UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
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☒ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material under Rule 14a-12 |
GUESS?, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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May 17, 201811, 2020
Dear Shareholder:
We are pleased to invite you to the annual meeting of shareholders of Guess?, Inc. to be held on Tuesday,Friday, June 19, 2018,12, 2020, at 9:00 a.m. (PDT).Due to the unprecedented public health impact of the novel coronavirus(COVID-19) pandemic and to support the health and well-being of our communities, associates, shareholders and other stakeholders, this year’s annual meeting will be conducted completely virtually, via a live audio webcast; there will be no physical meeting location. You will be able to attend and participate in the Annual Meeting by visiting www.meetingcenter.io/210132657 (password GES 2020), local time, atwhere you will be able to listen to the Beverly Hills Hotel, 9641 Sunset Boulevard, Beverly Hills, California 90210.meeting live, submit questions, and vote.
At the annual meeting, you will be asked to: (i) elect twothree directors, (ii) cast an advisory vote on the compensation of our named executive officers, (iii) ratify the appointment of the independent auditor for the fiscal year ending February 2, 2019,January 30, 2021, and (iv) if properly presented at the annual meeting, vote on a shareholder proposal regarding shareholder approval of future severance arrangements with senior executives, and (v) consider such other business as may properly come before the annual meeting. The enclosed proxy statement more fully describes the details of the business to be conducted at the annual meeting.
Whether or not you plan to attend the annual meeting in person,virtually, your vote is very important. Accordingly, we hope that you will vote as soon as possible by using the Internet or telephone voting systems, or by completing and mailing the enclosed proxy card.
Thank you for your ongoing support of and continued interest in Guess?, Inc.
Chief Executive Officer and Director |
GUESS?, INC.
1444 South Alameda Street
Los Angeles, California 90021
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on June 19, 201812, 2020
Time and Date: | 9:00 a.m. | |
Place: | The | |
Virtual Meeting Access: | You will be able to participate online and submit your questions during the meeting by visiting www.meetingcenter.io/210132657 (password: GES2020). Details regarding how to participate in the meeting online and the business to be conducted at the annual meeting are more fully described in the accompanying proxy statement. | |
Items of Business: | 1. To elect | |
2. To conduct an advisory vote on the compensation of our named executive officers. | ||
3. To ratify the appointment of the independent auditor for the fiscal year ending | ||
4. | ||
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Adjournments and Postponements: | Any action on the items of business described above may be considered at the annual meeting at the time and on the date specified above or at any time and date to which the annual meeting may be properly adjourned or postponed. | |
Record Date: | You are entitled to vote at this annual meeting only if you were a Guess?, Inc. shareholder as of the end of business on | |
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Voting: | Your vote is very important. Whether or not you plan to attend the virtual annual meeting, we encourage you to read this proxy statement and submit your proxy as soon as possible. You may submit your proxy for the annual meeting by using the Internet or telephone voting systems or by completing, signing, dating and returning your proxy card in thepre-addressed envelope provided. For specific instructions on how to vote your shares, please refer to the section entitled “Questions and Answers about the Proxy Materials and Annual Meeting” beginning on page 1 of this proxy statement and the instructions on the proxy card. |
BY ORDER OF THE BOARD OF DIRECTORS, |
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This notice of annual meeting and proxy statement and form of proxy are being distributed on or about May 22, 2018.14, 2020.
GUESS?, INC.
1444 South Alameda Street
Los Angeles, California 90021
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
To be held on June 19, 201812, 2020
This proxy statement (the “Proxy Statement”) and the enclosed form of proxy are being furnished commencing on or about May 22, 2018,14, 2020, in connection with the solicitation by the Board of Directors (the “Board of Directors” or the “Board”) of Guess?, Inc. (the “Company”) of proxies in the enclosed form for use at the 20182020 annual meeting of shareholders (the “Annual Meeting”) to be held at the Beverly Hills Hotel, 9641 Sunset Boulevard, Beverly Hills, California 90210, on Tuesday,Friday, June 19, 2018,12, 2020, at 9:00 a.m. (PDT), local time, and any adjournments or postponements thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND ANNUAL MEETING
Q: | Why am I receiving these materials? |
A: | The Board of Directors is providing these proxy materials for you in connection with the Annual Meeting, which will take place on June |
Q: | What information is contained in this Proxy Statement? |
A: | The information included in this Proxy Statement relates to the proposals to be voted on at the Annual Meeting, the voting process, the compensation of directors and most highly paid executive officers, and certain other required information. |
Q: | How do I obtain the Company’s Annual Report on Form10-K? |
A: | A copy of the Company’s fiscal |
Shareholders may request another free copy of the fiscal 20182020 Annual Report onForm 10-K from:
Guess?, Inc.
