DEF 14A: Definitive proxy statements
Published on May 17, 2024
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Material under §240.14a-12
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 all boxes that apply):
☒ No fee required.
☐ Fee paid previously with preliminary materials.
☐ Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11
NOTICE OF 2024 ANNUAL MEETING OF SHAREHOLDERS
June 27, 2024 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 June 27, 2024 (the “Annual Meeting”): The Company’s 2024 Notice and Proxy Statement, its fiscal 2023 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, 2025; 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 May 3, 2024 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.
We intend to hold our Annual Meeting in person. However, in the event we determine it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. If we take this step, we will announce the decision to do so via a press release and details about how to participate will be posted on our website and filed with the U.S. Securities and Exchange Commission as additional proxy materials. Please monitor our website at ir.rh.com for updated information.
As always, we encourage you to vote your shares prior to the Annual Meeting. Each share of stock that you own represents one vote, and your vote as a 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 (Proposal 1), “FOR” the non-binding advisory vote to approve the compensation of our named executive officers (Proposal 2), and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP (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 Notice of Internet Availability of Proxy Materials, 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.
2024 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 2024 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 June 27, 2024, at 10:30 a.m. (Pacific Time), and any adjournment or postponement thereof.
On or about May 17, 2024, we will mail to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our 2024 Notice and Proxy Statement and our fiscal 2023 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 28, 2024 (the “Annual Report”) via the Internet and how to vote online. The Notice also contains instructions on how you can receive a paper copy of the proxy materials. Our Annual Report, the Notice and our proxy card are first being made available online on or about May 17, 2024.
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.
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
In accordance with rules and regulations adopted by the SEC, instead of mailing a printed copy of our proxy materials to all shareholders entitled to vote at the Annual Meeting, we are furnishing the proxy materials to our shareholders over the Internet. Accordingly, on or about May 17, 2024, the Company will mail the Notice to the Company’s shareholders, other than those who previously requested electronic or paper delivery. If you received the Notice by mail, you will not receive a printed copy of the proxy materials. Instead, the Notice will instruct you as to how you may access and review the proxy materials and submit your vote on the Internet or by telephone. If you received the Notice by mail and would like to receive a printed copy of the proxy materials, please follow the instructions for requesting such materials included in the Notice. On the date of mailing of the Notice, all shareholders will have the ability to access all of our proxy materials on a website referred to in the Notice. These proxy materials will be available free of charge. We encourage shareholders to take advantage of the availability of the proxy materials on the Internet to help reduce the cost of the physical printing and mailing of materials.
What proposals are scheduled to be voted on at the Annual Meeting?
Shareholders will be asked to vote on the following three proposals:
1. | The election to our Board of Directors of the three nominees named in this proxy statement; |
2. | The approval, on a non-binding advisory basis, of 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, 2025 (“fiscal 2024”). |
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 approval, on a non-binding advisory basis, of our named executive officer compensation (Proposal 2); and
FOR the ratification of the appointment of PwC as our independent registered public accounting firm for fiscal 2024 (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. As of the date of this proxy statement, there are no other matters that the Board of Directors intends to present for action at the Annual Meeting other than those referred to in this proxy statement.
Who can vote at the Annual Meeting?
Shareholders as of the record date for the Annual Meeting, the close of business on May 3, 2024 (the “Record Date”), are entitled to vote at the Annual Meeting. At the close of business on the Record Date, there were 18,342,797 shares of the Company’s common stock outstanding and entitled to vote.
Shareholder of Record: Shares Registered in Your Name
If, as of the close of business on the Record Date, 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.
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 in person, we urge you to vote over the Internet or by telephone, or by filling out and returning the proxy card.
Beneficial Owner: Shares Registered in the Name of a Broker or Nominee
If, as of the close of business on the Record Date, 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—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 Notice or proxy card and have the Notice or proxy card available when you access the Internet or place your telephone call.
Votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on June 26, 2024. Submitting your proxy, whether via the Internet, by telephone or by mail, 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 a non-binding 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 2024.
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 Annual Meeting.
What is the quorum requirement for the Annual Meeting?
A majority of our outstanding shares as of the Record Date must be present at the Annual 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. Additionally, abstentions, broker non-votes and “WITHHOLD” votes (as described below) will also be counted towards the quorum requirement. If there is no quorum, the chair of the Annual Meeting may adjourn the meeting until a later date.
How are abstentions, broker non-votes and “WITHHOLD” votes treated?
Abstentions (i.e., shares present at the meeting and voted “abstain”) are counted for purposes of determining whether a quorum is present. In determining whether a proposal received the requisite number of affirmative votes, abstentions are not considered votes cast and will have no effect on the proposal. As a result, abstentions will have no impact on the non-binding advisory vote on our named executive officer compensation (Proposal 2), or the ratification of appointment of our independent registered public accounting firm (Proposal 3).
Broker non-votes are counted for purposes of determining whether a quorum is present. In determining whether a proposal received the requisite number of affirmative votes, broker non-votes are not considered votes cast and will have no effect on the proposal. 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. Brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf with respect to “non-routine” proposals but may vote their clients’ shares on “routine” proposals. As a result, broker non-votes will have no impact on “non-routine” proposals, including the approval of the election of directors (Proposal 1), and the non-binding advisory vote on our named executive officer compensation (Proposal 2).
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 “non-routine” items, including the election of directors (Proposal 1), or the approval, on a non-binding advisory basis, or of our named executive officer compensation (Proposal 2). Ratification of the appointment of our independent registered public accounting firm for fiscal 2024 (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 the independent registered public accounting firm. Accordingly, we encourage you to provide voting instructions to your broker, whether or not you plan to attend the Annual Meeting.
“WITHHOLD” votes will also be counted towards the quorum requirement and will have no effect on the outcome of the election of directors (Proposal 1) because the election of directors is based on the votes actually cast.
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 votes cast, whether in person or by proxy, is required to elect each of the three nominees for director described under Proposal 1. Under plurality voting, the three nominees receiving the largest number of votes cast (votes “FOR”) will be elected. You may vote for all the director nominees, withhold authority to vote your shares for all the director nominees or withhold authority to vote your shares with respect to any one or more of the director nominees. Withholding authority to vote your shares with respect to one or more director nominees will have no effect on the election of those nominees. 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. “WITHHOLD” votes 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. Proposal 2 is a non-binding advisory vote. Therefore, our Board of Directors will consider our named executive officer compensation described under Proposal 2 (Advisory Vote to Approve Executive Compensation) to be approved if the proposal receives the affirmative vote of a majority of votes cast, whether in person or by proxy. 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 appointment of the independent registered public accounting firm for fiscal 2024 described under Proposal 3 (Ratification of Appointment of Registered Independent Public Accounting Firm). 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 the independent registered public accounting firm. Abstentions and broker non-votes will have no effect on the outcome of Proposal 3 because the ratification of the appointment of the independent registered public accounting firm is based on the votes actually cast.
6 | 2024 PROXY STATEMENT |
ANNUAL MEETING OF SHAREHOLDERS |
How can I get electronic access to the proxy materials?
The Notice will provide you with instructions regarding how to use the Internet to:
View the Company’s proxy materials for the Annual Meeting; and
Instruct the Company to send future proxy materials to you by email.
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.
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, team members (we refer to our employees as “team members”) 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 $28,000 plus reasonable out-of-pocket expenses. We may engage Alliance for additional solicitation work and incur fees greater than $28,000 depending on a variety of factors, including preliminary voting results and recommendations from Institutional Shareholder Services. As part of its engagement agreement, the Company has also agreed to certain indemnification provisions with Alliance.
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 voting results will be tallied by the inspector of elections and filed with the SEC in a Current Report on Form 8-K within four business days of the Annual Meeting.
ANNUAL MEETING OF SHAREHOLDERS |
2024 PROXY STATEMENT | 7 |
SECURITY OWNERSHIP OF TOP
SHAREHOLDERS & LEADERSHIP
The following table sets forth information as of the close of business on May 3, 2024, regarding the beneficial ownership of our common stock by: each person or group who is known by us to beneficially own 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 18,342,797 shares of common stock outstanding as of May 3, 2024. 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) |
5,005,063 |
25.0% |
|||
FMR LLC(3) 245 Summer Street, Boston, MA 02210 |
2,201,543 |
12.0% |
|||
Vanguard Group Inc.(4) 100 Vanguard Blvd., Malvern, PA 19355 |
1,403,447 |
7.7% |
|||
BlackRock Inc.(5) 55 East 52nd Street, New York, NY 10055 |
1,303,092 |
7.1% |
|||
Carlos Alberini(6) |
21,916 |
* |
|||
Keith Belling(6) |
5,423 |
* |
|||
Eri Chaya(7) |
329,643 |
1.8% |
|||
Mark Demilio(8) |
79,839 |
* |
|||
Stefan Duban(9) |
30,613 |
* |
|||
Hilary Krane(6) |
6,538 |
* |
|||
Edward Lee(10) |
3,100 |
* |
|||
Katie Mitic(6) |
10,839 |
* |
|||
Jack Preston(11) |
54,251 |
* |
|||
Ali Rowghani(12) |
9,525 |
* |
|||
Leonard Schlesinger(6) |
14,074 |
* |
|||
All current executive officers and directors as a group (12 persons)(13) |
5,570,824 |
28.1% |
*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 1,700,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 3, 2024. As of May 3, 2024, 583,334 of these options are subject to selling restrictions. |
(3) | Based on the Form 13F-HR filed by FMR LLC with the SEC on May 13, 2024, in which it reported that it has the sole voting power over 2,033,576 shares of common stock. |
(4) | Based on the Form 13F-HR filed by Vanguard Group Inc. with the SEC on May 10, 2024, in which it reported having shared voting power over 5,651 shares of common stock. |
(5) | Based on the Form 13F-HR filed by BlackRock Inc. with the SEC on May 10, 2024, in which it reported that it has the sole voting power over 1,299,024 shares of common stock. |
(6) | Includes 423 restricted stock awards that vest on June 29, 2024. |
(7) | Includes 23,643 shares of common stock held by the Chaya-Smith Revocable Trust and 306,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 3, 2024. |
(8) | Includes 31,416 shares of common stock held by various family trusts established by Mr. Demilio, 44,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 3, 2024, 4,000 restricted stock awards vesting in eight quarterly increments through April 11, 2026, and 423 restricted stock awards that vest on June 29, 2024. |
(9) | Includes 30,535 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 3, 2024. |
(10) | Includes 3,100 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 3, 2024. |
(11) | Includes 54,250 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of May 3, 2024. |
(12) | Includes 6,953 shares of common stock held by the Rowghani Keshavarz Living Trust and 423 restricted stock awards that vest on June 29, 2024. |
(13) | Includes 2,137,885 shares of common stock our executive officers and directors have a right to acquire upon the exercise of options that are exercisable within 60 days of May 3, 2024, 4,000 restricted stock awards vesting in eight quarterly increments through April 11, 2026, and 2,961 restricted stock awards that vest on June 29, 2024. |
INTENTIONALLY LEFT BLANK
SECURITY OWNERSHIP OF TOP SHAREHOLDERS & LEADERSHIP |
2024 PROXY STATEMENT | 11 |
DIRECTORS
Chairman and Chief Age: 66 Director since 2013 Board Committees: None Class III Director: Continuing in office until |
Gary Friedman has served as our Chairman and Chief Executive Officer of the Company, and Founder of the RH brand as we know it today, since January 2014. Mr. Friedman joined RH in April of 2001 when the business was known as Restoration Hardware, a $350 million mall-based retail business on the verge of bankruptcy, selling mostly nostalgic discovery items and some Mission-style furniture. He has spent the past 23 years transforming every aspect of the business and building RH into the leading luxury interior design brand in the world today with revenues in excess of $3 billion. While many in the retail industry have been shrinking or closing stores, Mr. Friedman and his team have developed some of the largest and most inspiring retail experiences in the world, many in historically significant buildings with integrated interior design studios, restaurants, and wine, and barista bars. Some examples being RH San Francisco, The Gallery in the Historic Bethlehem Steel Building, RH Chicago, The Gallery in the Historic Three Arts Club, and RH England, a 17th Century, 73 acre estate with three restaurants and one of the most meticulously curated Architecture and Design Libraries, including the first modern printing in 1492 of De Archtectura, The Ten Books on Architecture by Vitruvius. Mr. Friedman is continuing to elevate and evolve the RH brand with the introduction of RH Guesthouses, a new hospitality concept for travelers seeking privacy and luxury, the first of which opened in New York City, and the second under construction in Aspen, inclusive of the first RH Bath House & Spa, and where the Company will also be introducing RH Residences, fully furnished luxury homes with integrated services that deliver taste and time value to discerning time starved consumers. Prior to RH, Mr Friedman spent 14 years in various positions at Williams-Sonoma Inc. lastly serving as President and Chief Operating Officer, and President of the Williams-Sonoma, Pottery Barn, and West Elm brands. Mr. Friedman was responsible for transforming Pottery Barn from a $50 million table top and accessories business into a billion dollar plus home lifestyle brand. Mr Friedman also developed the revolutionary Williams-Sonoma Grande Cuisine stores, and conceptualizing and developing the West Elm brand. Mr. Friedman began his career as a stock boy at the Gap store in Santa Rosa California. He spent eleven years with the 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.
