From December 2000 until his retirement in October 2008, Mr. Demilio served as the Chief Financial Officer of Magellan Health Services, Inc., a Nasdaq-listed managed specialty healthcare company that managed the delivery of behavioral healthcare treatment services, specialty pharmaceuticals and radiology services. Mr. Demilio has also been the General Counsel for Magellan Health Service, the Chief Financial Officer and General Counsel of Youth Services International, Inc., an attorney specializing in corporate and securities law with the law firms of Miles & Stockbridge and Piper & Marbury, a financial analyst for CareFirst BlueCross BlueShield of Maryland and a certified public accountant with Arthur Andersen LLP.
				Qualifications:    Mr. Demilio was selected to our board of directors because he possesses particular knowledge and experience in accounting, finance and capital structure, strategic planning and leadership of complex organizations and board practices of other major corporations.
		LEONARD SCHLESINGER
		Age: 66   Director since 2014   Board Committees: Compensation   Class I Director: Continuing in office until the 2019 annual meeting		Leonard Schlesinger was appointed to our board of directors in April 2014. Dr. Schlesinger has served as the Baker Foundation Professor of Business Administration at Harvard Business School, a role he returned to in July 2013 after having served as the President of Babson College from July 2008 until July 2013 and having held various positions at public and private companies. From 1999 to 2007, Dr. Schlesinger held various executive positions at Limited Brands, Inc. (now L Brands, Inc.), an NYSE-listed company, including Vice Chairman of the board of directors and Chief Operating Officer. While at Limited Brands, he was responsible for the operational and financial functions across the enterprise including Express, Limited Stores, Victoria’s Secret Beauty, Bath and Body Works, C.O. Bigelow, Henri Bendel and the White Barn Candle Company. Dr. Schlesinger also previously served as Executive Vice President and Chief Operating Officer at Au Bon Pain Co., Inc. and as a director of numerous public and private retail, consumer products and technology companies. Dr. Schlesinger has also held leadership roles at leading MBA and executive education programs and other academic institutions, including twenty years at Harvard Business School where he served as the George Fisher Baker Jr. Professor of Business Administration. Dr. Schlesinger holds a Doctor of Business Administration from Harvard Business School, an M.B.A. from Columbia University and a Bachelor of Arts in American Civilization from Brown University.
				Qualifications:    Dr. Schlesinger’s extensive experience at numerous private and public retail companies provides the board with valuable operational, financial and business expertise.

 

16  |  2019 PROXY STATEMENT		COMPANY LEADERSHIP, DIRECTORS & OFFICERS

		CARLOS ALBERINI
		Age: 63   Director since 2010   Board Committees: None   Class III Director: Continuing in office until the 2021 annual meeting		Carlos Alberini has served on our board of directors since June 2010. Mr. Alberini currently serves as a member of the board of directors and Chief Executive Officer of Guess?, Inc., an NYSE-listed specialty retailer of apparel and accessories, since February 2019. Mr. Alberini previously served as the Chairman and Chief Executive Officer of Lucky Brand from February 2014 to February 2019. Mr. Alberini served as our Co-Chief Executive Officer from June 2010 through October 2012 and from July 2013 through January 2014, and he served as our sole Chief Executive Officer from October 2012 through July 2013. Mr. Alberini was President and Chief Operating Officer of Guess from December 2000 to June 2010. From May 2006 to July 2006, Mr. Alberini served as Interim Chief Financial Officer of Guess. Mr. Alberini served as a member of the board of directors of Guess from December 2000 to September 2011. From October 1996 to December 2000, Mr. Alberini served as Senior Vice President and Chief Financial Officer of Footstar, Inc., a retailer of footwear. From May 1995 to October 1996, Mr. Alberini served as Vice President of Finance and Acting Chief Financial Officer of the Melville Corporation, a retail holding corporation. From 1987 to 1995, Mr. Alberini was with The Bon-Ton Stores, Inc., an operator of department stores, in various capacities, including Corporate Controller, Senior Vice President, Chief Financial Officer and Treasurer. Prior to that, Mr. Alberini served in various positions at PricewaterhouseCoopers LLP, an audit firm.
				Qualifications:    Mr. Alberini was selected to our board of directors because he possesses particular knowledge and experience in retail and merchandising, branded consumer goods, accounting, financing and capital finance, board practices of other large retail companies and leadership of complex organizations.
		KEITH BELLING
		Age: 61   Director since 2016   Board Committees: None   Class III Director: Continuing in office until the 2021 annual meeting		Keith Belling has served on our board of directors since April 2016, and previously served as an advisor to the board of directors from May 2015 to April 2016. Mr. Belling is the founder and CEO of RightRice, a next generation rice brand that launched in February 2019, in Whole Foods Markets nationwide and on Amazon. Mr. Belling is also the co-founder, Chairman and former Chief Executive Officer of popchips, inc. (“popchips”) a leading better-for-you snack food business that launched in 2007. He previously served as popchips’ Chief Executive Officer from 2007 through 2012, leading the company to sales and distribution at over 30,000 retail stores across North America and the United Kingdom and has served as the Chairman of the Board since 2007. Mr. Belling has served as an advisor to several innovative consumer, real estate and technology companies, including Modern Meadow Inc., Olly Nutrition, and LBA Realty LLC. Mr. Belling also has founded other businesses, including e-commerce company Allbusiness.com, a leading small business portal, founded in 2008, where Mr. Belling formerly served as Chief Executive Officer and which was acquired by NBCi. Mr. Belling was a real estate attorney with Morrison & Foerster LLP, where he represented a diverse clientele including developers and real estate investors.
				Qualifications:    Mr. Belling has been selected to our board because of his experience as a founder, leader, and entrepreneur of several innovative consumer companies, as well as his background and experience in the real estate sector.

 

COMPANY LEADERSHIP, DIRECTORS & OFFICERS		2019 PROXY STATEMENT  |  17

		ERI CHAYA
		Age: 45   Director since 2012   Board Committees: None   Class I Director: Continuing in office until the 2019 annual meeting		Eri Chaya serves as our President, Chief Creative and Merchandising Officer and Director. Ms. Chaya leads product curation and integration, brand development and design, and Interior Design for RH Interiors, Modern, Outdoor, Baby & Child and Teen, across the Company’s physical, digital and print channels of distribution. Ms. Chaya served as RH’s Co-President, Chief Creative and Merchandising Officer and Director from May 2016 to November 2017, Chief Creative Officer from April 2008 to May 2016 and Vice President of Creative from July 2006 to April 2008. Ms. Chaya has been a member of the board of directors since 2012. Prior to RH, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency, and a creative director at Banana Republic.
				Qualifications:    Ms. Chaya was selected to our board of directors because of her extensive knowledge and experience in design, product development, brand development, marketing and advertising.
		HILARY KRANE
		Age: 55   Director since 2016   Board Committees: Audit   Class II Director: Continuing in office until the 2020 annual meeting		Hilary Krane has served on our board of directors since her appointment in June 2016. She has served in executive roles at NIKE, Inc. since 2010 and currently serves as its Executive Vice President, Chief Administrative Officer and General Counsel. Prior to joining NIKE, Inc., Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. Ms. Krane has been a director at the Federal Reserve Bank of San Francisco, Portland Branch since January 2018. Ms. Krane holds a Bachelor of Arts from Stanford University and a J.D. from the University of Chicago.
				Qualifications:    Ms. Krane was selected to our board of directors because of her experience contributing to the growth and development of innovative and iconic global brands.
		KATIE MITIC
		Age: 49   Director since 2013   Board Committees: Audit   Class II Director: Continuing in office until the 2020 annual meeting		Katie Mitic has served on our board of directors since October 2013. Ms. Mitic was previously Founder and Chief Executive Officer of Sitch, Inc., a mobile app company from 2012 to 2017. From 2010 to 2012, Ms. Mitic served as Director of Platform & Mobile Marketing for Facebook, Inc., a social networking service. From June 2009 to July 2010, Ms. Mitic served as Senior Vice President, Product Marketing of Palm, Inc., a smartphone manufacturer. From 1994 to 2010, Ms. Mitic held leadership positions at various consumer technology companies. She also serves on the board of directors, compensation committee and nominating and governance committee of eBay, Inc., a global e-commerce company and on the board of directors of Headspace, a mobile health and wellness company. Ms. Mitic holds a B.A. degree in Economics from Stanford University and an M.B.A. degree from Harvard Business School.
				Qualifications:    Ms. Mitic was selected to our board of directors because of her extensive experience as a leader and entrepreneur obtained from her experience with major global consumer-facing technology companies.

 

18  |  2019 PROXY STATEMENT		COMPANY LEADERSHIP, DIRECTORS & OFFICERS

		ALI ROWGHANI
		Age: 46   Director since 2015   Board Committees: Nominating and Corporate Governance   Class II Director Continuing in office until the 2020 annual meeting		Ali Rowghani was appointed to our board of directors on January 22, 2015. Mr. Rowghani has served in executive leadership positions at innovative growth companies, including Twitter, Inc. and Pixar Animation Studios, Inc. At Twitter, Mr. Rowghani was hired as the Company’s first Chief Financial Officer in March 2010, and later served as Chief Operating Officer, with responsibility for business development, platform, media, product, and business analytics, from December 2012 to June 2014. Prior to Twitter, from June 2002 to February 2010, Mr. Rowghani served in various leadership roles at Pixar, including Chief Financial Officer and Senior Vice President, Strategic Planning, reporting to Pixar founder and President, Ed Catmull. Mr. Rowghani is currently the CEO of the YCombinator Continuity Fund, which invests in growth-stage startups. Mr. Rowghani holds a B.A. in International Relations and an M.B.A. from Stanford University.
				Qualifications:    Mr. Rowghani’s operational and financial leadership, coupled with his expertise in scaling innovative, high-growth companies, provides the board with valuable operational and financial expertise.

 

COMPANY LEADERSHIP, DIRECTORS & OFFICERS		2019 PROXY STATEMENT  |  19

EXECUTIVE OFFICERS

Below is a list of the names and ages, as of June 14, 2019, of our executive officers and a description of their business experience.

 

		GARY FRIEDMAN
		Chairman and Chief Executive Officer   Age: 61		Gary Friedman has served as our Chairman and Chief Executive Officer of the Company, and Founder of the RH brand as we know it today since January 2014. Previously, Mr. Friedman served as our Co-Chief Executive Officer and Director from July 2013 to January 2014, and as Chairman and Co-Chief Executive Officer from May 2010 to October 2012. From October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis, and as Chief Executive Officer and a member of our Board of Directors from March 2001 to October 2012, during which time he served as our Chairman from March 2005 to June 2008. Mr. Friedman joined RH from Williams-Sonoma, Inc. where he spent 14 years serving as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer of Williams-Sonoma, Inc. and President of Retail from 1995 to 2000, and as Executive Vice President of Williams-Sonoma, Inc. and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2000 during which time Mr. Friedman was responsible for transforming Pottery Barn from a $50 million dollar table top and accessories business, into a billion dollar plus home furnishings lifestyle brand. Mr. Friedman also developed and rolled out the revolutionary Williams-Sonoma Grande Cuisine stores, growing the brand from less than $100 million to almost $1 billion. Lastly, while at Williams-Sonoma Mr. Friedman spent several years conceptualizing and developing the West Elm brand which launched shortly after he left the company. Mr. Friedman joined Williams-Sonoma in 1988 as Senior Vice President of Stores and Operations. Mr. Friedman began his retail career in 1977 as a stock-boy at the Gap store in Santa Rosa, California. He spent eleven years with Gap, and held the positions of Store Manager, District Manager and Regional Manager overseeing 63 stores in Southern California.
		ERI CHAYA
		President, Chief Creative and Merchandising Officer   Age: 45		Eri Chaya serves as our President, Chief Creative and Merchandising Officer and Director. Ms. Chaya leads product curation and integration, brand development and design, and Interior Design for RH Interiors, Modern, Outdoor, Baby & Child and Teen, across the Company’s physical, digital and print channels of distribution. Ms. Chaya served as RH’s Co-President, Chief Creative and Merchandising Officer and Director from May 2016 to November 2017, Chief Creative Officer from April 2008 to May 2016 and Vice President of Creative from July 2006 to April 2008. Ms. Chaya has been a member of the RH Board of Directors since 2012. Prior to RH, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency, and a creative director at Banana Republic.

 

20  |  2019 PROXY STATEMENT		COMPANY LEADERSHIP, DIRECTORS & OFFICERS

		DEMONTY PRICE
		President, Chief Operating, Service and Values Officer   Age: 57		DeMonty Price serves as our President, Chief Operating, Service and Values Officer. Mr. Price leads service and operations across the Company’s Galleries, outlets, distribution centers, care centers and home delivery network, as well as ensure a deep commitment to the Company’s values and beliefs throughout the organization. Mr. Price served as Co-President, Chief Operating, Service and Values Officer from May 2016 to November 2017. Mr. Price joined RH in 2002 and served as the Company’s Chief Service and Values Officer from September 2015 to May 2016, and Senior Vice President of Retail Galleries and Operations, and the Company’s Chief Values Officer from June 2006 to September 2015. Prior to RH, Mr. Price was with Williams-Sonoma, Inc. for four years in various field leadership roles, as well as with Gap Inc. and Nike Inc.
		DAVE STANCHAK
		President, Chief Real Estate and Development Officer   Age: 61		David Stanchak serves as our President, Chief Real Estate and Development Officer. Mr. Stanchak leads real estate development, architecture and design for all of the Company’s brands, concepts and facilities domestically and internationally. Prior to Mr. Stanchak’s appointment to the Office of the President in November 2017, Mr. Stanchak served as RH’s Chief Real Estate and Transformation Officer since May 2017 and Chief Real Estate and Development Officer from May 2015 to May 2017. From 2008 to 2013, Mr. Stanchak served as Senior Vice President of Dick’s Sporting Goods and as President of Golf Galaxy. Mr. Stanchak has also been the President and owner of Pinpoint Real Estate Company since 1995. Over his 30-year career in the commercial real estate industry, Mr. Stanchak has worked as a senior executive, board member, consultant, investor, real estate broker and attorney in all aspects of high-growth, multi-unit retail brand development. He has had direct responsibility for opening more than 2,500 retail store locations, managing real estate portfolios and deploying in excess of $2 billion for retailers including RH, Dick’s Sporting Goods, Field & Stream, Golf Galaxy, True Runner, DSW, Filene’s Basement, Mike Ditka’s Steakhouse, James Hardie Building Products, Blockbuster Entertainment, Einstein/Noah Bagel Corp. and Boston Market.
		JACK PRESTON
		Chief Financial Officer   Age: 45		Jack Preston serves as our Chief Financial Officer and leads all financial functions including strategic and financial planning, accounting, treasury, tax, internal audit and investor relations across the Company’s multiple businesses and brands. Mr. Preston served as RH’s Senior Vice President, Finance and Chief Strategy Officer from August 2014 to March 2019, and Senior Vice President, Finance and Strategy from April 2013 to August 2014. Prior to RH, Mr. Preston worked for Bank of America Merrill Lynch for over 12 years, where he most recently served as a director in the consumer and retail investment banking group. Mr. Preston holds a bachelor of commerce degree from the Sauder School of Business at the University of British Columbia.