Attn: Investor Relations
1444 South Alameda Street
Los Angeles, California 90021
(213) 765-5578
http://investors.guess.com
The Company will also furnish any exhibit to the fiscal 20182020 Annual Report onForm 10-K if specifically requested.
Q: | What may I vote on by proxy? |
A: | (1) The election of |
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(2) | An advisory vote on the compensation of our named executive officers; and |
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(3) | The ratification of the appointment of Ernst & Young LLP as the independent auditor of the Company for the fiscal year ending |
For a shareholder proposal to be properly presented at the Annual Meeting, the shareholder that submitted the proposal (or a qualified representative of that shareholder) must appear at the Annual Meeting to present the proposal. Pursuant to the bylaws of the Company (the “Bylaws”), the chairperson of the Annual Meeting will determine whether any business proposed to be transacted by the shareholders has been properly brought before the Annual Meeting and, if the chairperson should determine it has not been properly brought before the meeting, the business will not be presented for shareholder action at the meeting, even if we have received proxies in respect of the vote on such matter.
We will also consider other business that properly comes before the Annual Meeting.
Q: | How does the Board recommend I vote on the proposals? |
A: | The Board recommends that you vote your shares: |
(1) | FOR the election of the |
(2) | FOR the advisory resolution approving the compensation of our named executive officers; and |
(3) | FOR the ratification of the appointment of Ernst & Young LLP as the independent auditor of the Company for fiscal |
2021.
Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted as recommended by the Board.
Q: | Who is entitled to vote? |
A: | Shareholders as of the close of business on |
Q: | How many shares can vote? |
A: | As of the Record Date, |
Q: | How |
A: | We are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state, and local governments may impose as it relates to the current, ongoingCOVID-19 pandemic. Therefore, the Annual Meeting will be a completely virtual meeting of shareholders, which will be conducted exclusively by a live webcast. No physical meeting will be held. The Annual Meeting will begin promptly at 9:00 a.m. (PDT) on Friday, June 12, 2020. We encourage you to access the meeting prior to the start time leaving ample time for check in. |
• | For Registered Holders: If you were a shareholder as of the close of business on April 28, 2020 and have your control number, you may participate at the Annual Meeting by following the instructions available on the meeting website. Registered shareholders can attend the meeting by accessing the meeting site at www.meetingcenter.io/210132657 and entering the15-digit control number that can be found on your proxy card mailed with the proxy materials and the meeting password: GES2020. |
• | For Beneficial Holders: If you were a shareholder as of the close of business on April 28, 2020 and hold your shares through an intermediary, such as a bank or broker or other nominee, you must register in advance to attend the Annual Meeting. To register you will need to obtain a legal proxy from your bank, broker or other nominee. Once you have received a legal proxy form from them, forward the email with your name and the legal proxy attached or send a separate email with your name and legal proxy attached labeled “Legal Proxy” in the subject line to Computershare at legalproxy@computershare.com. (In the alternative, you can send the legal proxy materials by mail to: Computershare, Guess?, Inc. Legal Proxy, P.O. Box 43001, Providence, RI 02940-3001.) Requests for registration must be received no later than 5:00 p.m. (EDT) on June 8, 2020. You will receive a confirmation email from Computershare of your registration. At the time of the Annual Meeting, go to www.meetingcenter.io/210132657 and enter your control number and the meeting password: GES2020. If you do not have your control number, you may |
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attend as a guest(non-shareholder) by going to www.meetingcenter.io/210132657 (password: GES2020) and entering the information requested on the following screen. Please note that guest access is in listen-only mode and you will not have the ability to ask questions or vote during the Annual Meeting. |
Q: | How do I ask questions during the Annual Meeting? |
A: | If you are attending the Annual Meeting as a shareholder of record or registered beneficial owner, questions can be submitted by accessing the meeting center at www.meetingcenter.io/210132657, entering your control number and meeting password, GES2020, and clicking on the message icon in the upper right-hand corner of the page. To return to the main page, click the “i” icon at the top of the screen. Please note that guest access is in listen-only mode and you will not have the ability to ask questions or vote during the Annual Meeting. |