|
|
Lead Independent Director Age: 68 Director since 2009 Board Committees: Audit, Compensation, Class I Director: Continuing in office until the 2025 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. Mr. Demilio currently serves as a member of the Board of Directors and Chairman of the audit committee of SCP Health, a privately-held provider of emergency medicine and hospitalist services through physician staffing and management since September 2015. Since January 2021, Mr. Demilio has been serving as a consultant to Spinnaker Medical, a privately held special purpose acquisition company. Mr. Demilio served as 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 June 2018 through December 2020, Mr. Demilio was a member of the Board of Directors and Chairman of the audit committee of Nurse Assist, a medical device manufacturer and distributer. From February 2014 through March 2016, Mr. Demilio served as a member of the Board of Directors and Chairman of the audit committee of The Paslin Company, a private company that designs, assembles and integrates robotic assembly lines for the automotive industry. From December 2000 until his retirement in October 2008, Mr. Demilio served as the Chief Financial Officer of Magellan Health Services, Inc., a Nasdaq-listed managed specialty healthcare company that managed the delivery of behavioral healthcare treatment services, specialty pharmaceuticals and radiology services. Mr. Demilio has also been the General Counsel for Magellan Health Services, 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. |
|
Age: 71 Director since 2014 Board Committees: Compensation Class I Director: Continuing in office until |
Leonard Schlesinger was appointed to our Board of Directors in April 2014. Dr. Schlesinger has served as Baker Foundation Professor of Business Administration at Harvard Business School, a role he returned to in July 2013 after serving as the President of Babson College from July 2008 until July 2013 and having held various positions at public and private companies. He also serves as a Director and Chair of the Audit Committee of DataPoint Capital Acquisition Corporation and a Director of View Point Holdings. From 1999 to 2007, Dr. Schlesinger held various executive positions at Limited Brands, Inc. (L Brands, Inc.), a formerly listed NYSE 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 White Barn Candle Company. Dr. Schlesinger also 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 MBA from Columbia University, and a Bachelor of Arts in American Civilization from Brown University. |
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Qualifications: |
Dr. Schlesinger was selected for our Board of Directors because he possesses extensive leadership, operational, financial, and business expertise from his significant and broad experience with numerous private and public retail companies. |
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Age: 68 Director since 2010 Board Committees: None Class III Director: Continuing in office until |
Carlos Alberini has served on our Board of Directors since June 2010. Mr. Alberini currently serves as a member of the Board of Directors and Chief Executive Officer of Guess?, Inc., a NYSE-listed specialty retailer of apparel and accessories, since February 2019. Mr. Alberini previously served as the Chairman and Chief Executive Officer of Lucky Brand from February 2014 to February 2019. Mr. Alberini served as our Co-Chief Executive Officer from June 2010 through October 2012 and from July 2013 through January 2014, and he served as our sole Chief Executive Officer from October 2012 through July 2013. Mr. Alberini was President and Chief Operating Officer of Guess from December 2000 to June 2010. From May 2006 to July 2006, Mr. Alberini served as Interim Chief Financial Officer of Guess. Mr. Alberini served as a member of the Board of Directors of Guess from December 2000 to September 2011. Prior to Guess, Mr. Alberini served as Senior Vice President and Chief Financial Officer of Footstar, Inc., a retailer of footwear from October 1996 to December 2000. From May 1995 to October 1996, Mr. Alberini served as Vice President of Finance and Acting Chief Financial Officer of the Melville Corporation, a retail holding corporation. From 1987 to 1995, Mr. Alberini was with The Bon-Ton Stores, Inc., an operator of department stores, in various capacities, including Corporate Controller, Senior Vice President, Chief Financial Officer and Treasurer. Prior to that, Mr. Alberini served in various positions at PricewaterhouseCoopers LLP. |
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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. |
COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
2024 PROXY STATEMENT | 15 |
Age: 66 Director since 2016 Board Committees: None Class III Director: Continuing in office until |
Keith Belling has served on our Board of Directors since April 2016, and previously served as an advisor to the Board of Directors from May 2015 to April 2016. Mr. Belling is the co-founder and former Chairman and Chief Executive Officer of popchips, Inc. (“popchips”), a leading better-for-you snack food business that launched in 2007. He previously served as popchips’ Chief Executive Officer from 2007 through 2012, leading the company to sales and distribution at over 30,000 retail stores across North America and the United Kingdom and served as the Chairman of the Board from 2007 through 2019. Mr. Belling is also the founder and former Chief Executive Officer of RightRice, a next generation rice brand that launched in February 2019, in Whole Foods Markets nationwide and on Amazon. Mr. Belling 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 1998, 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. |
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Qualifications: |
Mr. Belling was selected to our board because of his experience as a founder, leader, and entrepreneur of several innovative consumer companies, as well as his background and experience in the real estate sector. |
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Age: 50 Director since 2012 Board Committees: None Class I Director: Continuing in office until |
Eri Chaya has served on our Board of Directors since 2012, and has served as our President, Chief Creative and Merchandising Officer since November 2017. Ms. Chaya leads product curation and integration, brand creative and business development for RH Interiors, Contemporary, Modern, Beach House, Ski House, Outdoor, Baby & Child and TEEN, across the Company’s physical, digital and print channels of distribution. Ms. Chaya previously 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. Prior to RH, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency, and a creative director at Banana Republic. |
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Qualifications: |
Ms. Chaya was selected to our Board of Directors because of her extensive knowledge and experience in design, product development, brand development, marketing and advertising. |
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16 | 2024 PROXY STATEMENT |
COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
Age: 60 Director since 2016 Board Committees: Audit Class II Director: Continuing in office until |
Hilary Krane has served on our Board of Directors since her appointment in June 2016. Ms. Krane is currently the Chief Legal Officer for Creative Artists Agency. Up until February 2022, Ms. Krane served in various executive roles at Nike since 2010, including most recently as Executive Vice President, Chief Administrative Officer and General Counsel for NIKE, Inc. Prior to joining NIKE, Inc., Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. Ms. Krane 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. |
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Qualifications: |
Ms. Krane was selected to our Board of Directors because of her extensive operational, compliance and business experience contributing to the growth and development of innovative and iconic global brands. |
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Age: 54 Director since 2013 Board Committees: Audit Class II Director: Continuing in office until |
Katie Mitic is currently Chief Executive Officer and Co-founder of SomethingElse, Inc., a direct-to-consumer beverage company that launched in 2019. From 2012 to 2017, Ms. Mitic was the Chief Executive Officer and Co-founder of Sitch, Inc., a startup building innovative mobile consumer products. Prior to Sitch, Ms. Mitic served in executive leadership positions at innovative growth companies, including Facebook, Inc. and Palm, Inc. As Director of Platform & Mobile Marketing at Facebook, she grew developer products and partnerships globally. As Senior Vice President, Product Marketing at Palm, she expanded the company’s product lines and international footprint up until its acquisition by Hewlett-Packard. Earlier in her career, Ms. Mitic worked at NetDynamics (acquired by Sun Microsystems), where she launched the industry’s first application server, at Four11, where she built the industry leading email service RocketMail (now Yahoo! Mail) and at Yahoo!, where she served as Vice President and General Manager. She currently serves on the Boards of Directors of private and non-profit organizations, including DVx Ventures and LeanIn.Org. Ms. Mitic received her B.A. from Stanford University and her M.B.A. from Harvard Business School. |
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Qualifications: |
Ms. Mitic was selected to our Board of Directors because of her extensive leadership, operational and entrepreneurial experience with innovative growth companies and global consumer technology companies.
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COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
2024 PROXY STATEMENT | 17 |
Age: 51 Director since 2015 Board Committees: Nominating and Corporate Governance Class II Director Continuing in office until |
Ali Rowghani was appointed to our Board of Directors on January 22, 2015. Mr. Rowghani 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. Most recently, Mr. Rowghani was the Managing Director of the YCombinator Continuity Fund, which invests in growth-stage startups and which Mr. Rowghani helped launch in 2015. Prior to Twitter, from June 2002 to February 2010, Mr. Rowghani served in various leadership roles at Pixar, including Chief Financial Officer and Senior Vice President, Strategic Planning, reporting to Pixar founder and President, Ed Catmull. Mr. Rowghani holds a B.A. in International Relations and an M.B.A. from Stanford University. |
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Qualifications: |
Mr. Rowghani was selected to our Board of Directors because he possesses extensive operational, financial and leadership experience, and because of his expertise in scaling innovative and high-growth companies. |
18 | 2024 PROXY STATEMENT |
COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
EXECUTIVE OFFICERS
Below is a list of the names and ages, as of May 3, 2024, of our executive officers and a description of their business experience.
Chairman and Age: 66 |
Gary Friedman has served as our Chairman and Chief Executive Officer of the Company, and Founder of the RH brand as we know it today, since January 2014. Previously, Mr. Friedman served as our Co-Chief Executive Officer and Director from July 2013 to January 2014, and as Chairman and Co-Chief Executive Officer from May 2010 to October 2012. From October 2012 to July 2013, Mr. Friedman served as Chairman Emeritus, Creator and Curator on an advisory basis, and as Chief Executive Officer and a member of our Board of Directors from March 2001 to October 2012, during which time he served as our Chairman from March 2005 to June 2008. Mr. Friedman joined RH from Williams-Sonoma, Inc. where he spent 14 years serving as President and Chief Operating Officer from May 2000 to March 2001, as Chief Merchandising Officer of Williams-Sonoma, Inc. and President of Retail from 1995 to 2000, and as Executive Vice President of Williams-Sonoma, Inc. and President of the Williams-Sonoma and Pottery Barn brands from 1993 to 2000 during which time Mr. Friedman was responsible for transforming Pottery Barn from a $50 million dollar table top and accessories business into a billion dollar plus home furnishings lifestyle brand. Mr. Friedman also developed and rolled out the revolutionary Williams-Sonoma Grande Cuisine stores, growing the brand from less than $100 million to almost $1 billion. Lastly, while at Williams-Sonoma Mr. Friedman spent several years conceptualizing and developing the West Elm brand, which launched shortly after he left the company. Mr. Friedman joined Williams-Sonoma in 1988 as Senior Vice President of Stores and Operations. Mr. Friedman began his retail career in 1977 as a stock-boy at the Gap store in Santa Rosa, California. He spent eleven years with Gap, and held the positions of Store Manager, District Manager and Regional Manager overseeing 63 stores in Southern California. |
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President, Chief Merchandising Age: 50 |
Eri Chaya has served as our President, Chief Creative and Merchandising Officer since November 2017 and on our Board of Directors since 2012. Ms. Chaya leads product curation and integration, brand creative and business development for RH Interiors, Contemporary, Modern, Beach House, Ski House, Outdoor, Baby & Child and TEEN, across the Company’s physical, digital and print channels of distribution. Ms. Chaya previously 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. Prior to RH, Ms. Chaya was a creative director at Goodby, Silverstein and Partners, an international advertising agency, and a creative director at Banana Republic. |
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COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
2024 PROXY STATEMENT | 19 |
Chief Financial Age: 49 |
Jack Preston has served as our Chief Financial Officer since March 2019 and leads all financial functions, including strategic and financial planning, accounting, treasury, tax, internal audit, investor relations, as well as our legal, compliance and technology teams, 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 served as a Director in the consumer and retail investment banking group. Mr. Preston holds a bachelor of commerce degree from the Sauder School of Business at the University of British Columbia. |
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Chief Legal & Age: 52 |
Edward Lee has served as our Chief Legal & Compliance Officer since March 2019. Mr. Lee joined RH in October 2012 as Deputy General Counsel and was promoted to Chief Legal Officer in August 2015. Mr. Lee is also a member of the Disclosure Committee. Prior to RH, Mr. Lee was Vice President & Deputy General Counsel, Assistant Corporate Secretary at MGM Resorts International from January 2008 to October 2012. Mr. Lee holds a law degree from the University of California, Berkeley School of Law; an M.P.P. from Harvard University, The Kennedy School of Government; and a BA cum laude in Government/Public Policy from Pomona College. |
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Chief Gallery & Age: 41 |
Stefan Duban has served as our Chief Gallery & Customer Officer since 2021 and is responsible for the global operations of the Company’s Galleries, Interior Design, Hospitality, Trade, Contract, Outlet and the Gallery Optimization Teams. Mr. Duban is in his 24th year at RH and began his career as a part-time sales associate in our Thousand Oaks, CA Gallery. He has held the positions of Gallery Leader, Vice President of Home Delivery, Vice President and Regional Field Leader, and most recently, Chief Gallery Officer of RH. |
20 | 2024 PROXY STATEMENT |
COMPANY LEADERSHIP, DIRECTORS & OFFICERS |
INTENTIONALLY LEFT BLANK
CORPORATE GOVERNANCE & DIRECTOR INDEPENDENCE
We have a number of policies and practices related to corporate governance and oversight of our business. A number of the more important policies and procedures are described in this section of the proxy statement.
CORPORATE GOVERNANCE GUIDELINES
Our Corporate Governance Guidelines 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 overall 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 “Governance.” The contents of our website are not incorporated by reference into this proxy statement and are not soliciting materials.
CODE OF ETHICS & CODE OF BUSINESS CONDUCT
We have adopted a code of ethics for our chief executive officer and senior financial officers. We have also adopted a code of business conduct applicable to our team members, officers and directors. Copies of these codes are available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Governance.” We expect that any amendment to, or waiver of, the requirements of the code of ethics for our chief executive officer and senior financial officers will be disclosed on our website and any waiver of the requirements of the code of business conduct relating to our executive officers and directors will be promptly disclosed to shareholders, in each case as required by applicable law or NYSE listing requirements.
INCENTIVE COMPENSATION RECOUPMENT POLICY
Effective October 2, 2023, our Board of Directors adopted an incentive compensation recoupment policy (the “Clawback Policy”) as required by Rule 10D-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the corresponding NYSE listing standards. In the event the Company is required to prepare an accounting restatement to correct material noncompliance with any financial reporting requirement under U.S. federal securities laws, the Clawback Policy requires the Company to recover erroneously awarded compensation that is granted, earned or vested based in whole or in part upon the attainment of a financial reporting measure and that is received by our current and former executive officers (as defined in Rule 10D-1) during the three fiscal years preceding the date that the Company is required to prepare the accounting restatement. The amount recoverable is the compensation paid or payable in excess of the amount that would have been paid or payable based on the restated financial results.
In addition, as a public company subject to Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to restate our financial results due to our material noncompliance, as a result of misconduct, with any financial reporting requirements under the federal securities laws, our Chief Executive Officer and Chief Financial Officer may be legally required to reimburse us for any bonus or incentive-based or equity-based compensation they receive.