 

COMPANY LEADERSHIP, DIRECTORS & OFFICERS		2019 PROXY STATEMENT  |  21

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE & DIRECTOR INDEPENDENCE

CORPORATE GOVERNANCE GUIDELINES

Our Corporate Governance Guidelines generally specify the distribution of rights and responsibilities of our board of directors and detail the rules and procedures for making decisions on corporate affairs. In general, the shareholders elect our board of directors, which is responsible for the general governance of our Company, including selection and oversight of key leadership, and leadership is responsible for running our day-to-day operations.

Our Corporate Governance Guidelines are available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The contents of our website are not incorporated by reference into this proxy statement and are not soliciting materials.

CODE OF BUSINESS CONDUCT & CODE OF ETHICS

We have adopted a code of business conduct and code of ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. Copies of these codes are available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” We expect that any amendments to either code, or any waiver of the requirements of either code, will be disclosed on our website or as required by applicable law or NYSE listing requirements.

COMPENSATION COMMITTEE INTERLOCKS & INSIDER PARTICIPATION

No member of the compensation committee has served as one of our officers or employees at any time. None of our executive officers serves as a member of the compensation committee of any other company that has an executive officer serving as a member of our board of directors. None of our executive officers serves as a member of the board of directors of any other company that has an executive officer serving as a member of our compensation committee. None of our directors or executive officers are members of the same family.

COMPOSITION & QUALIFICATIONS OF OUR BOARD OF DIRECTORS

Our board of directors consists of nine directors, including our Chairman and Chief Executive Officer. Our certificate of incorporation provides that, subject to any rights applicable to any then-outstanding preferred stock, our board of directors shall consist of such number of directors as determined from time to time by resolution adopted by a majority of the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. Subject to any rights applicable to any then-outstanding preferred stock, any additional directorships resulting from an increase in the number of directors may only be filled by the directors then in office, unless otherwise required by law or by a resolution passed by our board of directors. The term of office for each director will be until his or her successor is elected at our annual meeting or his or her death, resignation or removal, whichever is earliest to occur.

Our board of directors is divided into three classes, with each director serving a three-year term, and one class being elected at each year’s annual meeting of shareholders. Our directors by class are as follows:

Class I: Eri Chaya, Mark Demilio and Leonard Schlesinger, with a term expiring at the 2019 annual meeting.

Class II: Hilary Krane, Katie Mitic and Ali Rowghani, with a term expiring at the 2020 annual meeting.

Class III: Gary Friedman, Carlos Alberini and Keith Belling, with a term expiring at the 2021 annual meeting.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  23

COMMITTEE MEMBERSHIP

NAME/ CURRENT POSITION

AGE

DIRECTOR SINCE

INDEPENDENT

AUDIT

COMP.

NOM. &CORP.

Gary Friedman RH Chairman and CEO

61

Jul. 2013

Carlos Alberini Director and CEO of Guess?, Inc.

63

Jun. 2010

●

Keith Belling Founder and Chairman of popchips, inc.

61

Apr. 2016

Eri Chaya RH President, Chief Creative and Merchandising Officer

45

Nov. 2012

Mark Demilio Director and Chairman of the Audit Committee of Schumacher Clinical Partners and Nurse Assist

63

Sep. 2009

●

☐

∎

☐

Hilary Krane EVP, CAO and General Counsel, NIKE, Inc.

55

Jun. 2016

●

∎

Katie Mitic Director of eBay, Inc.

49

Oct. 2013

●

∎

Ali Rowghani CEO, YCombinator Continuity Fund

46

Jan. 2015

●

∎

Leonard Schlesinger Professor of Business Administration, Harvard Business School

66

Apr. 2014

●

☐

 

☐	Committee Chair

∎	Committee Member

 

EXPERIENCE

NAME/ CURRENT POSITION

BUSINESS LEADERSHIP

BRAND/ RETAIL

GROWTH COMPANY

PUBLIC CO. EXECUTIVE/ DIRECTOR

INVESTMENT/ FINANCIAL

LEGAL

RISK MANAGEMENT

Gary Friedman RH Chairman and CEO

●

●

●

●

Carlos Alberini Director and CEO of Guess?, Inc.

●

●

●

●

●

Keith Belling Founder and Chairman, popchips, inc.

●

●

●

●

Eri Chaya RH President, Chief Creative and Merchandising Officer

●

●

Mark Demilio Director and Chairman of the Audit Committee of Schumacher, Clinical Partners and Nurse Assist

●

●

●

●

●

Hilary Krane EVP, CAO & General Counsel, NIKE, Inc.

●

●

●

●

Katie Mitic Director, eBay, Inc.

●

●

●

●

Ali Rowghani CEO, YCombinator Continuity Fund

●

●

●

●

●

Leonard Schlesinger Professor, Business Administration Harvard Business School

●

●

●

●

●

 

24  |  2019 PROXY STATEMENT		CORPORATE GOVERNANCE

We believe our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe experience, qualifications, or skills in the following areas are most important: retail merchandising; marketing and advertising; furniture and consumer goods; sales and distribution; accounting, finance, and capital structure; strategic planning and leadership of complex organizations; legal/regulatory and government affairs; people leadership; and board practices of other major corporations. We believe that all our current board members possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each board member in their individual biographies and as otherwise summarized above.

 

BOARD ASSESSMENT & DIVERSITY

Our board of directors strongly believes its effectiveness is enhanced by being comprised of individuals with diverse backgrounds, skills and experience that are relevant to the role of the board of directors and the needs of the business. Accordingly, the board regularly reviews the changing needs of the business and the skills and experience resident in its members, with the intention that the board will be periodically “renewed” as certain directors rotate off and new directors are recruited. The board’s commitment to diversity and “renewal” will be tempered by the need to balance change with continuity and experience.

Our current board composition is highly diverse in the areas of gender, age, ethnicity and business experience. We believe that our commitment to diversity is demonstrated by the current membership composition of our board.

California recently passed legislation requiring companies headquartered in the state to meet specific gender diversity requirements on their Board per California Senate Bill 826 (“SB 826”) which was signed into law on September 30, 2018. Based on our Board composition, we are already in compliance with the requirements of SB 826 which we believe goes to show the effectiveness of our approach to Board qualifications and selection criteria. See the graphic under “—Composition and Qualifications of our Board of Directors” above for further information regarding the composition and experience of our current board.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  25

BOARD LEADERSHIP STRUCTURE; LEAD INDEPENDENT DIRECTOR

Our Corporate Governance Guidelines provide that the roles of Chairman of our board of directors and Chief Executive Officer may be either separate or combined, and our board of directors exercises its discretion in combining or separating these positions as it deems appropriate. Our board of directors believes that the combination or separation of these positions should continue to be considered as part of our succession planning process. Currently, the roles are combined, with Mr. Friedman serving as Chief Executive Officer and Chairman of our board of directors.

In July 2013, the board of directors created the position of Lead Independent Director and adopted a Lead Independent Director Charter, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The Lead Independent Director Charter provides that the Lead Independent Director shall serve in a lead capacity to coordinate the activities of the other non-employee directors, to help facilitate communication between the board of directors and leadership and perform such other duties and functions as directed by the board from time to time. The Lead Independent Director presides over executive sessions of non-management directors.

Mr. Demilio currently serves as our Lead Independent Director. We believe the appointment of Mr. Demilio as our Lead Independent Director is beneficial to the Company due to Mr. Demilio’s breadth of experience and ability to facilitate communication between leadership and the board of directors and devote significant time to the Company.

Our Corporate Governance Guidelines provide the flexibility for our board of directors to modify our leadership structure in the future as appropriate. We believe that our Company is well served by this flexible leadership structure.

BOARD INDEPENDENCE

In accordance with our Corporate Governance Guidelines, the board of directors affirmatively determines that each independent director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and meets the standards for independence as defined by applicable law and the rules of the NYSE.

Our board of directors undertook its annual review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our board of directors affirmatively determined that each of Mr. Alberini, Mr. Demilio, Ms. Krane, Ms. Mitic, Mr. Rowghani and Dr. Schlesinger is an “independent director,” as defined under the applicable rules of the NYSE and the SEC, and that the other members of the board are not independent. Further, the board of directors determined that each member of the board of directors’ audit committee, compensation committee and nominating and corporate governance committee satisfies independence standards applicable to each committee on which he or she serves.

The board’s independence determination was based on information provided by our current directors. In particular, in making its determination that Mr. Alberini is an independent director, the board of directors considered that under the rules of the NYSE and the SEC, Mr. Alberini could be deemed independent for membership on the board of directors after February 2017 given that his prior service as the Company’s Co-Chief Executive Officer and Chief Executive Officer had occurred more than three years prior to such date. In reaching its conclusion regarding the independence of Mr. Alberini, the board of directors further considered Mr. Alberini’s time away from the management of RH, the fact that he had served as the chief executive officer of Lucky Brands, and the fact that he subsequently left Lucky Brands and is now serving as the chief executive officer of Guess?, Inc., a publicly traded company, listed on the NYSE, along with other prior and existing relationships between the Company and Mr. Alberini. In its annual re-assessment of independence of its members, the board concluded that Mr. Alberini is independent as it did in the prior year. The board has concluded Mr. Alberini’s circumstances distinguish him from that of a former chief executive officer who remains on the board of directors upon retirement as chief executive officer.

 

26  |  2019 PROXY STATEMENT		CORPORATE GOVERNANCE

Although the board of directors determined that Mr. Alberini is an independent director under the applicable rules of the NYSE and the SEC, the board of directors has elected not to appoint Mr. Alberini to any of the committees of the Company that are required under applicable rules of the NYSE or SEC to be composed entirely of independent directors.

BOARD MEETINGS

Our board of directors held a total of four meetings during fiscal 2018 and our independent directors met in regularly scheduled executive sessions presided over by our Lead Independent Director. During fiscal 2018, all of our incumbent directors attended at least 75% of the total meetings of the board and of the committees on which they served during the period for which they were a director or committee member.

Agendas and topics for board and committee meetings are developed through discussions among leadership and members of our board of directors and its committees. Information and data that are important to the issues to be considered are distributed in advance of each meeting. Board meetings and background materials focus on key strategic, operational, financial, governance and compliance matters applicable to us.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  27

COMMITTEE COMPOSITION & MEETINGS

In fiscal 2018, the board had the following standing committees: an audit committee; a compensation committee; and a nominating and corporate governance committee. All board committees are composed of independent directors. Committee membership and the number of meetings each committee held in fiscal 2018 are as follows:

 

		COMMITTEES
DIRECTORS				AUDIT(3)		COMPENSATION(3)		NOM. & CORP. GOVERNANCE(3)
Mark Demilio (1)(2)				Chair		Member		Chair
Hilary Krane				Member
Katie Mitic				Member
Ali Rowghani								Member
Leonard Schlesinger						Chair
Number of Meetings in Fiscal 2018				5		5		1

 

(1)	Designated by the board as an “audit committee financial expert.”

(2)	Mr. Demilio is currently the board’s Lead Independent Director.

(3)	Committee members had various informal meetings in fiscal 2018.

Our board of directors has delegated various responsibilities and authorities to its three different committees, as described below and in the committee charters. The board committees regularly report on their activities and actions to the full board of directors as they deem appropriate and as the board of directors may request. Each member of the audit committee, the compensation committee and the nominating and corporate governance committee was appointed by our board of directors, which reviews committee composition from time to time.

Audit Committee

The audit committee was established for the primary purpose of assisting the board of directors in overseeing the accounting and financial reporting processes of the Company and audits of its financial statements. The audit committee is responsible for, among other matters:

Appointing, retaining, compensating, evaluating, terminating and overseeing our independent registered public accounting firm;

Delineating relationships between our independent registered public accounting firm and our Company consistent with the rules of the NYSE and requesting information from our independent registered public accounting firm and leadership to determine the presence or absence of a conflict of interest;

Reviewing with our independent registered public accounting firm the scope and results of their audit;

Approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

Overseeing the financial reporting process and discussing with leadership and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

Reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements;

Establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; and

Reviewing and approving related-person transactions.

 

28  |  2019 PROXY STATEMENT		CORPORATE GOVERNANCE

Our audit committee currently consists of Mr. Demilio, Ms. Krane and Ms. Mitic. Rule 10A-3 of the Exchange Act, and NYSE rules require us to have at least three audit committee members, all of whom are independent. Our board of directors has affirmatively determined that each of Mr. Demilio, Ms. Krane and Ms. Mitic meets the definition of “independent director” for purposes of serving on our audit committee under Rule 10A-3 of the Exchange Act and NYSE rules. In addition, our board of directors has determined that Mr. Demilio qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.

Our board of directors has adopted a written charter for the audit committee, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The audit committee conducts an annual self-evaluation of its performance, as set forth in its charter.

Compensation Committee

The compensation committee was established for the primary purpose of assisting the board of directors in discharging its responsibilities relating to the compensation of the Company’s directors and executive officers, as further described in “Executive Compensation—Compensation Discussion & Analysis—Compensation Committee Review of Compensation” above. The compensation committee is responsible for, among other matters:

Reviewing key employee compensation goals, policies, plans and programs;

Reviewing and approving the compensation of our directors, Chief Executive Officer and other executive officers;

Reviewing employment agreements and other similar arrangements between us and our executive officers; and

Appointing and overseeing any compensation consultants.