Q: | How do I vote? |
A: | You are eligible to vote at the Annual Meeting using one of four methods: |
• | Voting by Internet.To vote via the Internet, use the website indicated on the enclosed proxy card; |
• | Voting by Telephone.To vote by telephone, call the toll-free number on the enclosed proxy card; |
• | Voting by Mail.To vote by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage-paid envelope provided; or |
• | Voting |
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The Internet and telephone voting procedures are designed to authenticate your identity, to allow you to vote your shares and to confirm that your voting instructions have been properly recorded. Specific instructions are set forth on the enclosed proxy card. In order to be timely processed, an Internet or telephone vote must be received by 1:00 a.m. Eastern Time on June 19, 2018. Regardless of the method you choose, your vote is important. Please vote by following the specific instructions on your proxy card. All proxies will be governed by and construed in accordance with the laws of the State of Delaware and applicable federal securities laws.
You have the right to revoke your proxy at any time before the Annual Meeting by:
Notifying the Corporate Secretary of the Company in writing;
Returning a later-dated proxy card;
Entering a later-dated Internet or telephone vote; or
Voting in person.electronically during the virtual meeting.
Attendance at the virtual Annual Meeting will not revoke a proxy unless you actually vote in person atelectronically during the virtual meeting.
Q: | What if my shares are held in “street name?” |
A: | If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker or nominee which is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker how to vote and are also invited to attend the virtual Annual Meeting. However, since you are not the shareholder of record, you may not vote these shares |
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Q: | What shares are included on the proxy card(s)? |
A: | The shares on your proxy card(s) represent ALL of your shares. If you do not return your proxy card(s) or vote by Internet, telephone or |
Q: | What does it mean if I get more than one proxy card? |
A: | If your shares are registered differently and are in more than one account, you will receive more than one proxy card. If you intend to vote by return mail, sign and return all proxy cards to ensure that all your shares are voted. We encourage you to have all accounts registered in the same name and address (whenever possible). You can accomplish this by contacting our transfer agent: |
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
(877) 282-1168 or
(781) 575-4593
www.computershare.com/investor
Q: | How may I obtain a separate set of voting materials? |
A: | If you share an address with another shareholder, you may receive only one set of proxy materials (including our fiscal |
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provided contrary instructions. If you wish to receive a separate set of proxy materials now or in the future, you may write or call us to request a separate copy of these materials at: |
Guess?, Inc.
Attn: Investor Relations
1444 South Alameda Street
Los Angeles, California 90021
(213) 765-5578
Similarly, if you share an address with another shareholder and have received multiple copies of our proxy materials, you may write or call us at the above address and phone number to request delivery of a single copy of these materials in the future.
Q: | What is a “quorum?” |
A: | A “quorum” is a majority of the outstanding shares entitled to vote. They may be present at the Annual Meeting or represented by proxy. A quorum must have been established in order to consider any matter at the Annual Meeting. |
Q: | What is required to approve each proposal? |
A: | The |
All other proposals require the affirmative “for” vote of a majority of those shares present in person or represented by proxy and entitled to vote on those proposals at the Annual Meeting. Please note, however, that all the proposals, except for the proposal concerning the election of the twothree nominees to serve on the Board, are advisory only and will not be binding. The results of the votes on these proposals will be taken into consideration by the Company, our Board or the appropriate committee of our Board, as applicable, when making future decisions regarding these matters.
A properly executed proxy marked “Withhold” with respect to the election of directors or “Abstain” with respect to any proposalof the other proposals will not be voted, although it will be counted for purposes of determining whether there is a quorum. BecauseWithhold votes will have no effect on the election of directors.
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However, because abstentions represent shares entitled to vote, the effect of an abstention with respect to any of the other proposals will be the same as a vote against athe proposal. However, abstentions will have no effect on the election of directors.