COMPENSATION COMMITTEE INTERLOCKS & INSIDER PARTICIPATION
No member of the compensation committee of our Board of Directors has served as one of our officers or been employed as one of our team members 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 the applicable annual meeting of shareholders 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 2025 annual meeting.
Class II: Hilary Krane, Katie Mitic and Ali Rowghani, with a term expiring at the 2026 annual meeting.
Class III: Gary Friedman, Carlos Alberini and Keith Belling, with a term expiring at the Annual Meeting.
NAME/ CURRENT POSITION |
|
AGE |
|
DIRECTOR |
|
INDEPENDENT |
|
AUDIT |
|
COMP. |
|
NOM. |
Gary Friedman |
66 |
Jul. 2013 |
||||||||||
Carlos Alberini |
68 |
Jun. 2010 |
● |
|||||||||
Keith Belling |
66 |
Apr. 2016 |
||||||||||
Eri Chaya |
50 |
Nov. 2012 |
||||||||||
Mark Demilio |
68 |
Sep. 2009 |
● |
☐ |
∎ |
☐ |
||||||
Hilary Krane |
60 |
Jun. 2016 |
● |
∎ |
||||||||
Katie Mitic |
54 |
Oct. 2013 |
● |
∎ |
||||||||
Ali Rowghani |
51 |
Jan. 2015 |
● |
∎ |
||||||||
Leonard Schlesinger |
71 |
Apr. 2014 |
● |
☐ |
☐ |
Committee Chair |
∎ |
Committee Member |
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 25 |
NAME/ CURRENT POSITION |
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BUSINESS |
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BRAND/ |
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GROWTH |
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PUBLIC CO. |
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INVESTMENT/ |
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LEGAL |
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RISK & |
Gary Friedman |
● |
● |
● |
● |
||||||||||
Carlos Alberini |
● |
● |
● |
● |
● |
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Keith Belling Founder and Former CEO of RightRice |
● |
● |
● |
● |
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Eri Chaya |
● |
● |
||||||||||||
Mark Demilio |
● |
● |
● |
● |
● |
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Hilary Krane |
● |
● |
● |
● |
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Katie Mitic |
● |
● |
● |
● |
● |
|||||||||
Ali Rowghani |
● |
● |
● |
● |
● |
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Leonard Schlesinger |
● |
● |
● |
● |
● |
We believe our Board of Directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe experience, qualifications, or skills in the following areas are most important: (i) business expertise in general and specific familiarity with high growth business models; (ii) experience building high value and luxury brands; (iii) industry knowledge of retail and consumer; and (iv) domain expertise in specialized areas such as merchandising and advertising; 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 selected noteworthy attributes for each board member in their individual biographies and as otherwise summarized above.
26 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
BOARD ASSESSMENT & DIVERSITY
INDEPENDENCE |
TENURE |
AGE |
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, our Board of Directors 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 of Directors 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 composition of our Board of Directors.
We believe that our approach to board qualifications and selection criteria is effective in identifying strong candidates to meet the needs of the Company and its constituencies and has resulted in a diverse Board of Directors.
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 27 |
Board Members Self-Identifying from Underrepresented Communities
Three of our directors have indicated that they are from underrepresented groups. We believe that representation of such groups on our Board of Directors further demonstrates our commitment to diversity and inclusion.
One director self-identifies as Hispanic and/or Latino.
Two directors self-identify as either being of Asian and/or Middle Eastern heritage.
See the graphic under “—Composition & Qualifications of our Board of Directors” above for further information regarding the composition and experience of our current Board of Directors.
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 Chairman of our Board of Directors and Chief Executive Officer.
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 “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 Board of Directors has determined that the Lead Independent Director provides an important governance construct for the Board of Directors to enhance regular communication with the Company’s leadership team and in particular the Chairman and Chief Executive Officer.
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.
28 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
BOARD INDEPENDENCE
In accordance with our Corporate Governance Guidelines, the Board of Directors affirmatively determines that each independent director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and meets the standards for independence as defined by applicable law and the rules of the NYSE.
Our Board of Directors undertook its annual review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our Board of Directors affirmatively determined that each of Mr. Alberini, Mr. Demilio, Ms. Krane, Ms. Mitic, Mr. Rowghani and Dr. Schlesinger is an “independent director,” as defined under the applicable rules of the NYSE and the SEC, and that the other members of the board are not independent. The board’s independence determination was based on information provided by our current directors. In particular, in making its determination that Mr. Alberini is an independent director, the Board of Directors considered that under the rules of the NYSE and the SEC, Mr. Alberini could be deemed independent for membership on the Board of Directors after February 2017 given that his prior service as the Company’s Co-Chief Executive Officer and Chief Executive Officer had occurred more than three years prior to such date. In addition, as of February 2019, Mr. Alberini also meets the enhanced independence standard for a director who has not served as an employee of the Company for more than five years. In reaching its conclusions regarding the independence of Mr. Alberini, the Board of Directors further considered Mr. Alberini’s time away from the management of RH, the fact that he had served as the chief executive officer of Lucky Brands, and the fact that he subsequently left Lucky Brands and is now serving as the chief executive officer of Guess?, Inc., a publicly traded company, listed on the NYSE, along with other prior and existing relationships between the Company and Mr. Alberini.
Further, the Board of Directors determined that each member of the Board of Directors’ audit committee, compensation committee, and nominating and corporate governance committee satisfies independence standards applicable to each committee, on which he or she serves. Although the Board of Directors determined that Mr. Alberini is an independent director under the applicable rules of the NYSE and the SEC, the Board of Directors has elected not to appoint Mr. Alberini to any of the committees of the Company that are required under applicable rules of the NYSE or SEC to be composed entirely of independent directors.
BOARD MEETINGS
During fiscal 2023, our Board of Directors held a total of three meetings. Additionally, our independent directors met in a number of executive sessions presided over by our Lead Independent Director. During fiscal 2023, all of our director nominees and all of our incumbent directors attended at least 75% of the total meetings such directors were eligible to attend during the period in terms of the board, the committees of the board on which they served and independent or non-executive board meetings.
Agendas and topics for board and committee meetings are developed through discussions among leadership and members of our Board of Directors and its committees. Information and data that are important to the issues to be considered are distributed in advance of each meeting. Board meetings and background materials focus on key strategic, operational, financial, governance and compliance matters applicable to us.
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 29 |
COMMITTEE COMPOSITION & MEETINGS
In fiscal 2023, our Board of Directors 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 2023 are as follows:
DIRECTORS |
AUDIT(3) |
COMPENSATION(3) |
NOM. & CORP. |
|||
Mark Demilio(1)(2) |
Chair |
Member |
Chair |
|||
Hilary Krane |
Member |
|||||
Katie Mitic |
Member |
|||||
Ali Rowghani |
Member |
|||||
Leonard Schlesinger |
Chair |
|||||
Number of meetings in fiscal 2023 |
8 |
6 |
2 |
(1) | Designated by the board as an “audit committee financial expert.” |
(2) | Currently the board’s Lead Independent Director. |
(3) | Committee members had various informal meetings in fiscal 2023. |
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.
30 | 2024 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 “Governance.” The audit committee conducts an annual self-evaluation of its performance, as set forth in its charter.
Compensation Committee
The compensation committee was established for the primary purpose of assisting the Board of Directors in discharging its responsibilities relating to the compensation of the Company’s directors and executive officers, as further described in “Executive Compensation—Compensation Discussion & Analysis—Compensation Committee Review of Compensation.” The compensation committee is responsible for, among other matters:
Reviewing key team member compensation goals, policies, plans and programs;
Reviewing and approving the compensation of our Chief Executive Officer and other executive officers;
Reviewing and approving or recommending the compensation of our directors;
Reviewing employment agreements and other similar arrangements between us and our executive officers; and
Appointing and overseeing any independent 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 “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.
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 31 |
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 “Governance.” The nominating and corporate governance committee conducts an annual self-evaluation of its performance, as set forth in its charter.
DIRECTOR NOMINATIONS; COMMUNICATION WITH DIRECTORS
Criteria for Nomination to the Board
In accordance with its charter, the nominating and corporate governance committee will consider candidates submitted by the Company’s shareholders, as well as candidates recommended by directors and leadership, for nomination to our Board of Directors. The nominating and corporate governance committee considers qualifications for the Board of Directors’ membership, which may include:
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 also considers such other factors as it deems appropriate, including diversity, the interplay of the candidate’s experience with the experience of other directors, and the extent to which the candidate would be a desirable addition to the Board of Directors and any committees of the Board of Directors. The nominating and corporate governance committee does not assign specific weights to particular criteria and no particular criteria is necessarily applicable to all nominees. The composition of our current Board of Directors includes diversity in the areas of gender, age, ethnicity and business experience.
The nominating and corporate governance committee further reviews and assesses the activities and associations of each candidate to address legal impediments, conflicts of interest, or other considerations 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.
32 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
Shareholder Proposals for Nominees
In accordance with its charter, the nominating and corporate governance committee will consider potential nominees properly submitted by shareholders. Shareholders seeking to do so should provide the information set forth in the nominating and corporate governance committee’s charter regarding director nominations. The nominating and corporate governance committee will apply the same criteria for candidates proposed by shareholders as it does for candidates proposed by leadership or other directors.
To be considered for nomination by the nominating and corporate governance committee at next year’s annual meeting of shareholders, submissions by shareholders must be submitted in writing and must be received by the Corporate Secretary by the deadlines set forth in this proxy statement under “Proposals—Additional Information—Shareholder Proposals for the 2025 Annual Meeting” 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 2025 Annual Meeting.”
Communicating with Members of the Board of Directors
Any shareholder or any other interested party who wishes to communicate directly with (i) our entire Board of Directors, (ii) the non-management directors as a group, or (iii) the Lead Independent Director, may do so by corresponding with the Lead Independent Director at the following address: Lead Independent Director, c/o RH, Legal Dept., 15 Koch Road, Corte Madera, CA 94925, Attn: Corporate Secretary. All communications will be received, processed and then directed to the appropriate member(s) of our board other than, at the board’s request, certain items unrelated to the board’s duties, such as customer complaints, spam, junk mail, solicitations, employment inquires and similar items.
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 33 |
SHAREHOLDER OUTREACH ACTIVITIES
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 last annual meeting (held on June 29, 2023), approximately 97.7% 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 financial performance, including through capital allocation, optimization of free cash flow and increasing the operating margin 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 has continued and evolved in each subsequent year. Along with our annual shareholder outreach program, throughout the year, members of our leadership team, including our Chief Financial Officer and Chairman and Chief Executive Officer, engage in regular shareholder and investor communications.
As part of our ongoing shareholder outreach efforts, we have provided explanations of our organizational and leadership structures and our continuing efforts to evolve and refine our organizational design and improve its alignment with the evolution of our 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 including those related to our executive pay practices, environmental, social and corporate governance programs and policies, as well as other topics of interest of our shareholders. This effort supplements the ongoing communications between our leadership and shareholders. We continue to receive feedback from our investors throughout the year as a result of our shareholder outreach program.
Shareholder Outreach Campaign & Feedback
We regularly engage in an annual shareholder outreach campaign in order to solicit the views of investors that we believe represent a substantial portion of our issued and outstanding shares as of the prior calendar year. We hold these discussions with shareholders with the objective of procuring feedback on topics that are of interest to these investors. The bulk of the feedback we receive in connection with the outreach campaign focuses on topics of governance and compensation practices as well as commentary on our proxy statement disclosures.
While our goal is to solicit the views of investors representing at least 50% of our issued and outstanding shares, our ability to reach shareholders depends in part on the concentration, or lack of concentration, of voting shares within our shareholder base as well as the fact that a number of our investors that had been previously contacted indicated there was not a need to have further conversations in the current annual shareholder outreach campaign with respect to governance and compensation practices, as their positions on the topics discussed had not changed in any significant way from previous conversations.
34 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
In 2023, in connection with our special meeting of shareholders held on April 4, 2023 and our 2023 annual meeting of shareholders, we solicited the views of institutional investors that we believe represented approximately 74% of our issued and outstanding shares owned by institutional investors as of March 6, 2023, and had discussions with, and received feedback from, investors representing approximately 70% of such outstanding shares. As was the case in 2021 and 2022, a number of our investors that had been previously contacted indicated there was not a need to have further conversations in the current annual shareholder outreach campaign with respect to governance and compensation practices, as their positions on the topics discussed had not changed in any significant way from previous conversations.
We are continuing with our annual shareholder outreach efforts in 2024 consistent with past practice.