Our compensation committee currently consists of Mr. Demilio and Dr. Schlesinger. Our board of directors has affirmatively determined that each member of the compensation committee meets applicable independence requirements for membership on a compensation committee in accordance with applicable rules of the NYSE.

Our board of directors adopted a written charter for the compensation committee, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The compensation committee conducts an annual self-evaluation of its performance, as set forth in its charter.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee was established for the primary purpose of assisting the board of directors in discharging its responsibilities relating to the election of directors. The nominating and corporate governance committee is responsible for, among other matters:

Identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors;

Overseeing the organization of our board of directors to discharge the board’s duties and responsibilities properly and efficiently; and

Developing and recommending to our board of directors a set of corporate governance guidelines and principles.

Our nominating and corporate governance committee currently consists of Messrs. Demilio and Rowghani. Our board of directors has affirmatively determined that each member of the nominating and corporate governance committee meets applicable independence requirements for membership on a nominating and corporate governance committee in accordance with applicable rules of the NYSE.

Our board of directors adopted a written charter for the nominating and corporate governance committee, which is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Corporate Governance.” The nominating and corporate governance committee conducts an annual self-evaluation of its performance, as set forth in its charter.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  29

DIRECTOR NOMINATIONS; COMMUNICATION WITH DIRECTORS

Criteria for Nomination to the Board

In accordance with its charter, the nominating and corporate governance committee will consider candidates submitted by the Company’s shareholders, as well as candidates recommended by directors and leadership, for nomination to our board of directors. The nominating and corporate governance committee considers qualifications for the board of directors’ membership, which may include, among others:

The highest personal and professional integrity;

Demonstrated exceptional ability and judgment;

Broad experience in business, finance or administration;

Familiarity with the Company’s industry;

Ability to serve the long-term interests of the Company’s shareholders;

Sufficient time available to devote to the affairs of the Company;

Ability to provide continuing service to promote stability and continuity in the boardroom and provide the benefit of familiarity and insight into the Company’s affairs that directors would accumulate during their tenure;

Ability to help the board of directors work as a collective body; and

Experience, areas of expertise, as well as other factors relative to the overall composition of the board of directors.

The nominating and corporate governance committee further reviews and assesses the activities and associations of each candidate to ensure there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on our board of directors. In making its selection, the nominating and corporate governance committee bears in mind that the foremost responsibility of a director of a company is to represent the interests of the shareholders as a whole.

Each director’s individual biography set forth above includes the key individual attributes, experience and skills of each director that led to the conclusion that each director should continue to serve as a member of our board of directors at this time, as reflected in the summary above. We believe the range of tenures of our directors creates a synergy between institutional knowledge and new perspectives.

Shareholder Proposals for Nominees

In accordance with its charter, the nominating and corporate governance committee will consider potential nominees properly submitted by shareholders. Shareholders seeking to do so should provide the information set forth in the nominating and corporate governance committee’s charter regarding director nominations. The nominating and corporate governance committee will apply the same criteria for candidates proposed by shareholders as it does for candidates proposed by leadership or other directors.

 

30  |  2019 PROXY STATEMENT		CORPORATE GOVERNANCE

To be considered for nomination by the nominating and corporate governance committee at next year’s annual meeting of shareholders, submissions by shareholders must be submitted in writing and must be received by the Corporate Secretary between February 20, 2020 and March 21, 2020 to ensure adequate time for meaningful consideration by the nominating and corporate governance committee. Each submission must include the following information:

The candidate’s name, age, business address and residence address;

The candidate’s biographical information, including educational information, principal occupation or employment, past work experience (including all positions held during the past five years), personal references, and service on boards of directors or other material positions that the candidate currently holds or has held during the prior three years;

The class and number of shares of the Company which are beneficially owned by the candidate;

Any potential conflicts of interest that might prevent or otherwise limit the candidate from service as an effective member;

Any other information pertinent to the qualification of the candidate;

The name and record address of the shareholder making the recommendation; and

The class and number of shares of the Company which are beneficially owned by such shareholder and the period of time such shares have been held, including whether such shares have been held in excess of one year prior to the date of the recommendation.

Information regarding requirements that must be followed by a shareholder who wishes to make a shareholder nomination for election to our board of directors for next year’s annual meeting is described in this proxy statement under “Proposals — Additional Information — Shareholder Proposals for the 2020 Annual Meeting.”

Communicating with Members of the Board of Directors

Any shareholder or any other interested party who wishes to communicate directly with (i) our entire board of directors, (ii) the non-management directors as a group, or (iii) the Lead Independent Director, may do so by corresponding with the Lead Independent Director at the following address: Lead Independent Director, RH, Legal Dept., 15 Koch Road, Corte Madera, CA 94925, Attn: Corporate Secretary. All communications will be received, processed and then directed to the appropriate member(s) of our board other than, at the board’s request, certain items unrelated to the board’s duties, such as customer complaints, spam, junk mail, solicitations, employment inquires and similar items.

SHAREHOLDER OUTREACH ACTIVITIES

We actively engage with major shareholders of the Company, which has been a practice of the Company since our initial public offering in 2012. In 2016, we launched a formalized shareholder outreach program in order to solicit additional input from shareholders with respect to corporate governance and executive compensation practices. This shareholder outreach effort continued in 2017, 2018 and 2019 and is designed to supplement the ongoing communications between our leadership and shareholders.

Please refer to “Executive Compensation — Compensation Discussion & Analysis — Shareholder Engagement” for more information regarding our shareholder outreach program. We plan to continue various shareholder communication and outreach programs in the future.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  31

BOARD’S ROLE IN RISK OVERSIGHT

Our board of directors is responsible for overseeing our risk management process. Our board of directors focuses on our general risk management strategy, including the most significant risks facing us, and oversees the implementation of risk mitigation strategies by leadership. Our board of directors is also apprised by leadership of particular risk management matters in connection with the board’s general oversight and approval of corporate matters and significant transactions. In addition, each of the board committees is responsible for risk management under its area of responsibility and consistent with its charter and such other responsibilities as may be delegated to them by the board of directors from time to time.

DIRECTOR & EXECUTIVE STOCK OWNERSHIP GUIDELINES

In May 2018, the Board adopted stock ownership guidelines applicable to all directors and executive officers of the Company in order to further align the financial interest of our directors and executive officers with the interest of our investors. The guidelines provide that executive officers should own RH stock with a value at least equal to six times annual base salary for the Chief Executive Officer and two times annual base salary for our other executive officers. The guidelines provide that non-management directors should own RH stock with a value at least equal to two times the amount of the annual cash retainer paid to directors. Executive officers and directors are expected to achieve the stock ownership levels under these guidelines by the later of five years from the effective date of the guideline or the date of their hire, promotion or appointment, except for the Chief Executive Officer for whom these guidelines are effective immediately.

All executive officers and non-management directors are in compliance with the guidelines.

Our Chairman and Chief Executive Officer, Mr. Friedman, has consistently maintained a significant equity ownership interest in the Company and, as of June 14, 2019, beneficially owns approximately 31.0% of the Company’s common stock which, based on the average closing price for RH stock for fiscal 2018, was valued at approximately 468.5 times his annual base salary for fiscal 2018, far above the multiple of six times salary minimum ownership requirement. Additional information regarding the stockholdings of our other named executive officers and directors is set forth in this proxy statement in the section entitled “Security Ownership of Top Shareholders & Leadership.”

STOCK TRADING PRACTICES

We maintain an insider trading policy that, among other things, prohibits our officers, including our named executive officers, directors and employees from trading during quarterly blackout periods and contains other restrictions on trading activities designed to avoid circumstances where Company insiders may be deemed to have traded on material nonpublic information.

Anti-hedging

Under the insider trading policy, we also prohibit short sales, hedging and similar transactions designed to decrease the risks associated with holding the Company’s securities, pledging the Company’s securities as collateral for loans and transactions involving derivative securities relating to our common stock. Our insider trading policy also requires that all directors and employees with titles of vice president or higher, including our named executive officers, pre-clear any proposed open market transactions.

10b5-1 Trading Plans

Each of our executive officers and directors may enter into a written plan (“10b5-1 Trading Plan”) for the automatic trading of securities in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It has been the practice of the named executive officers to disclose on Form 4 filed with the SEC whether any sale or other transfer of shares reported has been made pursuant to a 10b5-1 Trading Plan.

 

32  |  2019 PROXY STATEMENT		CORPORATE GOVERNANCE

All 10b5-1 Trading Plans entered into by our executive officers and directors must comply with our insider trading policy, and any 10b5-1 Trading Plan must be pre-cleared in advance by the Company’s corporate compliance officer. A number of members of our leadership team and directors have adopted 10b5-1 Trading Plans.

CORPORATE SOCIAL RESPONSIBILITY

We developed our Compliance & Corporate Social Responsibility (“CSR”) program to consist of four key components:

Compliance & Product Safety

Philanthropy

Responsible Sourcing

Sustainability

We believe this approach responsibly aligns our approach to environmental, social and governance issues with the Company’s long-term strategic goals.

We are committed to sourcing safe and quality products, to being a conscientious and charitable neighbor in the communities where we live and work, to working with suppliers that help promote safe and fair working conditions, and to being responsible stewards of natural resources and of architectural legacy.

We believe that these four key components enhance our brand presence and are aligned with the interests of our customers and shareholders.

We collaborate with a variety of third-party partners to help implement our CSR program. We have worked with Habitat for Humanity, Good360, UL, GoodWeave and Fair Working Conditions, among others.

We have not used corporate funds to make contributions to nor have we provided use of any of our Galleries to support or oppose federal, state or local political parties, candidates, campaigns and/or ballot measures. Our statement on political activity is available on the Investor Relations section of our website, which is located at ir.rh.com under Corporate Governance.

We continue to evolve our CSR program. More information on our CSR efforts and the work we do with our third-party partners is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Compliance & Corporate Social Responsibility.”

ANNUAL MEETING ATTENDANCE

We do not have a policy that requires our directors to attend the annual meeting of shareholders. One director attended the 2018 annual meeting.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  33

COMPENSATION OF DIRECTORS

On May 2, 2018, the board adopted several changes to the going forward compensation of non-management directors, with such changes to become effective at the time of the July 18, 2018 annual meeting on a going-forward basis. In order to better align with prevailing market practices, the board of directors determined to eliminate all per meeting fees in favor of an increase in the annual cash retainer for non-employee members of $15,000 per annum. The increased retainer is expected to align with the approximate level of fees paid previously as per meeting fees for the meetings of the board of directors each year. In addition, to reflect the level of work required for certain board roles, the board of directors elected to add a cash retainer of $30,000 per annum for the Lead Independent Director role (where there previously was no cash payment) and to increase the annual cash retainer for the head of the audit committee and compensation committee by $30,000 and $40,000, respectively.

We compensate all non-employee members of our board of directors as follows:

 

		PRIOR TO JULY 18, 2018		EFFECTIVE AS OF JULY 18, 2018
Annual cash retainer		$120,000, paid quarterly in advance		$135,000, paid quarterly in advance
Lead Independent Director		20,000 stock options granted upon appointment(1)		20,000 stock options granted upon appointment and $30,000, paid quarterly in advance
Audit committee chairman		$50,000, paid quarterly in advance		$80,000, paid quarterly in advance
Audit committee member		$25,000, paid quarterly in advance		$25,000, paid quarterly in advance
Compensation committee chairman		$35,000, paid quarterly in advance		$75,000, paid quarterly in advance
Compensation committee member		$20,000, paid quarterly in advance		$20,000, paid quarterly in advance
Nominating & corporate governance committee chairman		$25,000, paid quarterly in advance		$25,000, paid quarterly in advance
Nominating & corporate governance committee member		$15,000, paid quarterly in advance		$15,000, paid quarterly in advance
Board meeting attendance fees		$2,500 per in-person meeting;		N/A
		$1,500 per telephonic meeting		N/A
Annual equity grant of restricted stock		Aggregate value of $125,000(2)		Aggregate value of $125,000(2)

 

(1)

This option was granted in March 2016 upon Mark Demilio’s appointment as Lead Independent Director. No additional grant was made in fiscal 2018. The options vest in five equal installments over five years, subject to the individual’s continuing service as the Lead Independent Director, such that the option shall become exercisable for 4,000 shares on the first anniversary of the date of the individual’s appointment as Lead Independent Director and for an additional 4,000 shares upon each of the second, third, fourth and fifth anniversaries thereafter.

 

(2)

Based on the average closing price of our common stock on the date of grant, determined using the closing prices for the ten consecutive trading days prior to and inclusive of the date of grant, which shares vest in full on the one-year anniversary of the date of grant. Grants are made for service for the period between the annual meeting of shareholders for the fiscal year in which the grant was made and the annual meeting of shareholders for the following fiscal year.

Annual equity grants described above are granted on the date of the annual meeting of shareholders each year.

Mr. Friedman and Ms. Chaya, as current Company employees, did not receive any compensation for board service for fiscal 2018. All directors receive reimbursement for reasonable out-of-pocket expenses incurred in connection with meetings of our board of directors.

 

34  |  2019 PROXY STATEMENT		CORPORATE GOVERNANCE

The following table shows the compensation earned by all non-employee directors during fiscal 2018:

 

NAME		FEES EARNED				STOCK AWARDS(1)				TOTAL
Carlos Alberini		$135,740				$122,235				$257,975
Keith Belling		$135,740				$122,235				$257,975
Mark Demilio		$264,192				$122,235				$386,427
Hilary Krane		$158,240				$122,235				$280,475
Katie Mitic		$158,240				$122,235				$280,475
Ali Rowghani		$150,740				$122,235				$272,975
Leonard Schlesinger		$192,712				$122,235				$314,947

 

(1)

Reflects the aggregate grant date fair value of the awards of restricted stock made in fiscal 2018, computed in accordance with Financial Accountaing Standards Board Accounting Standards Codification Topic 718, Stock-Based Compensation (“FASB ASC 718”). See Note 16 —Stock-Based Compensation in our audited consolidated financial statements contained in our 2018 Annual Report. Amounts shown do not reflect compensation actually received or that may be realized in the future by the director.