Q: | What is the impact of not |
A: | If you hold your shares in street name and you do not provide your broker with specific voting instructions, your broker may vote your shares only with respect to certain matters considered routine. None of the proposals except the proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent auditor (Proposal No. 3) are considered routine matters. Therefore, if you hold your shares in street name and you do not |
Your broker will provide you with directions on voting your shares, and you should instruct your broker to vote your shares according to those instructions.
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Q: | How will voting on any other business be conducted? |
A: | Although we do not know of any business to be considered at the Annual Meeting other than the proposals described in this Proxy Statement, if any other business is presented at the Annual Meeting, your signed proxy card will give authority to each of |
Q: | What is the deadline to propose actions for consideration at next year’s annual meeting of shareholders or to nominate individuals to serve as directors? |
A: | You may submit proposals, including director nominations, for consideration at future shareholder meetings as follows: |
Shareholder Proposals: For a shareholder proposal to be considered for inclusion in the Company’s proxy statement for the annual meeting next year, the written proposal must be received by the Corporate Secretary of the Company at our principal executive offices no later than January 22, 2019.14, 2021. If the date of next year’s annual meeting is moved more than 30 days before or after the anniversary date of the Annual Meeting, the deadline for inclusion of proposals in our proxy statement is instead a reasonable time before we begin to print and mail our proxy materials. Such proposals also will need to comply with Securities and Exchange Commission (“SEC”) regulations underRule 14a-8 regarding the inclusion of shareholder proposals in company-sponsored proxy materials. Proposals should be addressed to:
Guess?, Inc.
Attn: Corporate Secretary
1444 South Alameda Street
Los Angeles, California 90021
For a shareholder proposal that is not intended to be included in the Company’s proxy statement underRule 14a-8 for the annual meeting next year, the shareholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of Common Stock to approve that proposal, provide the information required by Section 2.09 of the Bylaws and give timely notice to the Corporate Secretary of the Company in accordance with such section of the Bylaws, which, in general, require that the notice be received by the Corporate Secretary of the Company:
Not earlier than March 21, 2019,14, 2021, and
Not later than the close of business on April 20, 2019.13, 2021.
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If the date of next year’s annual meeting is moved more than 30 days before or after the anniversary date of the Annual Meeting, then notice of a shareholder proposal that is not intended to be included in the Company’s proxy statement underRule 14a-8 must be received no later than the close of business on the tenth day following the day on which notice of the date of such annual meeting is mailed to the shareholders or the date on which public disclosure of the date of such annual meeting is made, whichever is first.
Nomination of Director Candidates: You may proposeFor a shareholder to nominate a director candidates for considerationelection to the Board at the annual meeting next year, the shareholder must provide the information required by Section 3.03 of the Board’s NominatingBylaws and Governance Committeegive timely notice to the Corporate Secretary of the Company in accordance with the procedures set forth insuch section of the Bylaws, as summarized underwhich, in general, require that the caption “Corporate Governancenotice be received by the Corporate Secretary of the Company:
Not earlier than March 14, 2021, and Board Matters—Consideration
Not later than the close of Director Nominees—Shareholder Nominees” herein.business on April 13, 2021.
If the date of next year’s annual meeting is moved more than 30 days before or after the anniversary date of the Annual Meeting, then notice of a director nomination must be received no later than the close of business on the tenth day following the day on which notice of the date of such annual meeting is mailed to the shareholders or the date on which public disclosure of the date of such annual meeting is made, whichever is first.
Copy of Bylaw Provisions: You may contact the Company’s Corporate Secretary at our principal executive offices for a copy of the relevant Bylaw provisions regarding the requirements for makingproviding notice of shareholder proposals and nominatingor director candidates.nominations under the advance notice provisions of the Bylaws. The Bylaws also are available on the Company’s website athttp://investors.guess.com.