In addition to the general feedback noted in the chart below, investors have expressed appreciation of our outreach efforts. The results of the shareholder outreach campaign, including concerns and feedback we received, were provided to our Board of Directors.
|
||
Shareholders regularly communicate to us their preference that we provide clear and readily accessible information in our proxy statements |
We have continued to fine tune our proxy statement presentation, including providing more information in tables and charts rather than within lengthy narrative form in order to make the proxy statement easier to read and the information more accessible |
|
Shareholders have communicated a preference for further disclosures around the nature and reason for the metrics used in our annual (short-term) cash bonus or Leadership Incentive Program |
We have provided additional disclosure in our compensation discussion and analysis (“CD&A”) in order to explain the reasons we chose certain compensation metrics and to show how our program is aligned with shareholder interests |
|
Shareholders requested information related to other performance metrics such as total shareholder return (“TSR”) |
After receiving feedback from shareholders regarding the disclosure of other performance metrics for our business, we have been providing additional information regarding key metrics such as TSR in our Annual Report on Form 10-K and in our shareholder letters in which we report our financial results and we disclose similar information here in our proxy statement for convenience We have also included a stock performance table to disclose a measure of TSR, as well as enhanced disclosures regarding TSR under the caption “Stock Performance” in our CD&A included below Although we do not use TSR as a direct metric as part of our long-term incentive strategy, we believe that the stock price performance metric that we do use in equity awards is likely to be well correlated with other metrics such as TSR Please see “—Fiscal 2023 Business Highlights” included below |
|
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 35 |
Shareholders requested |
We have continued to enhance our ESG disclosures including enhanced information about our corporate governance practices Beginning in 2021, we added a new section to our proxy statement that provides substantial additional information regarding our corporate social responsibility program, including our approach to environmental, social and governance initiatives and other related topics relevant to the Company’s business. This year, we have also enhanced our disclosures with respect to, among other things, material sourcing, ethical manufacturing and workforce health and wellness Our enhanced disclosures include, among other matters, additional information about our diversity profile, including certain metrics related to Waterworks, and other related information, such as our approach to cybersecurity risks Please see the “Corporate Governance” and “Environmental, Social & Governance” sections of this proxy statement |
|
Shareholders requested information about how we set the size of the RH 2023 Stock Incentive Ownership Plan (the “2023 Equity Plan”) at 3.0 million authorized shares |
In connection with the filing of our amended and restated proxy statement with respect to the special meeting of shareholders held on April 4, 2023, we provided enhanced disclosure concerning our rationale in setting the incremental 3.0 million authorized shares under the 2023 Equity Plan. The key factors that drove the determination with respect to sizing the 2023 Equity Plan included (i) our expectation that the 2023 Equity Plan would provide sufficient shares to cover our requirements for three to five years from the time of the plan’s adoption, and (ii) the extent of our recent share repurchases which offset the amount of the shares authorized under the 2023 Equity Plan |
|
36 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
Shareholders requested |
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, RH Beach House and RH Ski House; 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 senior leadership team We have provided ongoing disclosure concerning the roles of our senior leadership personnel, including our named executive officers. Over the last several years, we have increased the scope of responsibility for our named executive officers, including Ms. Chaya and Mr. Duban, who have worked closely with our Chief Executive Officer. 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 Sourcebooks and web presence. Mr. Duban oversees the Company’s Galleries, Interior Design, Hospitality, Trade, Contract and Outlet. Mr. Preston oversees all of the Company’s financial functions (including strategic and financial planning, accounting, treasury, tax, internal audit and investor relations) as well as our legal, compliance and information technology teams |
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 37 |
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. See “Environmental, Social and Governance—Board Oversight of Cybersecurity Matters.”
DIRECTOR & EXECUTIVE STOCK OWNERSHIP GUIDELINES
Our Board of Directors has adopted stock ownership guidelines applicable to all directors and senior executive officers of the Company in order to further align the financial interest of our directors and senior executive officers with the interests of our investors. The guidelines provide that the Chief Executive Officer should own RH stock with a value at least equal to six times annual base salary and other senior executive officers should own two times annual base salary. The guidelines provide that directors should own RH stock with a value at least equal to two times the amount of the annual cash retainer paid to directors. Senior 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 were effective immediately upon their adoption in May 2018.
All senior executive officers and directors are in compliance with the guidelines.
Our Chairman and Chief Executive Officer, Mr. Friedman, has consistently maintained a significant equity ownership interest in the Company and, as of May 3, 2024, beneficially owns approximately 25.0% of the Company’s common stock which, based on the average closing price for RH stock for fiscal 2023, was valued at approximately 947.2 times his annual base salary for fiscal 2023, far above the multiple of six times salary minimum ownership requirement. The foregoing calculation was 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. Additional information regarding the shareholdings 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.”
38 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
STOCK TRADING PRACTICES
We maintain an insider trading policy that, among other things, prohibits our officers, including our named executive officers, directors and team members 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 team members with titles of vice president or higher, including our named executive officers, and all members of our Board of Directors pre-clear any proposed open market transactions.
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 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.
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 and are encouraged to do so.
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 39 |
ANNUAL MEETING ATTENDANCE
We do not have a policy that requires our directors to attend the annual meeting of shareholders. Two of our directors attended the 2023 annual meeting.
COMPENSATION OF DIRECTORS
We compensate all non-employee members of our Board of Directors as follows:
(1) | In May 2020, in connection with his service as Lead Independent Director, Mr. Demilio received a refresh stock option for 30,000 shares, which vests in five equal installments over five years, subject to his continuous service as the Lead Independent Director. In April 2024, in connection with Mr. Demilio’s ongoing service as Lead Independent Director, Mr. Demilio received (1) a refresh stock option award for 36,000 shares, which vest in six equal installments over six years and (2) 4,000 shares of restricted stock, with 1/8 of the aggregate number of shares vesting on a quarterly basis, each subject to his continuous service as the Lead Independent Director. |
(2) | Based on the average closing price of our common stock on the date of grant, determined using the closing prices for the ten consecutive trading days prior to and inclusive of the date of grant, which shares vest in full on the one-year anniversary of the date of grant. Grants are made for service for the period between the annual meeting of shareholders for the fiscal year in which the grant was made and the annual meeting of shareholders for the following fiscal year. |
Annual equity grants described above are granted on the date of the annual meeting of shareholders each year.
Mr. Friedman and Ms. Chaya, as current officers of the Company, did not receive any compensation for board service for fiscal 2023. All directors receive reimbursement for reasonable out-of-pocket expenses incurred in connection with meetings of our Board of Directors.
40 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
The following table shows the compensation earned by all non-employee directors during fiscal 2023:
NAME |
|
FEES EARNED |
|
STOCK AWARDS(1) |
|
TOTAL |
|
Carlos Alberini |
|
$135,000 |
$136,308 |
$271,308 |
|||
Keith Belling |
|
$135,000 |
$136,308 |
$271,308 |
|||
Mark Demilio |
|
$290,000 |
$136,308 |
$426,308 |
|||
Hilary Krane |
|
$160,000 |
$136,308 |
$296,308 |
|||
Katie Mitic |
|
$160,000 |
$136,308 |
$296,308 |
|||
Ali Rowghani |
|
$150,000 |
$136,308 |
$286,308 |
|||
Leonard Schlesinger |
|
$210,000 |
$136,308 |
$346,308 |
(1) | Reflects the aggregate grant date fair value of the awards of restricted stock made in fiscal 2023, computed in accordance with FASB ASC 718. Refer to Note 17—Stock-Based Compensation in our audited consolidated financial statements contained in our 2023 Annual Report. Amounts shown do not reflect compensation actually received or that may be realized in the future by the director. |
At February 3, 2024 the last day of fiscal 2023, the aggregate number of unvested restricted stock awards and unexercised stock options held by each of our directors, 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 above entitled “—Outstanding Equity Awards at Fiscal Year-End.”
NAME |
UNVESTED |
UNEXERCISED |
|||
Carlos Alberini |
423 |
— |
|||
Keith Belling |
|
423 |
|
— |
|
Mark Demilio |
|
423 |
|
50,000 |
(2) |
Hilary Krane |
|
423 |
|
— |
|
Katie Mitic |
|
423 |
|
— |
|
Ali Rowghani |
|
423 |
|
— |
|
Leonard Schlesinger |
|
423 |
|
— |
(1) | All restricted stock awards listed above will vest as to 100% of the shares on June 29, 2024. |
(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 vested pro rata over five years such that they were fully vested on March 9, 2021. Mr. Demilio was granted options to purchase 30,000 shares of stock on May 5, 2020. Such options vest pro rata over five years such that they will be fully vested on May 5, 2025, subject to Mr. Demilio's continued service as Lead Independent Director. Equity awards granted to Mr. Demilio subsequent to February 3, 2024 for his continuing service as Lead Director are not reflected in the above table. |
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 41 |
BUSINESS HIGHLIGHTS
Fiscal 2023 Business Highlights
To assist you in reviewing the proposals to be acted upon at our Annual Meeting, we call your attention to certain headlines about the Company’s 2023 operational and financial performance set forth below that are relevant to the matters discussed in this proxy statement.
Below we highlight certain aspects of the Company’s recent performance, including fiscal 2023 financial performance and stock price performance, as well as our approach to equity compensation for our executive officers in relation to the Company’s business performance. The following business highlights are only a summary. For more complete information about these topics, please review the 2023 Annual Report and the entirety of this proxy statement.
Fiscal 2023 Financial Performance
Fiscal 2023 was a year of adversity, innovation, and investment for team RH as we faced the most challenging housing market in three decades while investing in the most compelling product transformation and platform expansion in our history. We have positioned the RH brand to gain market share while building the foundation for our global expansion across the United Kingdom, Europe, Australia and the Middle East over the next several years. While aggressively investing during a downturn has put pressure on our short-term results, it also positions us to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation. Highlights of our fiscal 2023 financial performance include:
Financial Performance(1) |
GAAP net revenues decreased 15.6% to $3.029 billion versus $3.590 billion in fiscal 2022 |
GAAP operating margin decreased 800 basis points to 12.1% versus 20.1% in fiscal 2022 Adjusted operating margin decreased 900 basis points to 13.0% versus 22.0% in fiscal 2022 |
|
GAAP net income decreased 75.9% to $128 million versus $529 million in fiscal 2022 Adjusted net income decreased 72.1% to $147 million versus $529 million in fiscal 2022 |
|
GAAP diluted earnings per share decreased 70.3% to $5.91 versus $19.90 in fiscal 2022 Adjusted diluted earnings per share decreased 65.8% to $6.87 versus $20.06 in fiscal 2022 |
|
Other Financial Measures(1) |
We utilized $67 million of free cash flow in fiscal 2023 We ended fiscal 2023 with $2.367 billion of net debt and $124 million of cash and cash equivalents on our balance sheet (2) |
(1) | Reconciliations of GAAP to non-GAAP financial measures for adjusted operating margin, adjusted net income, adjusted diluted earnings per share, free cash flow and net debt are provided in the tables included in Annex A to this proxy statement. Fiscal 2023 included 53 weeks compared to 52 weeks in fiscal 2022. |
(2) | We define “net debt” as total debt less cash and cash equivalents. |
42 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
Equity Compensation Framework
We believe that compensation paid to our executive officers should be structured to align with the performance of the business. We achieve this alignment in part by providing a substantial portion of compensation to our executive officers in the form of equity awards. This approach generally aligns executive compensation with shareholder stock price appreciation. In addition, we have structured the equity awards made to our Chairman and Chief Executive Officer to have a substantial performance component. Performance for these purposes is measured by stock price appreciation over a minimum four-year service period. We believe that our approach to equity compensation for our executive officers has contributed to our overall business performance and the long-term appreciation in our share price.
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 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 assess the compensation of its senior leadership team to assure that there is strong alignment with the Company’s performance goals and long-term business strategy.
In terms of equity compensation for our executive officers, we have instituted a number of investor friendly practices in connection with stock-based incentive awards. The Company recognizes the dilutive impact of stock-based incentive awards on our shareholders. We strive to balance the impact of dilution with our need to attract and retain talent. In addition, we rely on a number of other measures to address the dilutive effects of equity awards including: (i) use of longer term vesting with respect to many equity awards, a large number of which have a seven-year vesting measurement period, (ii) back-end loaded vesting with respect to some of our equity grants, (iii) avoiding mechanistic or formulaic grant practices that may create expectations around annual refresh grants that are not linked to market and business conditions, and (iv) repurchase of shares under our share repurchase programs as an offsetting mechanism to reduce dilution from equity awards.
See “Executive Compensation—Compensation Discussion & Analysis” below for additional information regarding equity awards to our executive officers.
2020 Stock Option Award to Chairman and Chief Executive Officer
In fiscal 2020, the Company granted a multi-year stock option award (the “2020 Stock Option Award”) to the Chairman and Chief Executive Officer that is tied to the Company’s future stock price performance and the continuing service of the Chairman and Chief Executive Officer over time. The Company has determined that linking the Chairman and Chief Executive Officer’s equity award to future stock price performance is an important construct to align the Chairman and Chief Executive Officer’s compensation with the overall financial performance of the Company over time.
In fiscal 2017, the compensation committee determined to grant to the Chairman and Chief Executive Officer a multi-year equity award under the 2012 Stock Incentive Plan to purchase 1,000,000 shares of the Company’s common stock with performance conditions tied to stock price performance, which the compensation committee determined to be a transparent and accessible measure of overall value that aligned the Chairman and Chief Executive Officer’s compensation with a long-term view in leading the Company and with the returns experienced by investors over time.
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 43 |
The 2017 multi-year stock option award structure was implemented as a result of the compensation committee’s extensive efforts to create an award that created strong alignment between the Chairman and Chief Executive Officer and the objectives of the Company’s shareholders. In its fiscal 2019 annual review of executive compensation, the compensation committee affirmed the effectiveness of the multi-year equity structure. The Company’s financial and operational performance improved and its stock price performed exceptionally well during the years following the 2017 multi-year stock option award to the Chairman and Chief Executive Officer. The 2017 multi-year stock option award required substantial stock price appreciation from the Company’s share price on the date of grant: the stock price performance targets in Mr. Friedman’s 2017 multi-year stock option award were set at $100, $125 and $150 per share, measured over a minimum four-year time period from the date of grant and represented premiums to the grant-date stock price of 105.7%, 157.1% and 208.5%, respectively. As of February 2, 2018, the last trading day of fiscal 2017, the closing price of the Company’s 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 the Company’s common stock had further increased to $133.64 per share, and as of January 31, 2020, the last trading day of fiscal 2019, the closing price of the Company’s common stock had further increased to $208.75 per share.
The 2020 Stock Option Award has the same overall time-based and performance-based structure as the 2017 multi-year stock option award made to Mr. Friedman, except that the stock price performance levels, the exercise price and the number of shares covered by the new award have been adjusted to take into account the market conditions, including the RH common stock price and the number of RH shares outstanding. Based on the strong performance of the Company’s stock price since the date of the 2017 multi-year stock option award, the compensation committee concluded in fiscal 2020 that all of the performance hurdles under the award would be met in May 2021. Mindful of this positive outcome, the 2020 Stock Option Award was structured to resume with a new four-year performance period that commences upon completion of the performance measurement period for the 2017 multi-year stock option award. Accordingly, the new award provides for the continuation of essentially the same performance methodology used in the 2017 multi-year stock option award using enhanced stock price levels that are substantially above the RH stock price at the time of 2020 grant.