At February 2, 2019, the last day of our 2018 fiscal year, the aggregate number of unvested restricted stock awards and unexercised stock options held by each of our directors during fiscal 2018, other than Mr. Friedman and Ms. Chaya, is set forth below. Information regarding equity awards held by Mr. Friedman and Ms. Chaya is set forth in the table entitled “Outstanding Equity Awards at Fiscal Year-End” in this proxy statement in the section titled “Executive Compensation.”

 

NAME		UNVESTED RESTRICTED  STOCK(1)				UNEXERCISED STOCK OPTIONS
Carlos Alberini		915				—
Keith Belling		915				—
Mark Demilio		915				20,000(2)
Hilary Krane		915				—
Katie Mitic		915				—
Ali Rowghani		915				—
Leonard Schlesinger		915				—

 

(1)	All restricted stock awards listed above vest as to 100% of the shares on July 18, 2019.

 

(2)

Mr. Demilio was granted options to purchase 20,000 shares of stock in connection with his appointment as Lead Independent Director on March 9, 2016. Such options vest pro rata over five years such that they will be fully vested on March 2, 2021, subject to Mr. Demilio’s continued service as Lead Independent Director.

 

CORPORATE GOVERNANCE		2019 PROXY STATEMENT  |  35

EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION & ANALYSIS

Executive Summary

We align our executive compensation practices to the business objectives of our Company in order to drive ongoing improvements in our financial performance. This compensation discussion and analysis (“CD&A”) explains the strategy, design, and decision-making processes of our compensation programs and practices in the fiscal year ended February 2, 2019 (“fiscal 2018”) for our named executive officers. This CD&A is intended to provide perspective on the compensation information contained in the compensation tables that follow this discussion. This CD&A also discusses how the fiscal 2018 compensation of our named executive officers aligns with the key goals of our compensation philosophy, namely, attracting and retaining the best talent and driving financial performance. We also discuss how our Company uses its compensation programs including equity programs to encourage an ownership and stakeholder perspective among our named executive officers by providing them with a long-term interest in the growth and financial performance of our Company that aligns with the interests of our shareholders.

We believe that continually analyzing and refining our compensation program enables us to achieve the key goals of our compensation philosophy and supports ongoing improvements in our financial performance.

Fiscal 2018 Business Highlights

To assist you in reviewing the proposals to be acted upon at our Annual Meeting, we call your attention to the following information about the Company’s 2018 financial performance along with key executive compensation actions and decisions, and our key corporate governance policies and practices. The following business highlights are only a summary. For more complete information about these topics, please review the 2018 Annual Report and the entirety of this proxy statement.

RH is a curator of design, taste and style in the luxury lifestyle market. The Company offers its collections through its retail galleries across North America, the Company’s multiple Source Books, and online at RH.com, RHModern.com, RHBabyandChild.com, RHTeen.com and Waterworks.com. The home furnishings market is large and fragmented and we believe we have an opportunity to be the home brand for the luxury consumer at scale, both nationally and internationally. Our growth and long-term strategy is centered on the expansion of our product assortment, developing new categories, the transformation of our real estate platform and on international expansion.

We believe that compensation paid to our executive officers should be closely aligned with the performance of the Company, on both a short-term and long-term basis. The compensation committee’s decision-making regarding executive compensation in any given fiscal year is informed in part by the financial performance of the Company during the prior fiscal year as well as the strategic and business initiatives pursued by the Company during the year and over time. The Company undergoes an annual process to re-assess its compensation alignment. Accordingly, the compensation committee took actions in 2018 to better align the compensation of our leadership team with the Company’s performance goals and long-term business strategy as well as to retain the Company’s key talent. Below we highlight the Company’s strong recent performance including fiscal 2018 financial performance, fiscal 2018 key strategies and initiatives and fiscal 2018 share price performance.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  37

FISCAL 2018
Financial   Performance (1)		GAAP diluted earnings per share of $5.68 compared to $0.01 last year, adjusted diluted earnings per share of $8.54 compared to $3.05 last year, an increase of 180%.
		GAAP net income of $150.6 million compared to $2.2 million last year, adjusted net income of $400 million compared to $89.2 million last year, an increase of 151%.
		GAAP operating margin of 11.5% versus 5.4% last year, adjusted operating margin of 12.1% versus 7.0% last year.
		GAAP net revenues and adjusted net revenues increased 3% to $2.51 billion.
Key Strategies     & Initiatives		We focused in fiscal 2017 and fiscal 2018 on executing our new membership business model, architecting a new operating platform and maximizing cash flow by increasing revenues and earnings while decreasing inventory and capital spending.
		We believe that our record fiscal 2018 results demonstrate the strength of the RH brand, the power of our new business model, our focus on managing the business with a bias for earnings versus revenue growth, and our continued success revolutionizing physical retailing.
		While most in our industry are closing or downsizing stores, we remain committed to our quest of revolutionizing physical retailing. Our progress in fiscal 2018 included the opening of RH Portland and RH Nashville in the first half of the year, and the opening of two very unique and diverse retail experiences, RH New York and RH Yountville, in September. We continue to be pleased with the performance of our new Galleries and now have six Galleries with our integrated hospitality experience.
		As we did in fiscal 2017, we continued to hold ourselves back from adding new businesses in fiscal 2018 outside of ongoing investments in RH Hospitality as we remained focused on optimizing the profitability of our new operating platform.
		Our efforts architecting a new operating platform, inclusive of our distribution center network redesign, the redesign of our reverse logistics and outlet business, and the reconceptualization of our home delivery and customer experience, is driving lower costs and inventory levels, and higher earnings and inventory turns. We expect this multi-year effort to result in a dramatically improved customer experience, continued margin enhancement and significant cost savings over the next several years.
		As previously mentioned, our plan is to accelerate our real estate transformation, opening 5 to 7 new Galleries per year, up from 3 to 5 per year.
		We have several new brand extension plans in our development pipeline. We are launching RH Beach House with a dedicated Source Book and plan to launch RH Ski House with a dedicated Source Book. Additionally, we have plans to elevate and expand our assortments in key categories with the introduction of new bespoke collections as we pivot back to growth over the next several years. Our investment in RH Interior Design continues to provide a significant revenue opportunity as we continue building our ability to provide world class interior design services in North America—in our continued move beyond creating and selling products to conceptualizing and selling spaces.

 

38  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

FISCAL 2018

Share Price   Performance		We commenced fiscal 2018 with our common stock price trading at a price near $90 per share and ended the fiscal year with our stock having traded in the range of $120 per share to above $130 per share toward the end of our fiscal year. We believe our stock price performance was driven by our financial performance throughout the year as well as the success of our focus on execution, architecture and cash. In each of fiscal 2017, 2018 and 2019, the Company has deeply focused on capital allocation, optimization of free cash flow and increasing the gross margins of the business. For example, our fiscal 2017 and fiscal 2018 share repurchase programs have resulted in the repurchase of $1.25 billion of our capital stock, which the Company believes will prove to be an excellent allocation of capital in the long term interest of shareholders. Although our stock price has experienced substantial volatility from quarter to quarter including during fiscal 2018, we believe over the long term investors have and will continue to experience stock price appreciation. As of February 1, 2019, the last trading day of fiscal 2018, the closing price of our common stock was $133.64 per share, compared to $92.04 per share, which was the closing price of our common stock as of February 2, 2018, the last trading day of fiscal 2017.
Other   Performance   Metrics		In fiscal 2018 we generated record revenues in excess of $2.5 billion, record GAAP operating margin of 11.5%, record adjusted operating margins of 12.1%(1), and industry leading ROIC of 27.8%.(2)
		We have included a stock performance table below to disclose a measure of total shareholder return, reflecting postive performance, growth and the effectiveness of pay for performance alignment.

 

(1)	Reconciliations of GAAP to non-GAAP financial measures for adjusted net revenues, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are provided in the tables included in Annex A to this proxy statement.

 

(2)

We define Return on Invested Capital (or “ROIC”) as adjusted operating income after-tax for the most recent twelve-month period, divided by the average of beginning and ending debt and equity less cash and equivalents as well as short and long-term investments for the most recent twelve month period. ROIC is not a measure of financial performance under GAAP, and should be considered in addition to, and not as a substitute for other financial measures prepared in accordance with GAAP. Our method of determining ROIC may differ from other companies’ methods and therefore may not be comparable.

STOCK PERFORMANCE

The following table shows the total shareholder return for our common stock during the five fiscal year periods indicated below. The first row of the table indicates the cumulative return of an investor purchasing one share of RH common stock at the market close on January 31, 2014 and its value (percentage increase or decrease) at the associated fiscal year ends indicated in the table. The table then assumes a scenario where $100 was invested at the market close on January 31, 2014 in RH common stock, which is equivalent to 1.76 shares (if fractional shares were permitted), and its value (percentage increase or decrease) at the associated fiscal year ends indicated in the table.

 

			2014 (Jan. 31)				2015 (Jan. 30)				2016 (Jan. 29)				2017 (Jan. 27)				2018 (Feb. 2)				2019 (Feb. 1)
Value of 1 share			$56.74				$87.53				$61.62				$26.09				$92.04				$133.64
Value of a $100 Investment			$100				$154.27				$108.60				$45.98				$162.21				$235.53
Percentage Change			N/A				54.27%				8.60%				-54.02%				62.21%				135.53%

This table is supplemental to the stock performance graph presented in our 2018 Annual Report.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  39

The following table sets forth, for fiscal 2018, our named executive officers, as defined in Item 402 of Regulation S-K promulgated under the Securities Act of 1933, as amended:

 

NAME		TITLE
Gary Friedman		Chairman and Chief Executive Officer
Ryno Blignaut(1)		President, Chief Financial and Administrative Officer
Karen Boone(2)		Former President, Chief Financial and Administrative Officer
Eri Chaya		President, Chief Creative and Merchandising Officer and Director
DeMonty Price		President, Chief Operating, Service and Values Officer
David Stanchak		President, Chief Real Estate and Development Officer

 

 

(1)	Mr. Blignaut was hired on August 14, 2018. Mr. Blignaut left the Company in March 2019 due to health considerations, at which time Jack Preston assumed the role of Chief Financial Officer.

 

(2)	Ms. Boone left the Company in November 2018.

We believe that compensation paid to our executive officers should be:

Closely aligned with the performance of the Company, on both a short-term and long-term basis;

Linked to specific, measurable results intended to create value for shareholders;

Transparent, accessible and understandable by all stakeholders to understand what drives our executives; and

Tailored to achieve the key goals of our compensation program and philosophy.

Our executive compensation programs are aligned with our shareholders’ interests, with performance-based compensation being tied primarily to our annual earnings before taxes and our long-term stock price performance.

The compensation committee has continued to focus on balancing the alignment of our executive compensation program with our financial performance, providing incentives for retention purposes, rewarding the continued transformation of the business in fiscal 2018 and tailoring our compensation arrangements to match changes in our executive leadership. In March 2019, the compensation committee reviewed the Company’s financial results, corporate performance measures and the adjusted net income before tax metric goals that were set for fiscal 2018 with respect to its performance-based annual cash incentive awards. The committee reviewed the extent to which those established goals were achieved and determined that the related compensation earned was at the 170% achievement level based on its targeted fiscal 2018 performance objectives (see “—Fiscal 2018 Business Highlights” above for more information regarding the Company’s financial performance and key strategies and initiative for fiscal 2018). In the case of Mr. Blignaut, who was hired on August 14, 2018 and left the Company in March 2019, the compensation committee determined to provide him with a discretionary bonus for fiscal 2018 in recognition of his not being eligible for a bonus under the LIP program due to his departure from the Company as well as in consideration of his contributions to the Company during his tenure and his assistance with the transition of his roles and responsibilities to Mr. Preston, the Company’s current Chief Financial Officer. In addition, the base salaries for Ms. Chaya, Mr. Price, Mr. Stanchak and Ms. Boone were increased from the fiscal 2017 base salaries, as further discussed below.

In the case of our Chairman and Chief Executive Officer, Mr. Friedman, the compensation committee has determined that no additional equity grants be made to him for fiscal 2018 and fiscal 2019 given his multi-year equity grant structure. Equity grants are the primary form of long-term incentive compensation provided to Mr. Friedman. In fiscal 2017, the compensation committee determined to grant multi-year equity awards with performance conditions tied to stock price performance to Mr. Friedman. One of our overriding goals informing our compensation philosophy is to create in our leadership an ownership and entrepreneurial mindset in order to align leadership performance with improvements in shareholder returns.

 

40  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

The multi-year stock option award granted to Mr. Friedman during fiscal 2017 required substantial stock price appreciation from the Company’s share price on the date of grant: the stock price performance targets in Mr. Friedman’s equity award were set at $100, $125 and $150 per share, measured over a minimum four year time period from the date of grant and represented premiums to the grant-date stock price of 105.7%, 157.1% and 208.5%, respectively.

The fiscal 2017 equity award to Mr. Friedman was structured as a multi-year equity award with performance conditions tied to stock price performance, which the committee determined to be a transparent and accessible measure of overall value that aligns Mr. Friedman’s compensation with returns experienced by investors. The multi-year structure of the 2017 award was similar to the multi-year structure of the prior equity grant to Mr. Friedman in 2013 and is designed to incentivize Mr. Friedman and align him with a long-term view in leading the Company. Mr. Friedman has not requested changes to his base salary or bonus since 2016.

In its 2018 and 2019 annual review of executive compensation, the compensation committee affirmed the effectiveness of the multi-year equity structure. Since the date of the equity award to Mr. Friedman, the financial and operational performance of RH has improved and the stock price has appreciated. As of February 2, 2018, the last trading day of fiscal 2017, the closing price of our common stock was $92.04 per share, a substantial increase over the price at the time of the equity award to Mr. Friedman in May, 2017. As of February 1, 2019, the last trading day of fiscal 2018, the closing price of our common stock had further increased to $133.64 per share. Based on the strong performance of RH’s stock price since the date of the award to Mr. Friedman, each of the first two tranches have met two-thirds of the performance hurdles and the first two tranches have met the time requirement as of the date of this proxy statement.