Q: | How is the Company soliciting proxies for the Annual Meeting? |
A: | This solicitation is made by mail on behalf of the Board of Directors. Costs of the solicitation will be borne by the Company. Further solicitation of proxies may be made by mail, telephone, facsimile, electronic mail |
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or personal interview by the directors, officers and employees of the Company and its affiliates (none of whom will receive additional compensation for the solicitation) or from other third party proxy solicitors (in exchange for customary fees for such services). The Company will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to shareholders. We may incur other expenses in connection with the solicitation of proxies for the Annual Meeting. |
Q: | How can I find the voting results of the Annual Meeting? |
A: | We intend to announce preliminary voting results at the Annual Meeting and publish preliminary and/or final voting results (as available) in a Current Report on Form8-K within four business days following the Annual Meeting. |
Q: | How may I communicate with the Company’s Board or thenon-management directors on the Company’s Board? |
A: | You may communicate with the Board by submitting ane-mail to the Company’s Board atbod@guess.com. All directors have access to thise-mail address. Communications from shareholders or any other interested parties that are intended specifically fornon-management directors should be sent to thee-mail address above to the attention of the Lead Independent Director. |
Q: | What is the Company’s fiscal year? |
A: | The Company’s fiscal year is the52- or53-week period that ends on the Saturday nearest to January 31 of each year. Unless otherwise stated, all information presented in this Proxy Statement is based on the Company’s fiscal calendar. |
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IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Throughout this Proxy Statement, we make “forward-looking” statements, which are not historical facts, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to expectations, analyses and other information based on current plans, forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our current business strategies and strategic initiatives, goals, future prospects, capital allocation plans and cash needs. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “outlook,” “pending,” “plan,” “predict,” “project,” “should,” “strategy,” “will,” “would,” and other similar terms and phrases, including references to assumptions.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. You are therefore cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements may include, among other things, statements or assumptions relating to: our expected results of operations; the accuracy of data relating to, and anticipated levels of, future inventory and gross margins; anticipated cash requirements and sources; our convertible senior notes issued in April 2019, including our ability to settle the liability in cash; the length and severity of epidemics or pandemics, such as the coronavirus (or“COVID-19”) pandemic, or other catastrophic events, and the related impact on both customer demand and supply chain functions, as well as our future consolidated financial position, results of operations and cash flows; risk of futurenon-cash asset impairment charges, including goodwill, operatingright-of-use-assets and/or store asset impairment charges; cost containment efforts; estimated charges; plans regarding store openings, closings, remodels and lease negotiations; plans regardingeffects of doing business outside the relocationUnited States, including, without limitations, exchange rate fluctuations, inflation, changes to import duties, tariffs and quotas, political and economic instability and terrorism; effects of the Company’sUnited Kingdom’s departure from the European Union; plans to improve the efficiency and effectiveness of our European distribution center to a new facility in the Netherlands;centers; plans regarding business growth, international expansion and capital allocation; plans regarding supply chain efficiencies and global planning and allocation;e-commerce, digital and omni-channel initiatives; business seasonality; results and risks of current and future legal proceedings, including the investigation by the European Commission regarding the potential breach of certain European Union competition rules by the Company;proceedings; industry trends; consumer demands and preferences; competition; currency fluctuations and related impacts; estimated tax rates, including the impact of the Tax Cuts and Jobs Act of 2017 and changesother similar tax reforms in foreign jurisdictions, future clarifications and legislative amendments thereto, as well as our ability to provisional estimates;accurately interpret and predict its impact on our cash flows and financial conditions; results of tax audits and other regulatory proceedings; the impact of recent accounting pronouncements; raw material and other inflationary cost pressures; consumer confidence; and general economic conditions. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect future events or circumstances.circumstances, except as may be required by law. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. Important factors that could cause or contribute to such differences include those discussed under “Part I, Item 1A. Risk Factors” contained in the Company’s Annual Report onForm 10-K for the Fiscal Year Ended February 3, 2018.1, 2020.
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING TO BE HELD ON JUNE 19, 201812, 2020
This Proxy Statement and our Annual Report onForm 10-K for the Fiscal Year Ended February 3, 20181, 2020 are available atwww.edocumentview.com/ges.