See “Executive Compensation—Compensation Discussion & Analysis” below for additional information regarding the equity compensation of our Chairman and Chief Executive Officer.
44 | 2024 PROXY STATEMENT |
CORPORATE GOVERNANCE |
Share Price Performance
We have achieved extremely strong share price appreciation measured both in the mid-term and long-term. We believe our executive compensation strategy with respect to equity grants is strongly aligned with our long-term share price performance and has contributed to the strong financial returns that we have generated for investors over the long-term.
Measured at the end of fiscal 2023, our share price decreased by approximately 18% during fiscal 2023 reflecting, in part we believe, the impact of macroeconomic factors such as increased inflation, rising interest and mortgage rates, uncertainties in the global financial markets and the slowdown in the housing market, as well as the continued give-back in demand trends in our business during fiscal 2023 related to the shift in consumer demand away from home furnishings in the aftermath of the COVID-19 pandemic. The share price has, however, appreciated substantially when measured over the medium and long-term through the end of fiscal 2023 as described further in the table below. Since our initial public offering in 2012, our share price has increased more than 900%.
STOCK PRICE(1) |
||||||||
TIME PERIOD |
CLOSING PRICE |
AS OF FEBRUARY 2, 2024 |
CHANGE |
|||||
One Year |
01/27/2023 |
$311 |
$256 |
(17.7)% |
||||
Two Year |
01/28/2022 |
$392 |
$256 |
(34.7)% |
||||
Three Year |
01/29/2021 |
$475 |
$256 |
(46.1)% |
||||
Five Year |
02/01/2019 |
$134 |
$256 |
91.0% |
||||
Since IPO(2) |
11/01/2012 |
$24 |
$256 |
966.7% |
(1) | Stock prices are rounded to the nearest whole dollar amount. |
(2) | Measured from the IPO price. Value represents opening stock price on the date of the IPO. |
CORPORATE GOVERNANCE |
2024 PROXY STATEMENT | 45 |
environmental, social & governance
Our environmental, social and certain other governance efforts are implemented through our environmental, social and governance (“ESG”) programs, which are designed to align our approach to ESG issues with the interests of our people, customers and shareholders and their respective ESG concerns.
Our ESG programs consist of, and are organized under, four key components:
Environmental & Sustainability
Product Safety & Compliance
Responsible Sourcing & Vendor Compliance
Philanthropy
We believe that these four key components of our ESG programs enhance and elevate our brand presence and are aligned with the Company’s long-term strategic goals as a provider of luxury home furnishings.
In order to implement our ESG programs, we collaborate and work with a variety of third-parties, many of which are non-profit organizations that provide and/or monitor standards addressing various aspects of ESG concerns. We work directly with some of these organizations or we rely upon vendors that adhere to standards set by these kinds of third-parties. Some of these third-party organizations that we rely upon as part of our ESG programs include among others, Habitat for Humanity, Good360, Benchmark International, Assent, GoodWeave, Label STEP and Fair Working Conditions. More information on our ESG program and ESG efforts and the work we do with these kinds of third-parties is available on the Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Governance – Environmental, Social & Governance.”
ENVIRONMENTAL
Sustainability
We observe a number of practices that are designed to support environmental stewardship through sustainability. We seek to address environmental considerations through our programs, including issues related to deforestation, waste, energy use, recycling and conservation of resources used in building materials.
We have strategically aligned our sustainability and environmental programs with the materials we use to make our products, the paper we use to print our Sourcebooks and the iconic and historical buildings we chose to renovate and restore as part of our portfolio of Design Galleries.
We have pioneered a number of product collections that incorporate the use of reclaimed and repurposed wood. We also work with our vendors to support responsible wood sourcing practices and compliance with applicable regulations concerning the origin of new wood and other product inputs.
Our Sourcebooks are printed – and have been printed for a number of years – on Forest Stewardship Council (or FSC) Certified Catalog Paper. FSC is a third-party certification organization that evaluates those who manage the care of forests. Using FSC certified paper in the production of our Sourcebooks is designed to assure that paper is not contributing to destructive practices in forestry such as illegal logging, conversion of natural forests to other land uses, the liquidation of high conservation value forests, civil rights violations and genetic modification of forest species.
This RH proxy statement, as well as previous proxy statements, have also been printed with FSC Paper and Waterworks utilizes FSC paper for printing its bi-annual newspaper, Waterworks Made.
In 2023, we expanded the use of FSC certified paper across the RH Home Office (“Home Office”).
We also promote a paperless alternative to Sourcebooks through the presentation of our product assortment digitally. Our team members use iPads and other devices to showcase our product assortment to our customers in our Galleries. This service allows our customers to shop our entire merchandise assortment in our retail Galleries.
We work closely with our delivery network, distribution centers, Home Office facilities teams, Galleries and Outlets to divert packaging, product and other forms of waste from landfills. We have instituted a number of other initiatives to reuse and repurpose materials in lieu of traditional waste practices.
In 2015, we established a program with Habitat for Humanity to donate products in support of this organization as part of our philanthropy and sustainability efforts. We donate to Habitat for Humanity merchandise that does not meet our “first quality” standards and these “second quality” and “third quality” products are diverted from landfills and used by Habitat for Humanity. Our program with Habitat for Humanity started in Tracy, California and now includes Galleries, Outlets and distribution centers across the U.S. and Canada. In 2019, Habitat for Humanity Greater Vancouver awarded RH a Community Donor Award as a Silver Level Donor.
Certain RH Baby & Child merchandise have received GREENGUARD Gold certification, the highest level of certification under GREENGUARD, requiring that such products meet strict chemical emissions limits and screening procedures. The GREENGUARD standard is used to determine emissions caused by Volatile Organic Compounds (VOCs) from building materials, finishes and furnishings.
In early 2023, to further align with our goal to support environmental stewardship, a portion of our Home Office campus transitioned to “No Mow” grass. This type of grass is more resilient to drought and requires annual mowing, further reducing emissions from gas powered lawn equipment.
Waste & Packaging
We work closely with our delivery centers, distribution centers, Home Office facilities teams, Galleries and Outlets to assist in finding resources and other options to help divert product and packaging waste from landfills. For example, we look for ways to divert products that do not meet our quality standards, such as products that cannot be sold through our Galleries and Outlets as a result of damage or returns. These “second quality” and “third quality” products have been proactively donated through product diversion programs resulting in an estimated waste diverted from landfills, as shown below:
WASTE DIVERSION |
|
2020 |
|
2021 |
|
2022 |
2023 |
POUNDS |
639,000 |
540,000 |
370,000 |
312,000 |
|||
TONS |
320 |
270 |
185 |
156 |
We also have guidelines and procedures in place with our in-sourced home delivery teams and our third-party home delivery partners to offer to collect and recycle packaging materials from our customers at the time of the product delivery and installation process. Waterworks currently purchases packaging material that is Sustainable Forestry Initiative (SFI) certified.
Waterworks uses a universal waste disposal company to dispose of items such as batteries, ballasts, bulbs, electronics, etc. It also works with a recycling company to discard its scrap metal. In fiscal 2023, Waterworks recycled 1,785 pounds (.893 tons) of e-waste and 10,760 pounds (5.38 tons) of metal.
Recycling & Composting
In 2023, we expanded recycling and composting efforts with respect to the RH Home Office by partnering with its local waste hauler, making available a broader range of applicable waste receptacles, educating team members on recycling and composting best practices and placing additional proper disposal signage in kitchens.
RH & Waterworks Electricity Consumption
We monitor our electricity consumption across our Galleries and Showrooms, Outlets, distribution centers, manufacturing site and Home Offices. Our plan is to use the data from our electricity consumption through our U.S. and Canadian operations to drive efficiencies and improvement. Below is a four-year look back at our electricity consumption in kilowatt-hours (kWh) at locations we are able to monitor on a fiscal year basis.
(1) | Consists of 3 DCs, 65 Galleries, 19 HDCs, 32 Outlets and 11 other facilities in the U.S. and 2 Galleries and 1 Outlet in Canada. |
(2) | A majority of RH facilities were temporarily closed from March to June in 2020 due to the start of the COVID-19 pandemic. |
(3) | Consists of 4 DCs, 67 Galleries, 25 HDCs, 33 Outlets, and 11 other facilities in the U.S. and 2 Galleries and 1 Outlet in Canada. |
(4) | Consists of 4 DCs, 63 Galleries, 21 HDCs, 33 Outlets, and 9 other facilities in the U.S. and 2 Galleries and 1 Outlet in Canada. |
(5) | In 2022 we closed certain HDCs, Galleries and temporary locations. |
(6) | 2023 consumption data is cumulative of RH and Waterworks usage. |
(7) | Consists of 4 DC’s, 66 Galleries, 19 HDCs, 38 outlets and 9 other facilities in the U.S. along with 2 Galleries and 1 Outlet in Canada and 14 U.S. Waterworks locations. |
The previous table was derived from information provided to us by ENGIE Insight Services Inc., our third-party energy infrastructure and building services provider that helps manage our electricity usage in certain of our select locations and facilities. We do not currently have data for all of our facilities as some of our locations, for example, are part of an integrated multi-tenant commercial complex such as a mall or shopping center where electricity usage is co-mingled with other tenants and is managed by our landlord. We collect and use the data referenced above in order to monitor our electricity usage and to conserve electricity use at these locations. We cannot assure that the results shown for our locations monitored by ENGIE Insight Services are representative of other locations for which we do not have the same access to data regarding electricity use.
We believe our greatest savings impact in terms of electricity usage has been driven by elements of our lighting campaign. Through a targeted approach to our lighting systems, we have expanded the use of LED bulbs in many of our Galleries. We strive to make further gains through the continuation of this initiative through 2024, resulting in the conversion of more of our lighting to energy efficient LED alternatives.
We have also been reviewing potential options to include renewable sources in our energy portfolio.
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 49 |
RH LEED Certification
As part of our real estate development projects, we address energy efficiency as one important factor in our development efforts. Some of our new Galleries have incorporated more energy efficient alternatives including, in some instances, LEED certified standards. As an example, in September 2016, we opened RH Austin, The Gallery at The Domain at 11720 Domain Boulevard which is a LEED Gold Certified building. In 2015, we opened our distribution center in Patterson, California which is also a LEED Gold Certified building. In 2020, we opened another distribution center in Ontario, California which is also a LEED Certified building.
Waterworks LEED Certification
Waterworks is continuing the remodel of its Brookfield Operations Center to include offices for the support center. The project has a LEED consultant to assess the level of LEED Certification that the Brookfield Operations Center can achieve as it undergoes a renovation. Additionally, Waterworks will be re-using and repurposing a material amount of existing furniture and re-upholstering chairs as part of the remodel.
Architectural & Design Legacy
Since 2011, RH has opened 32 new Galleries. As part of our development of new Galleries, RH has updated and renovated a number of historic buildings, including among others our Gallery locations in Boston, Chicago, Greenwich, San Francisco, New York, England and New Jersey (under development). These projects enable RH to preserve important architectural contributions and have the additional benefit of reusing and repurposing substantial amounts of legacy building materials that are preserved in these Gallery redesigns. In contrast to new construction, these redesigned historical buildings rely on substantial amounts of the original building materials where possible. In many instances, we have been able to preserve substantial elements of the original building and super structure, as well as important design elements of the historic features of these locations. By preserving a significant portion of the original building, we are able to conserve the amount of new building materials that are used in these projects.
RH has great respect for architectural design and history and has reestablished the relevance of several historic and landmark buildings, giving them renewed purpose and bringing them to modern use. It is often the case that developing a new building from the ground up is more economical than restoring and renovating a historic building. When we choose to renovate historic landmark buildings, we approach the project as an investment in our brand elevation and real estate transformation strategy, as well as an investment in a long-term sustainable approach to Gallery development. Many of these landmark buildings are in a state of disrepair at the time we take possession of them and through our careful restoration we redevelop them into Galleries that reinforce our luxury brand aesthetic and highly differentiated, elevated customer experience.
In April 2013, we opened RH Boston, The Gallery at the Historic Museum of Natural History at 234 Berkeley Street in Boston, Massachusetts. We restored this landmark building that was originally designed in 1862 by distinguished architect William G. Preston and was only the second building to be erected in Boston's famous Back Bay. Our restoration efforts earned us the Preservation Achievement Award through the Boston Preservation Alliance.
In May 2014, we opened RH Greenwich, The Gallery at the Historic Post Office at 310 Greenwich Avenue in Greenwich, Connecticut. We restored this storied neoclassical building that was originally built in 1917. This building sits in the heart of Greenwich Avenue’s Historic District and is listed on the National Register of Historic Places.
50 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
In October 2015, we opened RH Chicago, The Gallery at the Three Arts Club at 1300 North Dearborn Parkway on Chicago’s famed Historic Gold Coast. We restored this landmark building, which was designed in 1914 by distinguished architectural firm Holabird & Roche and was inaugurated as a residence for young women studying music, drama and the visual arts. We restored the entire structure with great respect for its original vision in collaboration with the Commission on Chicago Landmarks. The Gold Coast district, where RH Chicago is located, is listed on the National Register of Historic Places and the Three Arts Club was named a Chicago Landmark in 1981.
In September 2018, we opened RH New York, The Gallery in the Historic Meatpacking District at the intersection of Little West 12th Street, Ninth Avenue and Gansevoort Street. We restored this historic landmark building that was originally owned by John Jacob Astor in the late 19th century. The Meatpacking District, where RH New York is located, is listed on the National Register of Historic Places.
In December 2018, we reopened Ma(i)sonry as RH Wine Vault as part of RH Yountville in the heart of wine country at 6711 Washington Street, Yountville, California. We restored this landmark building, which was originally designed in 1902 by its owner and vintner Charles Rovegno with the help of Angelo Brovelli, a local mason responsible for many of Napa County's idyllic stone bridges. This historic structure is listed on the National Register of Historic Places as well as on the Napa County Historic Resources Inventory.