We believe this grant shows our commitment to set compensation and performance targets for our executives that align with our long-term growth strategy and our shareholders’ interests.

We continue to believe that our executive compensation program, including the compensation of our Chairman and Chief Executive Officer, is clearly structured to reflect the best interest of shareholders and that if we continue to drive improving operational and financial performance investors will be rewarded by stock price appreciation.

Shareholder Engagement

We actively engage with major shareholders of the Company, which has been a practice of the Company since our initial public offering in 2012. At our prior year annual meeting, approximately 60% of the votes cast by our shareholders supported our say-on-pay proposal. We are committed to the interests of our shareholders and the delivery of shareholder value through our focus on execution, architecture and cash, including through capital allocation, optimization of free cash flow and increasing the gross margins of the business. We believe that, as part of this commitment, it is important to maintain an ongoing dialogue with shareholders, including with respect to feedback on our executive compensation programs. In 2016, we launched a formalized annual shareholder outreach program in order to solicit additional input from shareholders with respect to corporate governance and executive compensation practices. This shareholder outreach effort continued in 2017, 2018 and 2019. Along with our annual shareholder outreach program, throughout the year, members of our leadership team, including our Chief Financial Officer and head of investor relations, engage in regular shareholder and investor communications, in which we receive feedback.

As part of our shareholder outreach efforts, we have provided explanations of our organizational and leadership structures and our constant efforts to continue evolving our leadership structure in order to refine the organizational design and improve its alignment with the evolution of the business. In particular, we have highlighted that numerous business initiatives like the membership program have resulted in simplification of some aspects of our business, while other new initiatives require on-going leadership focus and efforts, and that the shifts in focus and responsibilities of our business and executive officers are designed to attune the organizational and leadership structures to the transformation of our business. This formalized shareholder outreach program is designed to solicit feedback from the Company’s shareholders with respect to a number of topics related to our executive pay practices and corporate governance policies. This effort supplements the ongoing communications between our leadership and shareholders. We continue to receive feedback from our investors under our shareholder outreach program throughout the year.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  41

AS PART OF THE SHAREHOLDER OUTREACH CAMPAIGN:

In 2016, we solicited the views of institutional investors that we believe represented approximately 94% of our issued and outstanding shares owned by institutional investors as of December 31, 2015, and had discussions with and received feedback from investors representing approximately 61% of such outstanding shares.

In 2017, we solicited the views of institutional investors that we believe represented approximately 55% of our issued and outstanding shares owned by institutional investors as of December 31, 2016, and had discussions with and received feedback from investors representing approximately 40% of such outstanding shares.

In 2018, we solicited the views of institutional investors that we believe represented approximately 67% of our issued and outstanding shares owned by institutional investors as of December 31, 2017, and had discussions with and received feedback from investors representing approximately 28% of such outstanding shares.

In 2019, we solicited the views of institutional investors that we believe represented approximately 69% of our issued and outstanding shares owned by institutional investors as of December 31, 2018, and had discussions with and received feedback from investors representing approximately 43% of such outstanding shares.

In 2019, in as much as we had contacts with a large number of our investors in our prior annual shareholder outreach campaigns, a number of our investors that had been previously contacted indicated there was not a need to have a further round of conversations in the current annual shareholder outreach campaign as their positions on the topics discussed had not changed in any significant way from the prior year conversations.

In addition to the general feedback noted in the chart below, investors have expressed appreciation of our outreach efforts and acknowledged our quick reaction and responsiveness to the “against” vote recommendation last year from two proxy advisory firms on our say-on-pay proposal. The results of the shareholder outreach campaign, including concerns and feedback we received, were provided to our board of directors.

 

WHAT WE HEARD		WHAT WE DID
Shareholders requested that we make our proxy statement more readable and make the information presented more accessible.		We continue to make improvements to our proxy statements from previous years, including providing more information in tables and charts rather than within lengthy narrative form in order to make the presentation easier to read and the information more accessible.
Shareholders requested increased transparency around peer group or other competitive measurements used by the Company for our pay-for-performance alignment.		We provided additional disclosure around our market check approach to our compensation practices to ensure performance alignment and retention of our key executives.
Shareholders requested increased transparency into the decision to use adjusted net income before tax in our annual (short-term) cash bonus or Leadership Incentive Program, or “LIP.”		We provided disclosure in our compensation discussion and analysis in order to explain the reasons we chose certain compensation metrics and to show how our program is aligned with shareholder interests.

 

42  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

WHAT WE HEARD		WHAT WE DID
Shareholders requested increased transparency into the decision to use stock price as part of the performance metric under our long-term incentive (equity) program.		Given one of our core foci is on innovation and business transformation, and our objectives to use a metric that is objectively measurable, aligned on both the Company’s short-term and long-term goals, useful across the multiple industries (such as e-commerce and hospitality) in which we operate or intend to operate in the long-term, transparent, understandable and accessible to our shareholders and other key stakeholders, including our employees, we believe and have determined stock price is a useful performance metric that addresses all of the Company’s strategic goals for a performance metric.   We also provided detailed information concerning the structuring of a stock option that the compensation committee approved for grant to Mr. Friedman, our Chairman and Chief Executive Officer, under the 2012 Stock Incentive Plan to purchase 1,000,000 shares of the Company’s common stock with certain selling restrictions tied to stock price appreciation (the “2017 Stock Option Award”).
Shareholders requested information related to other performance metrics such as total shareholder return (“TSR”) and ROIC.		We continued to refine our executive compensation program, including in 2018, to create significant pay-for-performance alignment. Although we do not use these metrics as part of our long-term incentive strategy, we have been providing indications of these measures in our Form 10-K and as well as in our earnings releases and have determined to disclose them here in our proxy statement for convenience.   We have included a stock performance table above to disclose a measure of total shareholder return, reflecting postive performance, growth and the effectiveness of pay for performance alignment.   Please see “—Fiscal 2018 Business Highlights” at the beginning of the CD&A of this proxy statement.
Shareholders requested additional disclosure regarding certain corporate governance practices.		We added details and information regarding certain of our corporate governance practices. In particular, in 2018 we included disclosure about our newly adopted stock ownership guidelines, board and executive diversity and our corporate social responsibility programs that addresses environmental, social and governance issues relevant to the Company’s business.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  43

WHAT WE HEARD		WHAT WE DID
Shareholders requested further disclosure about the basis for Mr. Alberini’s independence as a director in response to certain policy approaches by independent governance and proxy advisory firms around the ability of former chief executive officers to serve as independent board members on the boards of companies they once served as chief executive officers.		We provided additional disclosures regarding the basis for the determination that Mr. Alberini is an independent director. Since his departure, Mr. Alberini served in senior management roles at other companies, and is currently a director and CEO of Guess?, Inc., which is a publicly traded company. Given his other active roles, and time away from RH management, we believe Mr. Alberini provides a valuable role as an independent director to RH. In each year, the board also determined not to appoint Mr. Alberini to any of RH’s committees of the board of directors that require directors be independent.
Shareholders requested further disclosure about the nature of our Chairman and Chief Executive Officer’s multi-year awards and further explanation around the period that the award is intended to cover.		In those circumstances where we make a multi-year equity award to an executive officer, we intend to disclose details concerning the multi-year nature of the award.   We have followed a practice of making multi-year equity awards to our Chairman and Chief Executive Officer in several instances and we have provided substantial additional disclosure concerning those multi-year awards. In particular, we provided a multi-year equity award to him in the second fiscal quarter of 2013. In the second quarter of fiscal 2017, we granted our Chairman and Chief Executive Officer an additional multi-year equity award that is designed to serve for a four year period. We have included enhanced disclosure concerning these multi-year equity awards to our Chairman and Chief Executive Officer in our compensation discussion and analysis in order to explain the intent and details behind these large equity awards as well as the fact that we have not granted further equity awards to Mr. Friedman in fiscal 2018 or fiscal 2019.   The multi-year structure arose out of a purposefully driven conversation and discussion between the compensation committee and Mr. Friedman and is believed to incentivize Mr. Friedman and align him with a long-term view in leading the Company.
Shareholders also expressed a preference that equity awards granted to the executive officers of RH in particular be tied to performance metrics rather than simple time based metrics based on continued service.		Our compensation program relies on equity and equity upside as a key incentive that aligns incentives between the leadership team and our investors. For example, we consider stock option awards, which only have value if the stock goes higher, a key component of our compensation program.   Based on discussions and compensation reviews in 2016 and 2017, we structured the 2017 Stock Option Award to Mr. Friedman to require substantial stock price appreciation from the price of our common stock on the date of grant in order for restrictions on the shares underlying the award to lapse. We also required a four year service period for the Chief Executive Officer in order to assure that these price objectives would be measured on a sustained basis rather than at a single moment in time.   We believe the four year structure of the award aligns and incentivizes Mr. Friedman to take a multi-year and long-term approach in leading the Company.

 

44  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

WHAT WE HEARD		WHAT WE DID
Shareholders requested additional disclosure around the new leadership team and the recent changes to our organizational design.		As a result of the ongoing evolution of our business, we continuously adjust the structure and operation of our executive leadership team to meet the needs of our business and optimize the outcome of our initiatives. We frequently implement changes to our organizational design in order to more closely align our leadership structure with the changing needs of the business. We have launched numerous initiatives that have become integral to the ongoing development of our business including, among others: (i) our membership program; (ii) the introduction of RH Hospitality in many of our new Gallery locations; (iii) the transformation of our real estate both through the introduction of new Galleries and changes in the real estate development model; (iv) ongoing restructuring and improvements to our distribution centers, transportation network and supply chain; (v) the introduction and expansion of design services as part of our Gallery operations; (vi) improvements in our home delivery and outlet model including the introduction of reverse logistics; (vii) improvements in our product assortment including the introduction of new categories such as RH Modern; and (viii) expansion of our business into international markets. While some of these initiatives such as the ongoing development of RH Hospitality have required us to add incremental leadership positions, others have simplified our business.   Our efforts architecting a new operating platform, inclusive of our distribution center network redesign, the redesign of our reverse logistics and outlet business, and the reconceptualization of our home delivery and customer experience, are driving lower costs and reductions in inventory levels. Likewise, the adoption of a membership model has resulted in simplification in our business and corresponding reduction in certain leadership personnel. Many of the efforts to improve our organizational design have resulted in changes in our home office operations and increased responsibilities for our executive leadership team.   Over the last several years, we have eliminated a large number of middle management positions as part of the organizational redesign and we have increased the scope of responsibility for our named executive officers including Ms. Chaya, Mr. Price and Mr. Stanchak, each of whom works closely with our CEO. Ms. Chaya, our President, Chief Creative and Merchandising Officer oversees our product assortment and merchandising as well as related parts of our business including our Source Books and web presence. Mr. Price, our President, Chief Operating, Service and Values Officer, oversees our Gallery operations, Human Resources, distribution centers and supply chain, outlet and call center operations. Mr. Stanchak, our President, Chief Real Estate and Development Officer oversees our real estate transformation. The compensation committee determined to increase the base salaries for these named executive officers, as discussed below, in order to incentivize such named executive officers to continue to drive operational performance through these initiatives.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  45

OVERVIEW OF COMPENSATION PROGRAM AND PHILOSOPHY

 

OUR COMPENSATION PROGRAM IS DESIGNED TO DO THE FOLLOWING:
Attract and retain		We focus on attracting and retaining top-caliber, knowledgeable and experienced senior executives
Encourage an ownership and entrepreneurial mindset		Our programs create in our leadership an ownership and entrepreneurial mindset in order to align the annual and long-term strategic goals of our executives with those of our Company and our shareholders, including improvements in shareholder returns
Motivate		Our programs motivate our executives to achieve superior results for our Company and our shareholders
Reward performance		We pay for performance that is achieved through creativity, the capitalization of unique strategic opportunities and business initiatives, and results in shareholder-aligned financial successes, including improvements in our stock price
Encourage appropriate risk taking		Our programs focus our executives to analyze business initiatives where we seek return on investment that exceeds downside risks
Provide transparent reward systems		Our reward systems are easily understood by our managers and shareholders
Reinforce the succession planning process		Our programs help leadership to focus on identifying, and help us reward, retain and promote from within, the next generation of senior leadership to achieve the Company’s growth, profitability and other objectives through increased responsibilities and compensation

This compensation philosophy guides the compensation committee in assessing the compensation to be paid to our executives, including our named executive officers. The compensation committee endeavors to ensure that the total compensation paid to the named executive officers is fair, competitive and consistent with our compensation philosophy. This compensation philosophy also guides the compensation committee as to the proper allocation among current cash compensation (in the form of annual base salary), short-term compensation (in the form of performance-based, annual cash incentives), and long-term compensation (in the form of equity incentive compensation). We evaluate both the performance and compensation of our named executive officers annually to ensure that the executive compensation program we implement achieves these goals.

One of our overriding goals informing our compensation philosophy is to create in our leadership an ownership and entrepreneurial mindset in order to align leadership performance with improvements in shareholder returns. Our compensation programs aim to improve upon this interest alignment through various methods, including the use of stock options for equity grants, the use of long-term price performance targets in the award granted to our Chief Executive Officer and various profit metrics in the bonus plan.