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PROPOSAL NO. 1: ELECTION OF TWOTHREE DIRECTORS
(Item 1 on Proxy Card)
Pursuant to the Company’s Restated Certificate of Incorporation, the Board of Directors is divided into three classes of directors serving staggered three-year terms (Classes I, II and III), with each class to be as nearly equal in number as possible. The Bylaws authorize a Board of Directors consisting of not less than three or more than fifteen directors. The Board of Directors currently consists of eightnine members, of whom Maurice Marciano, Laurie Ann Goldman and Gianluca Bolla are Class I directors; Anthony Chidoni, Joseph GromekCynthia Livingston and Paul Marciano are Class II directors; and Victor Herrero, Kay Isaacson-LeibowitzCarlos Alberini, Deborah Weinswig and Alex Yemenidjian are Class III directors. The terms for the Class IIII directors are scheduled to expire at the Annual Meeting.
The Board has nominated each of the current Class I directors, Maurice MarcianoCarlos Alberini, Deborah Weinswig and Gianluca Bolla,Alex Yemenidjian for re-electionelection at the Annual Meeting, to serve for three-year terms to expire at the 20212023 annual meeting and until their respective successors shall have been elected and qualified. Mr. Alberini and Mr. Yemenidjian are standing forre-election to the Board, while Ms. Weinswig, a current director appointed by the Board in October 2018, is being nominated for election to the Board by the Company’s shareholders for the first time.
Mr. Maurice Marciano retired as an employeeCarlos Alberini is the Company’s Chief Executive Officer. Alex Yemenidjian and executive of the Company in 2012 and continued to provide consulting services to the Company thereafter until January 28, 2015. He currently serves as a director and Chairman Emeritus of the Board. Mr. Bolla isDeborah Weinswig are not employed by or otherwise affiliated with the Company, except in histheir capacity as a director and/or nominee for election as a director. Each of the nominees has consented to being named in this Proxy Statement and has agreed to serve as a member of the Board of Directors if elected. Information regarding the nominees and the continuing directors whose terms expire in 20192021 and 20202022 is set forth under the heading “Directors and Executive Officers” herein.
The nominees will be elected by a plurality of the votes cast at the Annual Meeting. Shareholders may not cumulate their votes. If any of the nominees are unable or unwilling for good cause to stand for election or serve as a director if elected, which is not anticipated, the persons named as proxies intend to vote for such other person or persons as the Board of Directors may designate.designate, or the Board may choose to reduce the size of the Board. In no event will the shares represented by the proxies be voted for more than twothree directors at the Annual Meeting.
The Board of Directors unanimously recommends a voteFOR the election of each of the twothree nominees.
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PROPOSAL NO. 2: ADVISORY VOTE ON THE
COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
(Item 2 on Proxy Card)
The Company is providing shareholders with an opportunity to cast anon-binding, advisory vote on the compensation of our Named Executive Officers, as such compensation is disclosed pursuant to the SEC’s executive compensation disclosure rules and set forth in this Proxy Statement (including in the compensation tables and narratives accompanying those tables as well as in the “Compensation Discussion and Analysis” section of this Proxy Statement).
The basic philosophies that we use to guide the structure of our executive compensation programs are:
• | Competition for Executive Talent. The Company should provide competitive compensation opportunities so that we can attract, motivate and retain qualified executives. |
• | Pay for Performance. A substantial portion of compensation should be tied to performance. |
• | Alignment with Shareholder Interests. A substantial portion of compensation should be in the form of equity awards that vest over a |
Management’s focus onFiscal 2020 was a strong year for our strategiesCompany as we increased revenues, achieved significant earnings growth, had meaningful operating margin expansion and initiatives helped deliver strongstrengthened our cash position. Our results forhighlighted the Company in fiscal 2018benefits of our global reach, our diversified business model and provide a foundation for continued progress moving forward.the strength of our brand. Specifically, in fiscal 2018,2020: (1) the Company’s total Company net revenue increased 8%3% over the prior year (5% in constant currency) to $2.36$2.68 billion, on top of 10% revenue growth in fiscal 2019 (11% in constant currency); (2) adjusted earnings from operations increased 30% to $150.2 million, after a 32% increase in fiscal 2019; (3) adjusted net earnings increased 51%31% to $105.0 million, after a 37% increase in fiscal 2018 to $58.4 million, and2019; (4) adjusted diluted earnings per share increased 52%48% to $1.45, after a 40% increase in fiscal 20182019 and (5) net cash provided by operating activities was $197.9 million, an increase of $116.2 million compared to $0.70.$81.7 million in fiscal 2019, driven by improved operating performance and better management of inventories and working capital. On a GAAP basis, the Company reported a net lossearnings from operations of $7.9$140.7 million for fiscal 2018,2020, compared to $52.2 million in fiscal 2019, net earnings of $96.0 million for fiscal 2020, compared to net earnings of $22.8$14.1 million in fiscal 2017,2019, and diluted lossearnings per share of $0.11$1.33 for fiscal 2018,2020, compared to diluted earnings per share of $0.27 in$0.16 for fiscal 2017. From a balance sheet perspective, the Company ended fiscal 2018 with cash and cash equivalents of $367 million and continued to demonstrate a commitment to delivering value to shareholders by returning $126 million in the form of dividends and share repurchases during fiscal 2018.2019. Please see “Non-GAAP“Non-GAAP Measures” on pages 45 and 4643-45 of the Company’s Fiscal 20182020 Annual Report on Form10-K and pages40-42 of the Company’s Fiscal 2019 Annual Report on Form10-K for additional information regarding the Company’s disclosure of certainnon-GAAP financial information contained herein.