In May 2022, we opened RH San Francisco, The Gallery at the Historic Bethlehem Steel Building at the corner of Illinois & 20th Streets, San Francisco, California in the second quarter of fiscal 2022. Originally constructed in 1917 and designed in the Classical Revival style by preeminent San Francisco architect Frederick H. Meyer, we restored this landmark building with great respect for its original vision. The Historic Bethlehem Steel Building is listed on the National Register of Historic Places.
In September 2022, we opened RH Guesthouse at 55 Gansevoort Street in New York, New York. The 55 Gansevoort building is located in the Gansevoort Market Historic District which is listed on the National Register of Historic Places. Our restoration of this historic landmark building, which dates to 1887, was designed by architect Joseph M. Dunn.
In June 2023, we opened RH England, The Gallery at the Historic Aynho Park. The earliest records indicate that a London mercer bought the manor of Aynho in 1545. The manor house at Aynho Park has been remodeled many times since it was built. We acquired Aynho Park in 2020 and completed the redevelopment and restoration of the building to breathe new life into this iconic historic site, which is considered to be a building of exceptional interest under the National Heritage List for England.
We are developing RH Morristown in New Jersey, The Gallery at the Historic Alnwick Hall, also known as the Abbey. Alnwick Hall was built in 1904 for Edward P. Meany, the New Jersey Judge Advocate General and director of the American Telephone and Telegraph Company. Edward P. Meany based the design of the house off of the Alnwick Castle in Northumberland, England. We look forward to bringing new life to this prominent landmark in Morristown.
We are developing RH London in the U.K., The Gallery at the Historic 7 Burlington Gardens, also known as Queensberry House situated in Mayfair. The building was constructed in 1725 and was named after the fair that was typically held in May, every two weeks for about 80 years. At one point in time, it served as a branch of the Bank of England.
Aligned with our efforts to honor the legacy of great architecture and design, Waterworks supports the Institute of Classical Architecture and Art, the Nantucket Historical Association and the Sir John Soane’s Museum Foundation. Waterworks believes in supporting non-profit organizations that educate professionals and the general public in architecture, design and its allied arts in furtherance of their preservation for future generations.
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 51 |
SOCIAL
We care about the well-being of our people, customers, and communities, which is an important factor that influences our actions in many areas of our business operations. Our ESG programs are designed in part to support the ethical treatment of people, including our team members, customers, vendors and other stakeholders. We seek to promote workplace health and favorable working conditions for our people.
Our goal is to have the right person in every position throughout our organization. We have a policy that prohibits us from discriminating against any applicant or associate. This policy governs all aspects of employment, including recruitment, hiring, training, promotion, compensation, discipline, job assignments, benefits, transfer and discharge.
RH is committed to providing a productive work environment free of unlawful harassment. Our company policies prohibit any form of harassment that has the purpose or effect of unreasonably interfering with an individual’s work performance, or that creates an intimidating, hostile, abusive or offensive work environment.
We maintain an open door policy where our team members are encouraged to stop by to discuss any suggestions or address any concerns they might have. We believe that most work-related obstacles can be best addressed through open and honest communications.
We maintain an anonymous hotline where submitted complaints, concerns and grievances are reviewed and addressed with the objective that no team member submitting such complaints will be disciplined, penalized or otherwise retaliated against for raising a good-faith concern either through the hotline or under our open door policy.
52 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
Our Team Members
We believe deeply that the “right” people are our greatest asset. Our success is thus dependent upon our ability to retain continued service of our key personnel, particularly our Chairman and Chief Executive Officer, and to attract, retain and motivate qualified leaders and team members across all parts of our organization, including Galleries, Hospitality, Outlets, Showrooms, distribution centers, home delivery centers and customer delight centers.
The combined teams at RH and Waterworks are approximately 6,000 people comprised of full-time, part-time and temporary team members, including those based in our retail and outlet locations as of February 3, 2024. In fiscal 2021, we began to include Waterworks team members as part of our workforce diversity metrics, which includes the charts on our “Our People,” our “Gender Diversity” and on our “Racial and Ethnic Diversity.”
OUR PEOPLE |
||
For us, the provision of a comprehensive benefits program is an investment in our team members. We recognize the value our team members bring to RH and to Waterworks, and we are committed to offering an array of opportunities from which they can choose. We offer the following to eligible team members:
Medical, Dental and Vision Insurance |
Employee Assistance Program |
Health and Dependent Care Flexible Spending Accounts |
401(K) Retirement Savings Plan |
Transit and Parking Benefits (Pre-Tax) |
Team Member Discounts |
Health Savings Account |
Referral Bonuses |
Life Insurance |
Other Wellness Benefits |
Short and Long-Term Disability Insurance |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 53 |
Workforce Health & Wellness
RH is committed to protecting the health and safety of our team members in the design, manufacturing, distribution, retail, and delivery of our products and services. The RH Health & Safety Program follows the Plan-Do-Check-Act model to establish processes, identify controls, and facilitate continuing improvement. Through this program we are dedicated to preventing accidents, injuries and illnesses by implementing and maintaining effective health and safety practices and policies. To enhance the safety culture, we host monthly leadership safety committee meetings with vaiour cross functional leaders to share metrics, discuss lessons learned and celebrate successes. We recognize the importance of integrating safety practices into all aspects of our business and strive for continuous improvement.
One of the key benefits of prioritizing team members’ health and safety is that it leads to increased productivity and efficiency. Team members who feel safe and secure in their workplace are more likely to be engaged and motivated, which can lead to increased productivity and better performance. In addition, creating a culture of safety and well-being can reduce the number of workplace accidents and injuries, which can lead to reduced downtime and costs associated with workers’ compensation claims. In 2023, we reduced the number of beyond first aid injuries by 43.9% from the prior year. Improved case management and partnership with our business leaders led to a significant reduction in Lost Days (number of days that an team member is absent from work due to work injury) by 14.9% from 2022. Furthermore, in 2023 we were able to reduce the total incident count across our business by 10%.
In May 2022, we implemented the RH Workplace Nurse Line, available 24/7 in English and Spanish. The Nurse Line connects our team members and leaders with a medical professional that can advise on care. The registered nurse guides our team members and leaders in making medical treatment decisions. Nurse Line conducts a follow-up call with our injured team member if the case is first aid only. Team members may call back Nurse Line at any time to seek further assistance or if the injury worsens. The Nurse Line is connected to our insurance carrier and any injury that requires medical treatment automatically generates a claim.
In October 2022, we partnered with AlertMedia to promote the safety of our people during critical events, such as inclement weather, earthquake, tornado, hurricane, power outages, security risks, civil unrest, etc. The platform monitors global threats around our locations 24/7, validates the information, and provides the Safety & Security team the necessary details to take action. The Safety & Security Team can then use AlertMedia to inform business leaders or communicate important information directly to our team members and leaders. The partnership expands the capacity of our Safety & Security operation, improves business contingency, and reduces response time for critical events. We chose AlertMedia to keep our people safe, informed and connected.
Prioritizing team members’ health and safety is essential for regulatory compliance. RH complies with various local, state, and federal laws and regulations related to workplace health and safety. By prioritizing employee health and safety, we can facilitate compliance with relevant laws and regulations, reducing the risk of legal and financial impacts.
Prioritizing employee health and safety is a critical aspect of RH’s ESG practices. It is not only an ethical and social responsibility but also a key factor in improving business performance, attracting and retaining top talent, enhancing reputation and brand image, and facilitating regulatory compliance. By creating a safe and healthy working environment, we can achieve long-term success and contribute to a more sustainable and socially responsible business ecosystem.
54 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
In 2023, we continued to take care of our people by offering the following additional perks and programs:
Opening a wellness studio at the Home Office, providing employees an opportunity to work out and focus on health and fitness;
Providing Home Office employees an opportunity to take the flu shot on-site free of charge;
Partnering with Headspace to provide employees the opportunity to focus on their mental health; and
Partnering with Peloton to provide corporate discounts to RH team members.
Workforce Diversity
We maintain a diverse workforce. RH is an equal opportunity employer, and we believe in meritocratic hiring. We strongly believe our performance is enhanced by our workforce being comprised of individuals with diverse backgrounds, skills and experience that align with the needs of our business.
We believe this approach naturally leads to a gender and ethnically diverse workforce. We believe that our commitment to diversity is demonstrated by the composition of our workforce.
The following charts present the gender, racial and ethnic composition of our workforce over the past four fiscal years. In fiscal 2021, we began to include Waterworks team members as part of our workforce diversity metrics, and for fiscal 2023, our metrics included approximately 400 people at Waterworks.
Gender Diversity
FY20 |
|
FY21 |
FY22 |
FY23 |
|
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 55 |
Racial and Ethnic Diversity
FY20 |
|
FY21 |
|
||
FY22 |
FY23 |
|
|
For topics related to the composition of our board and its diversity please refer to “—Composition and Qualifications of our Board of Directors” under the section “Corporate Governance.”
Responsible Sourcing
We expect our values and principles to be maintained throughout our business, including our supply chain. We require our vendors to adhere to our Product Partner Code of Conduct (the “Product Partner Code of Conduct”), which can be found on our Investor Relations section of our website, which is located at ir.rh.com, by clicking on “Governance—Environmental, Social & Governance,” as well as other requirements. Our Product Partner Code of Conduct is designed to promote the principles of fair and ethical treatment of workers, compliance with all applicable local laws, rules and regulations, and transparency to allow for accountability and reasonable substantiation of compliance.
Through our Product Partner Code of Conduct, as well as other requirements such as our vendor operations manual, our vendors must agree to adhere to numerous workplace standards and principles, including compliance with laws and requirements relating to wages and compensation, the support of freedom of association, the prevention of unlawful discrimination and the promotion of the health, safety and dignity of people that work for vendors participating in our supply chain.
56 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
To monitor compliance of product partners with the Product Partner Code of Conduct and other applicable requirements necessary to promote the production of safe products that meet RH’s standards in appropriate working conditions, we rely on our Social and Product Partner Compliance Program and our Product Safety and Compliance Program. Both of these programs leverage third-party organizations in order to monitor that our vendors are adhering to our expected standards.
We have partnered with international non-profit organizations including Fair Working Conditions (“FWC”), GoodWeave, and Label STEP, to monitor our third-party vendors with respect to working conditions and compliance with labor standards. Our approach includes working with mission-minded organizations that can monitor our suppliers’ factories, workshops, and home based work, and can take other measures to support our vendors in complying with standards related to working conditions and responsible practices. Waterworks, through FWC, conducts audits in third-party factories where its products are manufactured to ensure compliance with labor standards
Our suppliers are expected to acknowledge adherence to our Product Partner Code of Conduct and other requirements which set forth numerous vendor obligations and rules related to compliance with applicable working conditions and other standards in support of responsible business practices. Vendors in our network must participate in our Social and Product Partner Compliance Program, which authorizes us and our agents access to conduct inspections and audits of vendors’ facilities.
We have partnered with Benchmark International to monitor for products made with endangered plant species or plant species that are harvested illegally. Benchmark International, LLC is an accredited, independent auditing and testing lab with world-wide expertise in the areas of the U.S. Lacey Act & EUTR compliance, TSCA compliance and wood testing.
RH and Waterworks continue to partner with Assent, an industry-leading supply chain data management company that enhances automation and accuracy when collecting, submitting or managing data related to ESG, product safety and compliance and vendor compliance. Assent has automated our processes such as vendor onboarding and other vendor compliance processes. Assent has assisted us in achieving compliance with product regulatory requirements, including CA Proposition 65, EU RoHS, TSCA Restrictions, and EU Waste Framework. In addition, Waterworks has worked extensively to ensure all of its faucets, water dispensers, and pot fillers met NSF 61 certification standards by the required date.
We have established guidelines around the use in our supply chain of conflict minerals (which we define to include columbite-tantalite (coltan), cassiterite, gold, wolframite, and their derivatives, which are limited to tantalum, tin and tungsten) sourced from central African countries to address concerns over the exploitation and trade of minerals that supports ongoing conflicts in the region.
We require our vendors to conduct their sourcing in compliance with local and internationally recognized laws and with commonly viewed best industry practices with respect to animal welfare. We do not condone the mistreatment of animals. We monitor certain animal and natural products such as those made with down and feathers, including a number of measures and practices in support of our efforts to obtain down and feathers from ethical and humane sources. We offer alternatives to down and feathers with respect to many of our products to provide for additional customer choice and preference. We also comply with and monitor bans in certain states and municipalities on the sale of fur, and we monitor supply chain traceability with regard to the sources of our Belgian linen.
Since 2021, RH has partnered with Benchmark International, LLC to support due diligence on the wood raw materials and components used in RH products. This partnership focuses on building transparency throughout RH supply chains to identify, evaluate, and mitigate risk associated with wood materials potentially taken, possessed, transported, or sold in contravention of domestic, tribal, or foreign law, as required by the U.S. Lacey Act.
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 57 |
Ethical Manufacturing
We continue to evaluate risks and update our approach to monitoring ethical production across our supply chain. Taking into account many factors, including but not limited to the country of manufacturing, origin of raw materials, product category and data from the Department of Labor (Bureau of International Labor Affairs) we have created a comprehensive vendor product program to monitor and address human rights risks in our supply chain.
As one element of this program, we partner with third parties that assist in monitoring vendor production facilities, including labor and other practices. GoodWeave – a non-profit organization that is focused on the elimination of child labor in the rug supply chain – provides us with assistance with respect to handwoven rug production. We also partner with Label STEP, a fair trade non-profit organization committed to worker wellbeing in the rug industry.
Our overall vendor product program is centered around the core belief of “Continuous Improvement”. We believe that vendor facility audits provide an opportunity to identify areas for improvement in operations and standards and opportunities to enhance vendor practices over a period of time. The corrective actions (CAPS) generated from each audit incorporates practical solutions and practices which can be implemented on factory floors on a regular and consistent basis. Fair Working Conditions (FWC) combines trainings with corrective action to encourage vendors and factories to make sustainable long term change. Having on the ground support and partnership from third-party partners is instrumental in guiding vendors with the objective of their ongoing adherence to our Vendor Code of Conduct.