We have implemented executive compensation policies and practices that reinforce our compensation philosophy and align with those commonly-viewed best practices and sound governance principles that we believe are appropriate for us. The following chart summarizes these policies and practices:

 

46  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

PRACTICES WE FOLLOW

100% independent directors on our compensation committee

Annual review and approval of our compensation strategy

Independent compensation consultant engaged by our compensation committee

Performance-based cash incentives

Significant portion of executive compensation is either tied to corporate performance directly or indirectly through stock price performance because of the equity component of compensation

We have continued to shift our vesting practices to incentivize retention and a long-term leadership approach by using either five-year or seven-year vesting periods, with vesting weighted more heavily in the back years

For most equity awards, we have shifted our vesting practices to use five-year vesting periods

Generally, we use five-year vesting upon hiring, as well as for subsequent grants

Depending on the circumstances, awards may vest 20% per year on a straight-line basis or in a back-end loaded schedule where larger amounts vest in later years

We have been more frequently using the back-end loaded vesting structure and shifting from awards that vest on a straight-line basis in order to create longer term incentives for performance

Five-year vesting structures that are not straight-line vesting may vest in several different ways including, by way of example:

– 15% in year one; 15% in year two; 20% in year three; 25% in year four; and 25% in year five; or

– 10% in year one; 10% in year two; 20% in year three; 30% in year four; and 30% in year five

Prohibition on short sales, hedging of stock ownership positions and transactions involving derivatives of our common stock

In May 2018, the board adopted stock ownership guidelines applicable to all directors and executive officers of the Company in order to further align the financial interest of our directors and executive officers with the interest of our investors

Our Chairman and Chief Executive Officer, Mr. Friedman, has consistently maintained a significant equity ownership interest in the Company and, as of June 14, 2019, beneficially owns approximately 31.0% of the Company’s common stock which, based on the average closing price for RH stock for fiscal 2018, was valued at approximately 468.5 times his annual base salary for fiscal 2018⁽¹⁾, far above the multiple of six times salary minimum ownership requirement

Broad-based company-sponsored health and retirement benefits programs

 

 

 

(1)	Based on shares owned directly, shares owned indirectly and reported as beneficially owned for Section 16 reporting purposes, and the “in the money” value of stock options, restricted stock and restricted stock units that are no longer subject to vesting or selling restrictions.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  47

PRACTICES WE AVOID

No “single trigger” change of control benefits

No post-termination retirement- or pension-type non-cash benefits or perquisites for our executive officers that are not available to our employees generally

No hedging or derivative transactions involving our securities by directors, officers, employees or other insiders

We have not repriced or bought out underwater stock options

No acceleration of share vesting generally – instead, we have simple customary levels of severance protection commensurate with a senior position

No tax gross-ups for change of control benefits

No defined value pensions or long term cash incentives like supplemental retirement plans or other forms of long-term deferred compensation

No equity awards for leadership with short-term restrictions or vesting, such as one-, two- or three-year vesting

 

 

COMPENSATION COMMITTEE REVIEW OF COMPENSATION

Our board of directors has established a compensation committee that is generally responsible for the oversight, implementation and administration of our executive compensation plans and programs.

The compensation committee engages in the following, either together with the board of directors as a whole or as a committee, making recommendations to the board of directors regarding approval, as necessary:

Annually review and approve the Company’s corporate goals and objectives relevant to compensation of the Chief Executive Officer;

Evaluate the Chief Executive Officer’s performance in light of such goals and objectives;

Determine and approve the Chief Executive Officer’s compensation level based on this evaluation;

In addition, the compensation committee annually reviews the following:

Annual base salary levels;

Annual incentive compensation levels;

Long-term incentive compensation levels; and

Any supplemental or special benefits

Ensure that appropriate overall corporate performance measures and goals are set and determine the extent to which the established goals have been achieved and any related compensation earned;

Determine the appropriateness of, and in some cases retain, a compensation consultant to offer advice for the consideration of the compensation committee and consider the independence of such consultant in accordance with applicable SEC and NYSE rules; and

Perform other necessary tasks related to the implementation and administration of executive compensation plans and programs.

The compensation committee’s annual review of executive compensation generally occurs within the timeframe of April to June of each year.

 

48  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

COMPENSATION LEVEL SETTING PROCESS

Our compensation committee reviews the following, among other factors, when determining compensation:

The individual’s performance and contributions to financial objectives;

Equity awards previously granted to the executive, which includes amounts of such awards that remain unvested or are under selling restrictions and therefore continue to incentivize future performance;

Individual leadership, expectations, expertise, skill, and knowledge;

Overall compensation, including base salary and bonus opportunity, as a whole;

Analyses of competitive market compensation practices and labor market conditions;

Alignment with the long-term business strategy of the Company;

Retention and succession planning;

Input from senior management, including our Chairman and Chief Executive Officer; and

Input from an independent compensation consultant.

As we are headquartered in the San Francisco Bay Area, which is a highly dynamic and competitive market for talent, we seek to provide competitive compensation practices for our executive leadership in order to attract and retain the best available talent.

To set a competitive, reasonable and appropriate level of compensation, the board of directors and the compensation committee take a holistic approach and considers all relevant factors to the compensation decision being made in any given year. The board of directors’ and the compensation committee’s approach to evaluating these factors is subjective, not formulaic, and may place more or less weight on a particular factor when determining a particular executive officer’s compensation.

ROLE OF LEADERSHIP IN DETERMINING EXECUTIVE COMPENSATION

In determining the total compensation for each executive officer, the board of directors and the compensation committee consider the specific recommendations of our Chairman and Chief Executive Officer (other than with respect to his own compensation) and may consider input from other senior members of leadership.

Our Chairman and Chief Executive Officer plays a significant role in the compensation setting process for the other named executive officers by:

Evaluating their performance;

Discussing the role and responsibilities of the relevant executive officer within the Company and the expected future contributions of the executive officer;

Considering retention and succession planning;

Recommending business performance targets and establishing objectives; and

Recommending salary levels, bonuses and equity awards.

Our Chairman and Chief Executive Officer annually reviews the compensation paid to other named executive officers over the fiscal year through presentations to the compensation committee, either as a committee or together with the board of directors as a whole, and provides his recommendations regarding the compensation to be paid to such persons during the next year. Following a review of such recommendations, the board of directors or the compensation committee, after reviewing the other factors and input as discussed above, takes action regarding such compensation recommendations as it deems appropriate. The board of directors and the compensation committee also consider input from our Chairman and Chief Executive Officer, as well as our Chief Financial Officer and certain of our Presidents, when setting financial objectives for our performance-based incentive program.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  49

Our executive compensation program is designed to reward successful annual performance while encouraging long-term value creation for our shareholders. Short- and long-term incentive compensation is subject to rigorous, objective, at-risk performance hurdles across our performance metrics and performance periods, which the compensation committee intends to be an incentive to leadership to drive Company performance and encourage prudent risk management consistent with the Company’s financial and strategic goals.

ROLE OF COMPENSATION CONSULTANTS

The compensation committee has periodically engaged compensation consultants to assist the committee in assessing compensation market conditions. Willis Towers Watson, which advised the compensation committee with respect to our executive and board compensation programs for fiscal 2015, was initially engaged by the compensation committee to provide evaluations and recommendations concerning our executive and board compensation programs and to advise the compensation committee with respect to structuring our compensation plans to achieve our business objectives for fiscal 2016.

On January 14, 2017, Mercer was engaged by the compensation committee to provide evaluations and recommendations concerning our executive and board compensation programs and to advise the compensation committee with respect to structuring our compensation plans to achieve our business objectives for fiscal 2017. Mercer has continued to provide evaluations and recommendations concerning our executive and board compensation programs and to advise the compensation committee with respect to structuring our compensation plans to achieve our business objectives for fiscal 2018 and fiscal 2019.

During their respective terms in fiscal 2016, and in fiscal 2017 and 2018, each of Willis Towers Watson and Mercer conducted research as directed by the compensation committee and supported the compensation committee in the design of executive and board compensation. Although Willis Towers Watson and Mercer each worked with leadership to develop plans that support our business objectives while carrying out its duties for the compensation committee, each of Willis Towers Watson and Mercer was retained by and reports directly to the compensation committee and does not provide any other services to the Company other than those approved by the compensation committee that would not constitute a conflict of interest or that would not otherwise compromise their independence.

ANALYSES OF COMPETITIVE MARKET PRACTICES

Due to the unique nature of our Company and the lack of direct industry competitors, we do not engage in a formal benchmarking process in setting compensation. Instead, we consider from time to time, as the compensation committee deems appropriate, an array of available data and information in order to assess the competitiveness of our compensation program and philosophy, including market information concerning local and national market compensation practices that are determined to be relevant to the Company. Given the location of our corporate headquarters in the San Francisco Bay Area, we pay close attention to the opportunities that exist for executives at other growth companies, both inside and outside the retail industry, located in the San Francisco Bay Area, including public companies, as well as private companies that could be candidates for an initial public offering in the future.

We conducted a comprehensive review of market compensation practices for executive officer compensation in fiscal 2016 and then again conducted a review in relation to our review of our Chief Executive Officer’s compensation at the time of setting his fiscal 2017 multi-year equity grant. At such times, the compensation committee reviewed the compensation practices of a number of companies, including companies of similar size to us, companies that have out-performed the market consistently in terms of growth and return measures, other brand and retail companies, particularly specialty retail companies, and companies in the technology sector.

 

50  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

In addition, the compensation committee reviewed data related to a number of companies with headquarters located on the West Coast (in particular, in the San Francisco Bay Area), regardless of size, because we believe such companies located on the West Coast have unique hiring and compensation practices, which are important for us to consider given the location of our headquarters and the talent pool from which we hire our executive and other employees.

In addition, Mercer also provided the compensation committee with data from their own review of proxy information. The result of this analysis is a comprehensive review of the elements of compensation and practices that are determined to be relevant in setting compensation for our executive officers.

In connection with the comprehensive review of market compensation practices, the Company and the compensation committee consider the executive compensation practices and the market data only as reference points in the review of the Company’s compensation practices, but do not benchmark or use market data in order to set compensation for the executive officers and other executives of the Company.

For fiscal 2018, total compensation of the Company’s named executive officers and other executives was generally within the range of the market data referenced above, although individuals may be compensated above or below this level based on various reasons, such as competitive factors, our financial and operating performance and consideration of individual performance and experience.

EXECUTIVE COMPENSATION COMPONENTS

The principal components of our compensation program for our named executive officers are summarized in the chart below, which is followed by a detailed explanation of the principal components of our compensation program for our named executive officers. In determining our named executive officers’ overall compensation program, the compensation committee and the board of directors, as applicable, each considers how a particular component motivates performance and promotes retention and sound long-term decision-making.

 

COMPENSATION ELEMENTS		OBJECTIVES
Annual base salary		Compensate for services rendered during the fiscal year.
Performance-based annual cash incentives		Motivate and reward our named executive officers for specific annual financial and/or operational goals and objectives.
Long-term equity incentive compensation		Attract and retain our named executive officers and align the financial rewards paid to our named executive officers with our long-term performance and the financial interests of our shareholders.
Perquisites and other personal benefits		Provide a competitive level of perquisites to better enable us to attract and retain superior employees for key positions.
Employment agreements; severance   and change of control benefits		Promote stability and continuity of senior management.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  51

Annual Base Salary

We provide our named executive officers with an annual base salary to compensate them for services rendered during the fiscal year. The base salary for each of the named executive officers is guided by a variety of factors, which may include market information regarding salary levels for positions that are deemed relevant for comparison purposes, as well as such individual’s work experience, personal performance, responsibilities and other considerations, including internal alignment. The relative weight given to each factor is not specifically quantified and varies with each individual at the discretion of the compensation committee and/or the board of directors.

Each named executive officer’s base salary is typically reviewed annually and is adjusted from time to time on the following bases: evaluation of the executive officer’s personal performance for the year; the recommendations of our Chairman and Chief Executive Officer (other than with respect to his own base salary); the Company’s performance for the year; the competitive marketplace for executives in comparable positions, including market information regarding salary levels for positions that are deemed relevant for comparison purposes; and in the case of increases in base salary other than on an annual basis, an individual’s exceptional performance, or increased responsibilities.

During its annual review of executive compensation for fiscal 2018, the compensation committee reviewed data provided by Mercer and compared that data to each executive’s current cash compensation. As part of their review, the compensation committee in particular considered, in addition to other factors listed above, our financial performance in 2018 and continued focus on multiple long-term key strategies, including transforming our real estate platform, expanding our product offering and increasing our market share, architecting a new operating platform, elevating the customer experience, increasing operating margins, optimizing the allocation of capital in the business and maximizing cash flow, and pursuing international expansion. Following this review, the base salaries of certain of our named executive officers were increased in fiscal 2018, with salary amounts as follows:

 

		BASE SALARY																									PERCENTAGE INCREASE
NAME							FISCAL 2017										FISCAL 2018
Gary Friedman								$	1,250,000									$	1,250,000										0%
Ryno Blignaut(1)									n/a									$	750,000										n/a
Karen Boone(2)								$	750,000									$	775,000										3.33%
Eri Chaya								$	850,000									$	950,000										11.76%
DeMonty Price								$	700,000									$	850,000										21.43%
David Stanchak								$	650,000									$	700,000										7.69%

 

(1)	Mr. Blignaut was hired on August 14, 2018. Mr. Blignaut left the Company in March 2019 due to health considerations, at which time Jack Preston assumed the role of Chief Financial Officer.

 

(2)	Ms. Boone left the Company in November 2018.

With our continued focus on the transformation of our business and executing a new business model, including the particular focuses on execution, architecture and cash and capital allocation, the Company implemented changes to our organizational design, including by streamlining and realigning our home office operations. This included significant changes in the responsibilities taken on by DeMonty Price, our President, Chief Operating, Service and Values Officer, who took on the responsibility over our supply chain, outlet and call center operations, Eri Chaya, our President, Chief Creative and Merchandising Officer, who took on additional roles and responsibilities due to the departure of our former President, Chief Merchandising and Business Development Officer, and David Stanchak who was promoted at the end of fiscal 2017 to President, Chief Real Estate and Development Officer.

 

52  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

These changes in the responsibilities of such officers were accompanied by a simplification of our organizational structure and design as part of our constant efforts to reevaluate, refine and streamline the leadership organizational structure and design in order to meet the needs of the business as our business transforms and evolves. As a result of this reorganization and increased set of roles and responsibilities by such officers, the compensation committee made commensurate increases to their respective salaries.

Performance-Based Annual Cash Incentives

We have adopted the Leadership Incentive Program, or “LIP,” which is a cash-based incentive compensation program designed to motivate and reward annual performance for eligible employees, including our named executive officers. The compensation committee considers annually whether LIP bonus targets should be established for the year and, if so, approves the group of employees eligible to participate in the LIP for that year. The LIP includes various incentive levels based on the participant’s position with the Company. Cash bonuses under the LIP link a significant portion of the named executive officer’s total cash compensation to our overall performance.