Product Safety & Compliance
We maintain a product safety and compliance program in support of our efforts to sell products that are safe and to protect our customers and our people. We seek to maintain a level of safety of our products through a range of measures to assess and identify opportunities to promote prompt responses to any identified issues. Our safety assurance measures include a variety of monitoring procedures and practices such as inspection and testing of samples, site visits of our vendors’ production facilities and inspection of inbound shipments at our distribution facilities.
The RH Product Safety & Compliance team works in partnership with our vendors, third-party laboratories, and technical experts in connection with testing for regulatory, industry, and brand standards. We believe that partnering with accredited labs across the globe helps RH to monitor products and materials for issues of safety and quality.
As part of the adoption of any new product, the RH Product Safety & Compliance team reviews products at the individual SKU level as well as across collections of similar products to address product safety and regulatory requirements and establish the appropriate test protocols to be applied. We work closely with third-party testing laboratories to execute product testing in accordance with RH’s specifications.
In 2022, we partnered with ICW, a cloud based product safety & compliance testing platform that streamlines testing of RH products. ICW enables RH to track testing progress, increase efficiencies around testing and use data analytics to drive compliance decisions and mitigate risk.
In addition to certifications and testing, we actively monitor CPSC and other industry related safety alerts and product recalls are listed on our website. Often these recalls are conducted on a voluntary basis to avoid any potential harm. As such, our notices provide detailed updates of the products that are recalled, the reason, and the reimbursement, replacement or refund opportunities.
Through our Product Safety & Compliance testing program, RH also monitors various chemicals that may be hazardous to human health and/or the environment, including but not limited to Lead, Flame Retardants, Formaldehyde and PFAS. With the expansion into the European Union and U.K., RH has expanded its monitoring efforts to include chemicals regulations in those regions.
58 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
Philanthropy
RH follows a number of approaches in relation to charitable donations and other aspects of philanthropy. As part of various Gallery Development projects, RH has donated products and design services to civic centers, local charities and schools in order to engender community goodwill. Since 2016, we have donated close to $47 million of product at cost to a variety of charities and non-profit organizations related to the communities where we live and work. Additionally, RH sponsors local community charities in connection with Gallery opening events. We have made numerous donations to third-party charities in connection with our business operations. Examples of non-profit organizations to whom we have made donations include Art Institute Chicago, Joffrey Ballet, Chicago Children’s Choir, The Denver Art Museum, Children’s Hospital Colorado, RxArt, The Art of Elysium, Moffitt Cancer Center, Children’s Mercy Hospital Kansas City, Dell Children’s Medical Center of Central Texas, Just Keep Livin’ Foundation, After-School All-Stars Las Vegas, Seattle Art Museum, Norton Museum of Art, SickKids Foundation, Doernbecher Children’s Hospital Foundation, The First Art Museum, Free Arts NYC, Friends of the Highline, Children’s Cancer Research Fund, Columbus Museum of Art, 3Arts, Two x Two, Crossroads School for the Arts, Tipping Point and Eat.Learn.Play.
RH also provides local donations to communities where our team members live and work, and in the case of the northern California wildfires in recent years, donated goods to help support rest areas for first responders, temporary shelters for fire victims, and the relief and rebuilding efforts of those who were affected by the fires. Other examples of organizations to whom we have made donations include: UCSF Benioff Children’s Hospital, UCSF Dec My Room, San Francisco Toy Program, SchoolsRule Marin, Furniture Bank of Central Ohio, The Michael J. Fox Foundation for Parkinson’s Research, PlumpJack Foundation, Slide Ranch, The BreastFest, Helix School, Dress for a Cure, Mercy Home for Boys & Girls, 826DC, 826Valencia, Homeward Bound of Marin, Gilead House, Make-A-Wish Foundation of Greater Bay Area, Conolly Ranch, Vina Capital Foundation (Covid Relief), and many local schools and smaller nonprofit organizations close to our Galleries, distribution centers and corporate office.
Waterworks has donated to a variety of organizations both monetarily and in products, including Aldrich Contemporary Art museum, Ann’s Place, Dominican Community Center, Children’s National Hospital Foundation, The Cure Starts Now, Habitat for Humanity, Kips Bay Boys and Girls Club, and the Design Industries Foundation Fighting AIDS (DIFFA). In fiscal 2023, Waterworks once again partnered with the United Way to provide back to school supplies. Thanks to the donations, the United Way was able to fill 250 backpacks for children.
In fiscal 2023, Waterworks contributed over $176,000 through donations and events participation to non-profits and organizations in the surrounding communities. In addition to this, Waterworks actively participates and gives back to its community through volunteering and awards all team members with a paid day off for volunteer work. Waterworks has sponsored volunteer day programs for their team members with various local non-profit organizations, such as with Pratt Nature Center, Habitat for Humanity, Golden Heart Ranch, and Kips Bay Boys & Girls Club. Since 2014, Waterworks has been an active and regular supporter of Ann’s Place, a non-profit organization that serves and supports individuals with cancer, and its team members participated in a Sun Charity 5K Run to raise money for Ann’s Place. Waterworks also worked with the Salvation Army to purchase clothing and gifts for local area children through their Angel Tree Program.
Rain Room Donation to the Los Angeles County Museum of Art
As part of the launch of our contemporary art program in 2013, RH acquired the first edition of Rain Room by the art collective Random International in 2012. The Rain Room was exhibited at London’s Barbican Centre, The Museum of Modern Art in New York and the Los Angeles County Museum of Art (LACMA). In 2016, we ultimately decided to donate the Rain Room to LACMA as part of LACMA’s permanent collection.
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 59 |
Holiday Giving Campaigns
In November 2022, RH initiated a team member giving campaign in collaboration with World Central Kitchen whereby every donation made by team members would be matched dollar for dollar up to $250,000 by RH. All donations collected went toward providing fresh meals to people in response to crises situations across the world.
In November 2023, RH initiated a team member giving campaign in collaboration with World Central Kitchen and UNICEF. Every donation made by team members would be matched dollar for dollar up to $250,000. All donations collected went towards providing fresh meals to people in response to crisis situations and to providing humanitarian aid to children and families in need.
During the 2023 holiday season Waterworks purchased clothing and gifts for children in the local area supporting the Salvation Army’s Angel Tree Program.
In addition to the holiday giving campaigns, our regional teams and offices, including our Home Office, as well as local teams in New York, Washington D.C., Maryland and Ohio, regularly partner with various local non-profits in their communities to create a lasting impact.
GOVERNANCE
We have numerous governance policies and practices as noted above in this proxy statement in the section entitled “Corporate Governance” regarding our Board of Directors and overall governance framework.
Ethical Conduct
At RH, we’re committed to conducting our affairs in accordance with all applicable laws, rules and regulations of the countries in which we do business. Our Code of Business Conduct (the “Code of Conduct”) applies to everyone at RH, including our team members, officers and directors, in addition to certain independent contractors, consultants and advisors who work at our facilities or on the Company’s behalf. We also have a Code of Ethics for our Chief Executive Officer and Senior Financial Officers that promotes honest and ethical conduct and compliance.
Our Code of Conduct is designed to promote honest and ethical conduct, including (i) the promotion of honest and ethical business practices, (ii) the handling of actual or apparent conflicts of interest between personal and professional relationships, (iii) compliance with governmental laws, rules and regulations, (iv) prompt internal reporting of violations, and (v) accountability for adherence to the requirements of the Code of Conduct. A few of the topics and issues covered by our Code of Conduct include:
Anti-Bribery |
Insider Trading |
Anti-Corruption |
Investment Policy |
Conflicts of Interest |
Political Contributions & Lobbying |
Fair Competition |
U.S. Sanctions Compliance Policy |
Fair Dealing |
Whistleblower Policy |
Gifts & Entertainment |
RH’s Chief Compliance Officer oversees and administers the Company’s corporate and compliance policies with the objective of (i) fostering a culture that integrates compliance and ethics into business processes and practices and (ii) maintaining and monitoring a system for reporting and investigating potential compliance and ethics concerns.
60 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
The Chief Compliance Officer reports regularly to the Audit Committee of the Board of Directors and/or the Nominating and Governance Committee as appropriate with regard to (i) the Company’s compliance with applicable laws and regulations, (ii) relevant topics concerning the Company’s corporate governance, and (iii) any other material matters within the responsibility of the Chief Compliance Officer.
We further discuss some of our compliance and governance policies and practices below.
Anti-Corruption Policy
Our anti-corruption policy supplements our Code of Conduct and requires compliance with the U.S. Foreign Corrupt Practices Act and the growing body of international anti-corruption laws and prohibits the Company and our affiliates, directors, officers, team members, agents and representatives from unduly influencing officials or foreign governments and political officials. Oversight for this policy falls under RH’s Chief Compliance Officer.
We require our product partners to comply with our anti-corruption standards including periodically renewing certifications to the Company of the vendor’s compliance with the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act and other applicable anti-corruption laws and regulations.
As part of our broader anti-corruption efforts, we have adopted processes and procedures with the objective of avoiding transactions with countries sanctioned by the U.S. government. Among other compliance measures, we monitor business activity and third parties to reduce the risk of conducting transactions with sanctioned parties, specifically including persons and entities identified on the Specially Designated Nationals and Blocked Persons list maintained by the U.S. Department of the Treasury Office of Foreign Assets Control (“OFAC”).
We additionally have an expenditure and signature authority policy that is refreshed annually by our Board of Directors that covers the expenditure limits of our team members, including executives by level, and that further typically limits team members from binding the Company to contractual obligations outside of their principal areas of responsibilities.
Conflict Minerals Policy
We seek to source safe, quality products made in a manner consistent with our values of ethical business conduct, the use of responsible social and environmental practices and the protection of human rights. We maintain a Conflict Minerals Policy that is incorporated into our Vendor Operations Manual, which our suppliers are able to access via a secure website. We expect that our direct suppliers will comply with our Conflict Minerals Policy and that they will (i) provide appropriate information and conduct necessary due diligence to facilitate our disclosures under Form SD regarding sources of conflict minerals within our supply chain pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (ii) implement and communicate to their relevant personnel and suppliers policies that are consistent with our Conflict Minerals Policy, (iii) put in place procedures and contractual provisions for the traceability of conflict minerals, working with their suppliers as applicable, (iv) use reasonable efforts to source conflict minerals from smelters and refiners that have been validated by a recognized, independent third-party as DRC conflict free, and (v) adopt a risk management strategy with respect to identified risks in the supply chain that is consistent with our Conflict Minerals Policy.
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 61 |
Information Security and Information Security Incident Response Plan
The safeguarding of confidential and sensitive information, including proprietary information, is critical to the success of our business as well as the continued availability of our information assets.
Our approach to the identification, monitoring and management of data security risks has been developed pursuant to a number of different approaches to mitigate cybersecurity threats, including the adoption of technical, policy and administrative cybersecurity controls as well as reliance on RH’s Information Security Incident Response Plan and cybersecurity training.
The Company conducts various risks assessments in the area of cybersecurity including periodic independent information security risk audits. Through these assessments, the Company seeks to evaluate its information security posture against a benchmark prescribed by independent third-party firms with expertise in this area.
The type of sensitive information we may address in our business operations include, without limitation, data related to our customers, team members, temporary team members, contractors, or the personal identity of a business partner or other content specific to an individual. Some examples of this information include credit or debit card numbers and other similar sensitive information.
Our Privacy Policies detail how we collect, use, disclose and safeguard the information our customers’ provide us through our websites and mobile software systems, as well as our physical properties such as our Galleries, Outlets, distribution centers, etc. We uphold our customers’ privacy rights through a number of measures. We offer our customers opportunities to unsubscribe to promotion communications, opt-out of information transfers to third-parties, and request deletion of personal information.
Our information security incident response plan provides a framework for our response to a cybersecurity incident, and includes procedures to identify, assess and mitigate the source of a cyber-security breach, to minimize damage where possible and to restore normal operations as promptly as practicable.
We categorize our data assets and tailor our security architecture to protect them using a criticality approach. By using an industry-accepted critical security controls framework to measure our cybersecurity and protocols, we are able to monitor the use and performance of our:
Data security |
Backup and recovery systems |
Network security |
Application security |
Logging activities |
Vulnerability management |
Endpoint detection, response and configuration |
Access management |
Our information security incident response plan provides a framework for our response to a cyber-security incident, and includes procedures to identify, assess and mitigate the source of a cyber-security breach, to minimize damage where possible and to restore normal operations as promptly as practicable.
Cyber Liability Insurance Policy
We maintain a cyber liability insurance policy that covers certain losses and liabilities arising from cyber attacks and data breaches. Subject to its terms and limitations, our policy includes coverage for business interruption and other costs associated with a covered breach event such as forensic consultants, notice to affected individuals and certain defense and litigation proceedings. The coverage limits and self-insured retentions are reviewed on an annual basis.
62 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
Board Oversight of Cybersecurity Matters
The Audit Committee assumes primary responsibility at the board level for the monitoring and oversight of cybersecurity issues and risks related to information security. The Company regularly reports to the Audit Committee, typically on a quarterly basis, regarding information security and cybersecurity matters, including the results of risk assessments and third-party audits as well as the Company’s adoption of security enhancements to mitigate risk related to cybersecurity threats. See “Corporate Governance—Board’s Role in Risk Oversight.” Ms. Mitic, a member of our Audit Committee, has specific applicable experience that relates to the importance of information security around personal information of consumers. We believe that Ms. Mitic’s prior experience at eBay Inc., Yahoo! and Facebook is particularly relevant in relation to our Board’s review and monitoring of cybersecurity topics.
Investment Policy
Our investment policy requires that investment assets held by us meet the objective of safety and preservation of principal while providing sufficient liquidity to meet the operating cash requirements of the Company, with the objective of investing funds at favorable yields with minimum risk.
U.S. Sanctions Compliance Policy
Our U.S. sanctions compliance policy requires that we screen our vendors to reduce the risk of transactions with countries and parties that are embargoed and sanctioned by the U.S. government.