The LIP bonus for our named executive officers is based on achievement of financial objectives, rather than individual performance, in order to focus the entire senior management team on the attainment of enterprise-wide financial objectives. Each named executive officer is provided a target bonus amount equal to a percentage of the eligible portion of such officer’s base salary (which eligible portion is based on the salary earned during the fiscal year). The target bonus amount is based on the Company meeting the target achievement level for the relevant financial objectives.

The compensation committee and/or the board of directors establishes the target achievement level at which 100% of such participant’s target bonus will be paid (the “100% Achievement Level”), the minimum threshold achievement level at which 20% of the participant’s target bonus will be paid (the “20% Achievement Level”) and the achievement level at which 200% of the participant’s target bonus will be paid (the “200% Achievement Level”). The exact amount of the bonus payable under the LIP is based on the level of achievement of such financial objectives, with the bonus amount increasing for each named executive officer as a percentage of the eligible portion of such officer’s base salary to the extent the achievement of such financial objectives for the fiscal year exceeds the 100% Achievement Level, and with the bonus amount decreasing as a percentage of base salary to the extent the achievement of such financial objectives for the fiscal year is below the 100% Achievement Level (but above the 20% Achievement Level). The compensation committee also may adopt separate minimum or maximum payout amounts for certain individuals under the LIP. The LIP is structured so that no bonuses are paid under the LIP unless we meet the 20% Achievement Level.

The compensation committee, either as a committee or with the board of directors as a whole, sets the financial objectives each year under the LIP, and the payment and amount of any bonus depends upon whether we achieve at least a certain percentage of the financial objectives under the LIP (at least 20% for fiscal 2018). The compensation committee, either as a committee or with the board of directors as a whole, generally establishes such objectives for the Company at levels that it believes can be reasonably achieved with strong performance over the fiscal year. In making the determination of minimum and target levels, the compensation committee and/or the board of directors may consider the specific circumstances facing our Company during the year and our strategic plan for the year. The compensation committee and the board of directors have discretion to interpret the LIP’s performance objectives in light of relevant factors both internal and external to the Company, and to adjust the amount paid under the LIP accordingly. The compensation committee and the board of directors exercise such discretion based on business judgment, taking into account both recurring and extraordinary factors affecting performance of the Company as well as other relevant factors. The compensation committee may consult the board of directors, as deemed necessary, with respect to material issues concerning the administration of the LIP, including interpretations of the terms of the LIP.

For fiscal 2018, the performance metric for the LIP was based on adjusted net income (“Adjusted Income”), which we define as consolidated income before taxes, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance. We believe that Adjusted Income provides meaningful information regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. We do not adjust for depreciation or amortization. Therefore, Adjusted Income indirectly reflects the Company’s capital use and capital expenditures, which are important factors of our long-term business strategy.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  53

We believe the use of Adjusted Income is relevant in assessing overall performance of the Company and aligns this performance metric with the interests of shareholders. Our leadership uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

For fiscal 2018, the compensation committee approved the following targets under the LIP:

 

ACHIEVEMENT LEVEL				ADJUSTED INCOME BEFORE TAX		CHANGE FROM FISCAL 2017
20%				$ 169 million		increase of approximately $ 66 million
100%				$ 218 million		increase of approximately $ 60 million
200%				$ 280 million		increase of approximately $ 73 million

In fiscal 2018, LIP targets were established based upon the Company’s operating plans and objectives for fiscal 2018 which in turn were formulated in part based upon the results for fiscal 2017. The compensation committee sets the LIP targets with the objective of encouraging the leadership team to drive financial performance based upon the Company’s operating plan and financial objectives for the year in question.

The following table sets forth the bonus targets as a percentage of the eligible portion of the executive’s base salary under the LIP in fiscal 2018 for our executive officers at the 20% Achievement Level, the 100% Achievement Level and the 200% Achievement Level. During its annual review of the LIP and bonus targets for the executive officers for fiscal 2018, the compensation committee determined not to make any changes to the bonus targets as a percentage of the eligible portion of the executive’s base salary for Mr. Friedman, Ms. Chaya, Mr. Price and Mr. Stanchak from such targets for fiscal 2017.

 

ACHIEVEMENT         LEVEL					GARY FRIEDMAN					RYNO BLIGNAUT(1)					KAREN BOONE(2)					ERI CHAYA					DEMONTY PRICE					DAVID           STANCHAK
		Below 20%					0	%				0	%				0	%				0	%				0	%				0%
		20%					20	%				10	%				10	%				10	%				10	%				10%
		100%					125	%				50	%				50	%				50	%				50	%				50%
		200%					250	%				100	%				100	%				100	%				100	%				100%

 

(1)	Mr. Blignaut was hired on August 14, 2018. Mr. Blignaut left the Company in March 2019 due to health considerations, at which time Jack Preston assumed the role of Chief Financial Officer.

 

(2)	Ms. Boone left the Company in November 2018.

 

54  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

In March 2019, the compensation committee reviewed our financial results related to the LIP targets set in the prior year, and determined that the Company reached the 170% Achievement Level with respect to the Company’s financial objectives. In fiscal 2018, the Company substantially exceeded its targets under the LIP due to the Company’s ongoing acceleration in financial performance. The compensation committee determined that Adjusted Income for fiscal 2018 for purposes of the LIP was approximately $261.2 million, which reflected the compensation committee’s determination that certain other extraordinary or non-recurring items should also be excluded from determining Adjusted Income for purposes of the LIP. The $261.2 million represents a 71% year-over-year increase from prior year results. Accordingly, the compensation committee approved payment of the bonuses earned under the LIP for our named executive officers as follows:

 

		FISCAL 2018
NAME		BONUS EARNED UNDER THE LIP		ELIGIBLE PORTION OF BASE SALARY		BONUS EARNED AS % OF ELIGIBLE BASE SALARY		CHANGE FROM FISCAL 2017 BONUS AS % OF BASE SALARY
Gary Friedman		$2,664,063		$1,250,000		213%		100%
Ryno Blignaut (1)		n/a		n/a		n/a		n/a
Karen Boone (2)		n/a		n/a		n/a		n/a
Eri Chaya		$  781,302		$  916,538		85%		40%
DeMonty Price		$  681,766		$  799,808		85%		40%
David Stanchak		$  582,464		$  683,269		85%		40%

 

(1)	Mr. Blignaut was hired on August 14, 2018. Mr. Blignaut left the Company in March 2019 due to health considerations, at which time Jack Preston assumed the role of Chief Financial Officer.

 

(2)	Ms. Boone left the Company in November 2018.

The LIP provides substantial variation in compensation from year to year based upon the achievement of financial performance objectives. In prior years, we have paid bonuses under the LIP based on financial performance that has exceeded targets (in the case of fiscal 2014, based on achievement of 106% of target objectives) and that has partially met targets (in the case of fiscal 2015, based on achievement of 30% of target objectives and in the case of fiscal 2017, based on the achievement of 90% of target objectives), and we have not paid bonuses under the LIP when the Company has not met targets (in the case of fiscal 2016, based on achievement of less than 20% of target objectives).

Mr. Blignaut, who was hired on August 14, 2018, was not eligible for a cash bonus payable under the 2018 LIP due to his departure from the Company in March 2019. The compensation committee determined to provide him with a discretionary bonus for fiscal 2018 in the amount of $171,000 in recognition of his assistance with the transition of his roles and responsibilities to Mr. Preston, the Company’s current Chief Financial Officer.

Long-Term Equity Incentive Compensation

We believe that providing long-term incentives as a component of compensation helps us to attract and retain our named executive officers. These incentives also align the financial rewards paid to our named executive officers with our long-term performance, thereby encouraging our named executive officers to focus on our long-term performance goals.

In June and August 2018, the compensation committee performed its annual review of executive compensation, including a review of the Company’s annual share usage, or “burn rate,” and equity use as they relate to equity grants for executive officers to determine if such grants were appropriate and in line with our compensation philosophy and objectives.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  55

The compensation committee also took into consideration (i) Mr. Friedman’s recommendations, other than with respect to his own compensation, (ii) the competitive environment for executive talent in the San Francisco Bay Area, (iii) each executive officer’s current equity holdings and the present value thereof and (iv) the Company’s continued desire to align its executive officers’ long-term interests with those of our shareholders. The compensation committee’s determinations regarding equity grants for executive officers for 2018 were also influenced by the desire to provide additional retention incentives to the Company’s executive officers, and the level of awards approved by the compensation committee took into account this desire to include a retention feature in the awards. The compensation committee’s determinations regarding equity grants for employees for 2018 were also influenced by the desire to manage the annual share usage, or “burn rate,” and thus the compensation committee elected to substantially limit new equity grants and scale back new hire awards in fiscal 2018.

In fiscal 2018, the compensation committee reviewed the grants of equity awards to the executive officers. In fiscal 2017, the compensation committee determined to award Mr. Friedman a multi-year equity award with performance conditions tied to stock price performance. Consistent with the compensation committee’s determination that such fiscal 2017 equity award be a multi-year grant, the compensation committee did not make equity awards to Mr. Friedman in fiscal 2018 or fiscal 2019. See “—2017 Stock Option Award to Chairman and Chief Executive Officer” below for further detail regarding the multi-year equity award.

In fiscal 2018, the compensation committee determined to make additional equity awards to the other named executive officers. The compensation committee approved grants of stock options to the named executive officers, as follows:

 

NAME

STOCK OPTIONS

RESTRICTED STOCK UNITS

Gary Friedman

—

—

Ryno Blignaut

100,000(1)

—

Karen Boone

25,000(2)

—

Eri Chaya

50,000(3)

—

DeMonty Price

50,000(3)

—

David Stanchak

25,000(2)

—

 

(1)

The stock options were granted at an exercise price of $153.10 per share, the fair market value of our common stock on August 14, 2018, the date of grant. The options vest at a rate of 20% per year over five years on each anniversary of the date of grant, and expire in 10 years, subject to the named executive officer’s continued service with the Company.

 

(2)

The stock options were granted at an exercise price of $109.87 per share, the fair market value of our common stock on June 6, 2018, the date of grant. The options vest on each anniversary of the date of grant with 2,500 options on each of years 1 and 2, 5,000 options on each of years 3 and 4 and 10,000 options on year 5, and expire in 10 years, subject to the named executive officer’s continued service with the Company.

 

(3)

The stock options were granted at an exercise price of $109.87 per share, the fair market value of our common stock on June 6, 2018, the date of grant. The options vest on each anniversary of the date of grant with 5,000 options on each of years 1 and 2, 10,000 options on each of years 3 and 4 and 20,000 options on year 5, and expire in 10 years, subject to the named executive officer’s continued service with the Company.

We recently shifted our compensation practices towards the exclusive use of stock options, in lieu of “full value” awards such as restricted stock units, as part of our long-term equity incentive plan. We believe this shift, by rewarding the executives for creating upside gains in the share prices, creates the right incentives for our executives to drive performance and better align the long-term incentives of our executives with that of the long-term view of our shareholders. We found the use of other instruments such as restricted stock units did not significantly differentiate itself from cash compensation. As a high-growth company, we believe the use of stock options aligns our executives with the expectation of shareholders for the Company to exceed and increase its value over time.

 

56  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

2017 Stock Option Award to Chairman and Chief Executive Officer

On May 2, 2017, the compensation committee granted a stock option to Mr. Friedman under the 2012 Stock Incentive Plan to purchase 1,000,000 shares of the Company’s common stock with certain selling restrictions tied to stock price appreciation, with a ten year term and an exercise price of $50 per share, a premium to the market price for the common stock on the date of the grant. Selling restrictions attached to the shares only lapse upon the achievement of both certain stock price-based performance objectives and certain time-based service period requirements, as further described below. The compensation committee believes that the combination of time-based restrictions and performance-based restrictions tied to stock price appreciation creates a strong alignment between Mr. Friedman and the objectives of the Company’s shareholders. As previously disclosed, the 2017 Stock Option Award was structured to be a multi-year award covering a four year period, similar to the 2013 award that was previously in place for four years. Consistent with this expectation the compensation committee did not grant Mr. Friedman an additional equity award in fiscal 2018 or fiscal 2019. The key terms of the 2017 Stock Option Award are:

The 2017 Stock Option Award may be exercised at any time but the selling restrictions on the underlying shares would only lapse upon the Company’s common stock price achieving price objectives of $100 per share, $125 per share and $150 per share and Mr. Friedman remaining in service through the achievement of such stock price performance requirements.

To achieve any given price target, the Company’s weighted average stock price, measured over a period of the last ten trading days on a volume weighted average price, must remain at or above the dollar thresholds stated above for twenty consecutive trading days (i.e., a trailing ten day average minimum price that must be sustained for twenty consecutive trading days).

Stock price performance is measured annually over a “performance year,” and the selling restrictions may lapse for up to one-quarter of the award in any given performance year. A “performance year” is any twelve-month period that begins on May 2nd. With respect to any given performance year, if the “twenty day average trading price” as described above for RH common stock exceeds $100 per share, $125 per share, or $150 per share during such performance year, then the selling restrictions will lapse as to a maximum of 83,333 shares, 166,666 shares, or 250,000 shares, respectively, on the last day of such performance year, if Mr. Friedman remains in service with RH as an employee with the authority, duties, or responsibilities of a chief executive officer at such date.

Any share selling restrictions that have not lapsed by the end of the eighth performance year will thereafter only lapse on the twentieth anniversary of the grant date. As a result, if the stock price goals are not achieved by the eighth performance year, the underlying shares issuable upon any exercise of the option could not be sold until the twentieth anniversary of the grant date and RH would have certain rights to repurchase such shares at a point in time after exercise using an unsecured promissory note.