Whistleblower Policies
Our SOX whistleblower policy addresses the reporting of certain categories of misconduct, including misconduct related to accounting practices, internal accounting controls or auditing matters, and prohibits retaliation against those reporting such misconduct. Submissions may be made on an anonymous basis. We also have other programs to allow for reporting of potential misconduct in other aspects of our business.
Disclosure Committee & Charter
We have a Disclosure Committee to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibility for oversight of the establishment, maintenance, review and evaluation of controls and other procedures designed to ensure that information required to be disclosed by the Company in its publicly filed reports pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, that the Company’s public disclosures are materially accurate and complete and otherwise comply with applicable disclosure requirements, and that there exists an open avenue of communication regarding disclosure such that senior leadership can make informed decisions relating to materiality and disclosure obligations.
Membership of the Committee is designated by our Chief Executive Officer and includes executives representing key areas of the Company’s operations that may be relevant to the Company’s filings with the SEC and other public disclosures, including senior representatives from the following key areas of the Company: finance and accounting, legal, tax, compliance, risk, internal audit.
Chief Compliance Officer & Charter
In 2020, the Board of Directors formally established a charter that sets forth certain responsibilities and requirements applicable to our Chief Compliance Officer, inclusive of overseeing and administering the Company’s corporate and compliance policies with the objective of fostering a culture that integrates compliance and ethics into business processes and practices and maintaining and monitoring a system for reporting and investigating potential compliance and ethics concerns. The Chief Compliance Officer reports regularly to the Audit Committee and/or the Nominating and Governance Committee as appropriate with regard to the Company’s compliance with applicable laws and regulations, relevant topics concerning the Company’s corporate governance, and any other material matters within the responsibility of the Chief Compliance Officer.
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 63 |
Other Appropriate Uses of Corporate Funds
To provide further assurance around the appropriate use of corporate funds for business purposes and to further assist with mitigation of risks around conflicts of interest and corruption, we have adopted several policies and guidelines that cover such items as (i) the authority of our team members to bind the Company to certain contractual obligations, and (ii) limitations and controls around expenditures related to travel, entertaining and gifting and other expenses.
Political Activity
We generally do not use corporate funds to make contributions to support or oppose federal, state or local political parties, candidates or campaigns or offer our Galleries in support of such efforts. Our statement on political activity is available on the Investor Relations section of our website, which is located at ir.rh.com under “Governance.”
OUR CONTINUED EFFORTS & INNOVATION
One of our core values is innovation. We value innovation, taking risks and boldly going where no company has gone before. We believe you’re either striving to get better, or allowing yourself to get worse – there is no such thing as staying the same. The power of innovation comes from leveraging the creative minds and spirit of all of our people, at all levels of the organization. We strive to build an environment that encourages people to challenge conventional thinking, and to ask “why?” and “why not?” We embrace those people who have the courage to put forth new ideas and breathe new life into our Company. Innovation is at the core of what we do.
We continue to evolve and innovate our programs and our approach to ESG matters.
64 | 2024 PROXY STATEMENT |
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
INTENTIONALLY LEFT BLANK
ENVIRONMENTAL, SOCIAL & GOVERNANCE |
2024 PROXY STATEMENT | 65 |
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION & ANALYSIS
Executive Summary
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. 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 fiscal 2023 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 2023 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 we use our 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.
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 February 1, 2019 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 February 1, 2019 in RH common stock, which is equivalent to 0.75 shares (if fractional shares were permitted), and its value (percentage increase or decrease) at the associated fiscal year ends indicated in the table.
|
FEBRUARY 1, |
JANUARY 31, |
JANUARY 29, |
JANUARY 28, |
JANUARY 27, |
FEBRUARY 2, |
|||||||
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
||||||||
Value of 1 share |
$133.64 |
$208.75 |
$475.36 |
$391.92 |
$310.65 |
$256.03 |
|||||||
Value of a $100 Investment |
$100.00 |
$156.20 |
$355.70 |
$293.27 |
$232.45 |
$191.58 |
|||||||
Percentage Change |
N/A |
56.2% |
127.7% |
-17.6% |
-20.7% |
-17.6% |
This table is supplemental to the stock performance graph presented in our 2023 Annual Report.
The following table sets forth, for fiscal 2023, our named executive officers, as defined in Item 402 of Regulation S- K promulgated under the Securities Act of 1933, as amended (the “Securities Act”):
NAME |
TITLE |
Gary Friedman |
Chairman and Chief Executive Officer |
Jack Preston |
Chief Financial Officer |
Eri Chaya |
President, Chief Creative and Merchandising Officer and Director |
Stefan Duban |
Chief Gallery & Customer Officer |
Edward Lee |
Chief Legal & Compliance Officer |
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.
In the case of our Chairman and Chief Executive Officer, we have structured his equity grants in reliance on multi-year stock option awards. His grants for both 2017 and 2020 were designed to require substantial stock price appreciation from the Company’s share price on the date of grant, as described further below. Mr. Friedman’s base salary has remained unchanged since it was last increased in June 2013 when he returned to the Company, at the time, as our Chairman and Co-Chief Executive Officer. Mr. Friedman’s bonus opportunity has not changed since fiscal 2020. We have made these compensation decisions with respect to our Chairman and Chief Executive Officer to place the highest priority in his compensation incentives on performance using the measure of stock price appreciation, which we believe is the single best overall measure of performance that aligns the executive’s compensation with shareholder returns over time.
The compensation committee has also 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 2023, and tailoring our compensation arrangements to match changes in our executive leadership.
Performance-Based Annual Cash Incentives
We have adopted the Leadership Incentive Program (“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 objective.
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. 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 2023, the performance metric for the LIP was based on adjusted income, which we define as consolidated operating income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance (“Adjusted Income”). 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. 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.
In April 2024, the compensation committee reviewed the Company’s financial results related to the LIP targets set in the prior year and determined that the Company did not reach the achievement level with respect to the Company’s performance objectives. As a result, the compensation committee determined that the amount of the payout under the LIP would be set at 0%.
Multi-Year Stock Option Awards to Chairman and Chief Executive Officer
Our last two stock options awards to Mr. Friedman were granted on a multi-year basis in May 2017 (the “2017 Stock Option Award”) and in October 2020 (the “2020 Stock Option Award”), in reliance on certain selling restrictions tied to stock price appreciation that are measured over a four-year initial performance period and have been designed to reward Mr. Friedman for long-term stock price appreciation.
The 2020 Stock Option Award contains the same overall structure as the 2017 Stock Option Award by utilizing both time-based service period requirements and performance-based metrics. The 2017 Stock Option Award was granted for 1 million shares at an exercise price of $50 per share with stock price performance targets of $100, $125 and $150 per share, which performance hurdles each represented a substantial premium above the prevailing RH common stock price at the time of the grant. The 2020 Stock Option Award was granted for 700,000 shares at an exercise price of $385.30 per share with stock price performance targets of $500, $650 and $800 per share, which performance hurdles each represented a substantial premium above the prevailing RH common stock price at the time of the grant.
The compensation committee determined to grant Mr. Friedman the 2020 Stock Option Award to cover the successive four-year period upon the expiration of the time-based service requirements of the 2017 Stock Option Award in order to provide a continuation of the stock price performance methodology of the 2017 award for four successive performance years commencing in May 2021 through May 2025 at enhanced price levels.
EXECUTIVE COMPENSATION |
2024 PROXY STATEMENT | 69 |
Selling restrictions attached to the shares with respect to these multi-year awards only lapse upon the achievement of both certain time-based service period requirements and certain stock price-based performance objectives. The compensation committee believes that the combination of time-based restrictions and performance-based restrictions tied to stock price appreciation creates a strong alignment between Mr. Friedman and the objectives of the Company’s shareholders.
The RH stock price has substantially exceeded the performance hurdles under the 2017 Stock Option Award granted to Mr. Friedman such that all of the selling restrictions associated with that award have lapsed. The Board of Directors and the compensation committee concluded that the 2017 Stock Option Award was a successful incentive structure for the Chief Executive Officer using a combination of both time-based restrictions and performance-based restrictions to create strong alignment between the Chief Executive Officer and the Company’s shareholders.
Selling Restrictions Lapsed for 2020 Stock Option Award
The following table quantifies the stock price appreciation from the date of grant that were required as of the date of the initial grant in order to achieve each performance target under the 2020 Stock Option Award:
|
PRICE TARGET ($) |
|
PREMIUM TO GRANT |
|
||||
Exercise Price |
$ |
385 |
|
|
0.0% |
|||
Performance Target |
$ |
500 |
|
29.8% |
||||
Performance Target |
$ |
650 |
|
68.7% |
||||
Performance Target |
$ |
800 |
|
107.6% |
A portion of the time-based service period requirements and stock price-based performance hurdles for the 2020 Stock Option Award have been achieved during the first year of performance measurement under the 2020 Stock Option Award from May 2021 through May 2022 as follows:
58,333 shares with stock price performance hurdle of $500 per share
58,333 shares with a stock price performance hurdle of $650 per share
The selling restrictions under the 2020 Stock Option Award with respect to the remaining 583,334 shares have not yet been achieved. The compensation committee believes that the stock price appreciation and stock option exercise metrics of the 2020 Stock Option Award provide substantial incentive for Mr. Friedman to help to achieve stock price appreciation in the years ahead, which the compensation committee believes create a high degree of alignment with successful outcomes for the Company’s investors.
If Mr. Friedman’s employment with RH is terminated (i) by RH without cause, (iii) by Mr. Friedman for good reason (as such terms are defined in the option award agreement), or (iii) for death or disability (as such terms are defined in the option award agreement), then any share selling restrictions on shares subject to the 2020 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 stock price performance levels at any point during such twelve-month period. For further details regarding the option award agreement with respect to the 2020 Stock Option Award, refer to the Company’s Current Report on Form 8-K filed on October 21, 2020.
70 | 2024 PROXY STATEMENT |
EXECUTIVE COMPENSATION |
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 interests of shareholders and that if we continue to drive improving operational and financial performance investors will be rewarded by stock price appreciation.
OVERVIEW OF COMPENSATION PROGRAM & PHILOSOPHY
|
||
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 leaders 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.
EXECUTIVE COMPENSATION |
2024 PROXY STATEMENT | 71 |
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:
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 use five year vesting schedules for some of our equity grants (frequently with 20% vesting in each year). In more recent years, we have shifted our vesting practices to use back-end loaded vesting periods with respect to many of our equity awards, which we believe motivates our team members and leaders in favor of creating long-term shareholder value on a sustained basis. With regard to back-end loaded vesting, we often use schedules along these lines:
Our seven-year award structure would generally vest 10% in years one, two and three; 15% in years four and five; and 20% in years six and seven
Our five-year award structure would generally vest either (i) 15% in years one and two; 20% in year three; and 25% in years four and five, or (ii) 10% in years one and two; 20% in year three; and 30% in years four and five
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
In October 2023, we adopted a Clawback Policy which requires the Company to recover erroneously awarded compensation that is granted, earned or vested based in whole or in part upon the attainment of a financial reporting measure and that is received by our current and former executive officers during the three fiscal years preceding the date that the Company is required to prepare the accounting restatement
Broad-based company-sponsored health and retirement benefits programs
72 | 2024 PROXY STATEMENT |
EXECUTIVE COMPENSATION |
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 team members generally
No short sales with respect to our common stock or hedging or derivative transactions involving our securities by directors, officers, team members or other insiders
No discount stock options or stock appreciation rights (“SARs”). Under the 2023 Equity Plan, all stock options and SARs will be granted with an exercise price equal to or greater than the fair market value of our common stock on the date the stock option or SAR is granted
We have not repriced, replaced or repurchased underwater stock options or SARs, which is prohibited in absence of approval by our shareholders for grants under the 2023 Equity Plan
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
Under the 2023 Equity Plan, transfers of awards are only permitted (i) by will, (ii) by the laws of descent and distribution and (iii) for awards other than incentive stock options, to the extent authorized by the administrator
No annual “evergreen” provision under the 2023 Equity Plan. The 2023 Equity Plan does not contain an annual “evergreen” provision that provides for automatic increases of shares of our common stock authorized for issuance under the plan. The 2023 Equity Plan authorizes a fixed share reserve. Therefore, we would have to obtain shareholder approval to increase the 2023 Equity Plan’s share reserve
EXECUTIVE COMPENSATION |
2024 PROXY STATEMENT | 73 |
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; and
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.
And, the compensation committee ensures 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;
Determines 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
Performs 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 first and second fiscal quarter of each year. During fiscal 2023, the compensation committee’s annual review of executive compensation occurred in August 2023 with merit increases also effective August 2023.
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 leadership, including our Chairman and Chief Executive Officer; and
Input from an independent compensation consultant.
74 | 2024 PROXY STATEMENT |
EXECUTIVE COMPENSATION |
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 consider 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 performance objectives for our performance-based incentive program.
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.
EXECUTIVE COMPENSATION |
2024 PROXY STATEMENT | 75 |
ROLE OF COMPENSATION CONSULTANTS
The compensation committee has periodically engaged compensation consultants to assist the committee in assessing compensation market conditions.
Since January 2017, from time-to-time the compensation committee has engaged Mercer 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. Mercer has provided evaluations and recommendations concerning our executive and board compensation programs and has advised the compensation committee with respect to structuring our compensation plans. For example, Mercer provided support to the compensation committee in connection with equity awards and compensation for our leadership and in particular in connection with the structuring and details of the multi-year equity award granted in fiscal 2020 to our Chairman and Chief Executive Officer.
The compensation committee has considered the independence of Mercer in accordance with applicable SEC and NYSE rules. Although Mercer worked with leadership to develop plans that support our business objectives while carrying out its duties for the compensation committee, 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 reviews in relation to our review of our Chief Executive Officer’s compensation at the respective time of setting each of his fiscal 2017 multi-year equity grant and at the time of setting his fiscal 2020 m