The following table quantifies the stock price appreciation from the date of grant that would be required to achieve each price objectives:

 

		PRICE TARGET ($)				PREMIUM TO GRANT DATE STOCK PRICE (%)
Exercise Price		$  50				2.8%
Performance Targets		$100				105.7%
		$125				157.1%
		$150				208.5%

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  57

The following chart presents graphically the number of shares that would be eligible to have selling restrictions lapse in each year of the first four anniversaries of the date of grant at the various stock price objectives:

 

 

During the first performance year, which ended on May 1, 2018, the $100 stock price performance objective was not achieved even though the stock price traded above $100 per share on 35 separate trading days during such year. The reason such target was not achieved is a function of the requirement that the stock price remain above the price target for twenty consecutive trading days and that the price is measured on each day as a ten-day average price. These features have the effect of requiring that the stock remain above the target price objective for a sustained period of time. Given that none of the stated price levels were met before May 1, 2018, the 250,000 options for which selling restrictions were eligible to lapse as early as the end of the first year after the date of grant were carried forward into future years up until the end of the eighth year from the date of the grant.

During the second performance year, which ended on May 1, 2019, the $100 stock price performance objective was achieved and the $125 stock price performance objective was achieved. As a result, the selling restrictions on 333,332 of the shares under the option have lapsed, as follows: (a) the selling restrictions for the carried over shares from the first performance year lapsed as to (i) 83,333 shares on June 12, 2018, the date on which the $100 stock price was met, and (ii) 83,333 shares on July 16, 2018, the date on which the $125 stock price was met and (b) the selling restrictions as to 166,666 shares from the second performance year lapsed on May 1, 2019. The $150 stock price performance objective was not achieved even though the stock price traded above $150 per share on 29 separate trading days during the year ended May 1, 2019, again due to the requirement that the stock price remain above the price target for twenty consecutive trading days and that the price is measured on each day as a ten-day average price.

In its annual review of executive compensation, the compensation committee affirmed the effectiveness of the multi-year equity structure. As of February 2, 2018, the last trading day of fiscal 2017, the closing price of our common stock was $92.04 per share. As of February 1, 2019, the last trading day of fiscal 2018, the closing price of our common stock was $133.64 per share. The multi-year structure is believed to incentivize Mr. Friedman and align him with a long-term view in leading the Company and avoids, among other things, the unnecessary annual distraction that most other companies face in having to address renegotiations of executive compensation with their chief executive officer.

 

58  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

The compensation committee believes that the structure of the 2017 Stock Option Award was well designed and provides the right incentives to Mr. Friedman as the committee believes that this award structure is contributing to RH’s financial and stock price performance.

If Mr. Friedman’s employment with RH is (i) terminated by RH without cause, (ii) terminated by Mr. Friedman for good reason (as such terms are defined in the option award agreement), or (iii) terminated for death or disability (as such term is defined in the option award agreement), then any selling restrictions on shares subject to the 2017 Stock Option Award that would have been eligible to lapse at any time during the twelve-month period following such termination had such termination not occurred will be eligible to lapse based solely upon the achievement of the stated price levels at any point during such twelve-month period. For further details regarding the option award agreement, see the Company’s Current Report on Form 8-K filed on May 3, 2017.

Perquisites and Other Personal Benefits

We provide certain named executive officers with perquisites and other personal benefits that we and the compensation committee believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. We generally provide our named executive officers a car allowance, which is adjusted from time to time based on expenses incurred by our executive officers in connection with their travel to local retail locations and expenses related to fuel, tolls and parking. The compensation committee periodically reviews the levels of perquisites and other personal benefits provided to the named executive officers.

The named executive officers may not defer any component of any annual incentive bonus earned and do not participate in another nonqualified deferred compensation plan. Likewise, the Company does not maintain any defined benefit pension plans for its employees. However, our named executive officers are eligible to participate in the Company’s 401(k) savings plan, as well as the Company’s group health and welfare plans, on the same terms and conditions as other Company employees.

It has been our practice to provide key executive officers with relocation benefits in connection with their initial hiring by our Company. In some instances, newly hired key executives are provided a signing or guaranteed minimum bonus in order to assist with their transition into the Company and the San Francisco Bay Area or for other reasons. However, relocation incentives or benefits may be subject to repayment if the executive does not remain with the Company for the period of time specified in his or her offer documents. None of our named executive officers received such benefits in fiscal 2018.

In addition, from time to time, the compensation committee may approve cash bonuses outside of the LIP on a discretionary basis for reasons such as individual performance or in connection with an executive officer’s initial employment arrangement with the Company or other events, and such bonus awards may overlap with bonus awards paid under the LIP. Payments of discretionary bonuses to our named executive officers, if any, are disclosed in the “Bonus” column of the Summary Compensation Table in this proxy statement. None of our named executive officers received a discretionary bonus in fiscal 2018, with the exception of Mr. Blignaut, who received a discretionary bonus for fiscal 2018 in recognition of his assistance with the transition of his roles and responsibilities to Mr. Preston, the Company’s current Chief Financial Officer, as well as the fact that he was not eligible for a LIP bonus by the terms of the plan due to his departure from the Company.

Employment Agreements; Severance and Change of Control Benefits

We have entered into agreements with certain key employees, including certain of the named executive officers, which agreements provide severance benefits in the event of certain terminations of employment. These severance protection agreements are designed to promote stability and continuity of senior management. Information regarding amounts that would be payable under such agreements for the named executive officers is provided under the heading “—Potential Payments Upon Termination and Change in Control” below. None of our employment agreements or other policies have tax gross-up features. In the event that any termination payments made to our Chairman and Chief Executive Officer are deemed under Section 280G of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), to constitute excess parachute payments subject to an excise tax, then such payments will

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  59

be payable either (i) in full or (ii) as to such lesser amount that would result in no portion of such payments being subject to the excise tax, and our Chairman and Chief Executive Officer will receive the greater, on an after-tax basis, of (i) or (ii) above, as determined by an independent accountant or tax advisor selected by our Chairman and Chief Executive Officer and paid for by the Company.

RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAM

We conducted an assessment of the Company’s compensation policies and practices for its employees and concluded that these policies and practices as currently designed are appropriately weighted among base salaries and short- and long-term incentives such that the Company’s employees are not encouraged to take excessive risks. The compensation committee believes that such compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, the compensation committee reviewed the compensation elements that comprise our compensation program, as well as the objectives that each item is designed to encourage, as described above under “—Executive Compensation Components.”

Anti-Hedging Practices

Our insider trading policy provides that no employee or director may hedge ownership of our stock by engaging in short sales or purchasing and selling derivative securities related to our stock.

Clawback Provisions

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), public companies will be required to adopt a policy to recover certain compensation in the event of a material accounting restatement. The Company will adopt a clawback policy as required by Dodd-Frank when final regulations are provided by the SEC and the NYSE and become effective.

Stock Ownership by Executives

In May 2018, the Board adopted stock ownership guidelines applicable to all directors and executive officers of the Company in order to further align the financial interest of our directors and executive officers with the interest of our investors. See “Corporate Governance—Director & Executive Stock Ownership Guidelines.”

Our Chairman and Chief Executive Officer, Mr. Friedman, has consistently maintained a significant equity ownership interest in the Company and, as of June 14, 2019, beneficially owns approximately 31.0% of the Company’s common stock which, based on the average closing price for RH stock for fiscal 2018, was valued at approximately 468.5 times his annual base salary for fiscal 2018, far above the multiple of six times salary minimum ownership requirement. Additional information regarding the stockholdings of our other named executive officers and directors is set forth in this proxy statement in the section entitled “Security Ownership of Top Shareholders & Leadership.”

Tax Deductibility

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) limits the amount that we may deduct for compensation paid to certain of our executive officers to $1,000,000 per person in any year. Prior to December 22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, compensation that qualified as “performance-based” was excluded for purposes of calculating the amount of compensation subject to the $1,000,000 limit. Under the TCJA, this “performance-based” exception is repealed for taxable years beginning after December 31, 2017, except with respect to certain “grandfathered” compensation. The compensation committee reviews and considers the deductibility of executive compensation under Section 162(m) when determining the compensation of the Company’s executive officers. However, the compensation committee retains the flexibility and discretion to approve compensation that is nondeductible under Section 162(m) as a means to ensure competitive levels of total compensation for our executive officers and promote varying corporate goals.

 

60  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION

In any event, the compensation committee intends to maintain an approach to executive officer compensation that strongly links pay to performance, and promotes the attraction and retention of qualified executives, but will also take into account tax-effectiveness of different compensation alternatives as it selects the right compensation mix.

CEO Pay Relative to Median Pay of Our Employees

The compensation for our CEO in fiscal 2018 ($3,943,757 as disclosed in the 2018 Summary Compensation Table) was approximately 115 times the annual “total compensation,” as defined by Item 402(u) of Regulation S-K, of our median employee ($34,416). Total compensation includes base salary, bonus compensation, equity awards and other perquisites and allowances. Our CEO to median employee pay ratio is calculated in accordance with Item 402(u) of Regulation S-K and represents a reasonable estimate calculated in accordance with SEC regulations and guidance. We identified the median employee by examining the gross wages reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for all individuals, excluding our CEO, who were employed by us on November 15, 2017. We used the same median employee that we identified in fiscal 2017 in determining median employee compensation for fiscal 2018. We included all employees, whether employed on a full-time, part-time, temporary or seasonal basis. We did not make any assumptions, adjustments, or estimates with respect to payroll compensation amounts. After identifying the median employee based on total W-2 payroll compensation, we calculated annual total compensation for such employee using the same methodology we use for our named executive officers as set forth in the 2018 Summary Compensation Table. Our CEO pay relative to the median pay of our employees for fiscal 2018 is significantly lower than the fiscal 2017 ratio because the compensation for our CEO in fiscal 2017 included the value of the fiscal 2017 equity award to Mr. Friedman. As discussed above, the fiscal 2017 equity award was structured as a multi-year award and, consistent with that intent, Mr. Friedman was not granted any equity awards in fiscal 2018. As a result, his fiscal 2018 total compensation was significantly lower than his fiscal 2017 total compensation.

 

EXECUTIVE COMPENSATION		2019 PROXY STATEMENT  |  61

COMPENSATION OF NAMED EXECUTIVE OFFICERS

Summary Compensation Table

The following table shows the compensation earned by our named executive officers fiscal 2018, fiscal 2017 and fiscal 2016.

 

NAME AND   PRINCIPAL POSITION		FISCAL YEAR		SALARY					BONUS					STOCK AWARDS(1)					OPTION AWARDS(1)					NON-EQUITY INCENTIVE PLAN COMPENSATION(2)					ALL OTHER COMPENSATION(3)					TOTAL
Gary Friedman		2018			$	1,250,000					$  —					$  —					$  —				$	2,664,063				$	29,694				$	3,943,757
Chairman and CEO
		2017			$	1,250,000					$  —					$  —					$ 23,870,000				$	1,409,375				$	35,095	(6)			$	26,564,470
		2016			$	1,250,000					$  —					$  —					$				$	—				$	36,100	(6)			$	1,286,100
Ryno Blignaut(4)		2018			$	357,692					$ 171,000(7)					$  —					$ 8,594,000				$					$	6,000				$	9,128,692
President,
Chief Financial and
Administrative Officer
Karen Boone		2018			$	556,731					$  —					$  —					$ 1,560,750				$					$	9,000				$	2,126,481
Former President,
Chief Financial and		2017			$	737,601					$  —					$  —					$  —				$	332,658				$	12,000				$	1,082,259
Administrative Officer
		2016			$	700,000					$  —					$ 1,971,000					$ 1,733,550				$					$	12,000				$	4,416,550
Eri Chaya		2018			$	916,538					$  —					$  —					$ 3,121,500				$	781,302				$	12,000				$	4,831,340
President,
CCO, CMO		2017			$	837,601					$  —					$  —					$  —				$	377,758				$	12,000				$	1,227,359
& Director		2016			$	800,000					$  —					$ 1,971,000					$ 1,733,550				$					$	12,000				$	4,516,550
DeMonty Price		2018			$	799,808					$  —					$  —					$ 3,121,500				$	681,766				$	12,000				$	4,615,074
President,
Chief Operating, Service		2017			$	687,601					$  —					$  —					$  —				$	310,108				$	12,000				$	1,009,709
and Values Officer		2016			$	650,000					$  —					$ 2,124,000					$ 1,875,944				$					$	12,000				$	4,661,944
David Stanchak(5)		2018			$	683,269					$  —					$  —					$ 1,560,750				$	582,464				$	12,000				$	2,838,483
President,
Chief Real Estate and		2017			$	637,601					$  —					$  —					$    461,404				$	287,558				$	13,853	(8)			$	1,400,416
Development Officer

 

 

 

(1)

Reflects the aggregate grant date fair value of the awards made in fiscal 2018, fiscal 2017 and fiscal 2016, computed in accordance with FASB ASC 718 rather than the amount paid to or realized by the named executive officer. See Note 16—Stock-Based Compensation in our audited consolidated financial statements contained in our 2018 Annual Report.

 

(2)	Reflects the cash awards that our named executive officers received under our LIP for fiscal 2018, fiscal 2017 and fiscal 2016 performance, as applicable. Discretionary bonuses not awarded under the LIP are reflected in the “Bonus” column above.

 

(3)	Reflects perquisites to the named executive officers in the form of car allowances, except as otherwise noted.

 

(4)	Mr. Blignaut was not a named executive officer prior to fiscal 2018 and, as a result, no disclosure is made for fiscal 2017 and fiscal 2016 in accordance with SEC rules.

 

(5)	Mr. Stanchak was not a named executive officer prior to fiscal 2017 and, as a result, no disclosure is made for fiscal 2016 in accordance with SEC rules.

 

(6)

In fiscal 2018, represents $12,000 in the form of a car allowance and $17,694 in imputed income related to Mr. Friedman’s personal use of corporate aircraft. In fiscal 2017, represents $12,000 in the form of a car allowance and $23,095 in imputed income related to Mr. Friedman’s personal use of corporate aircraft. In fiscal 2016, represents $12,000 in the form of a car allowance and $24,100 in imputed income related to Mr. Friedman’s personal use of corporate aircraft.

 

(7)	Represents a discretionary bonus for fiscal 2018 in recognition of his assistance with the transition of his roles and responsibilities to Mr. Preston, the Company’s current Chief Financial Officer.

 

(8)	In fiscal 2017, represents $12,000 in the form of a car allowance and $1,853 in imputed income related to Mr. Stanchak’s personal use of corporate aircraft.

 

62  |  2019 PROXY STATEMENT		EXECUTIVE COMPENSATION