Some of the key highlights of our executive compensation program for fiscal 20182020 include:
Mr. Alberini become our Chief Executive Officer on February 20, 2019 pursuant to an employment agreement he entered into with the Company in January 2019. Ms. Anderson became our Chief Financial Officer on December 2, 2019 pursuant to an offer letter she entered into with the Company in October 2019. The terms of Mr. Alberini’s employment agreement and Ms. Anderson’s offer letter were negotiated in connection with their hiring. The material terms of the employment agreement and offer letter are summarized below under “Description of Employment Agreements” and “Potential Payments upon Termination or Change in Control.”
No changes were made to Messrs. Herrero orMr. Paul Marciano’s annual base salary for fiscal 2020, and his target annual cash incentive award and target annual equity award amounts were reduced for fiscal 2020 as compared to fiscal 2019. Prior to his separation from employment, no changes were made to Mr. Reddy’s annual base salary or target annual cash incentive award amounts for fiscal 2018.2020.
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In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current Named Executive Officers agreed to a temporary reduction of their base salaries, with Messrs. Paul Marciano and Alberini agreeing to reduce their salaries by 70% and Ms. Anderson agreeing to reduce her salary by 30%.
The equity award granted to Mr. Paul Marciano for fiscal 2020, and a portion of the equity awards granted to Mr. Paul Marciano and to Mr. Herrero forAlberini in connection with his commencement of employment in fiscal 20182020, included performance-based vesting requirements.
9Fifty percent of the restricted stock units subject to the award granted to Mr. Paul Marciano became eligible to vest based on the achievement of a threshold level of earnings from operations derived from the Company’s licensing segment for fiscal 2020, and the remaining fifty percent of the restricted stock units became eligible to vest based on the achievement of a threshold level of earnings from operations for fiscal 2020. These threshold performance levels were met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a three-year vesting period.
Based on the Company’s strong relative TSR for the three year period ended February 1, 2020 (at approximately the 87.5th percentile among the peer group of companies used for these awards), the Fiscal 2018 Relative TSR Award (as defined below) granted to Mr. Paul Marciano vested at 150% of target. Based on the Company’s strong revenue performance for fiscal 2020, the portion of the Fiscal 2018 LTIP Award (defined below) granted to Mr. Paul Marciano that vested based on the Company’s fiscal 2020 revenue (excluding the Americas Retail segment) vested at approximately 178% of target. As evidence of the rigor of the Company’s performance-based vesting metrics, the remaining portion of the Fiscal 2018 LTIP Award granted to Mr. Paul Marciano that vested based on the Company’s earnings from operations for fiscal 2020 was forfeited in its entirety because the threshold performance level was not achieved. See “Long-Term Equity Incentive Awards — Fiscal 2018 Annual Equity Awards-Final Vesting” below for more information.
We also believe shareholder interests are further served by other executive compensation related practices that we follow, including our stock ownership guidelines which include holding requirements and our “clawback” policy.
Shareholders are encouraged to read the “Compensation Discussion and Analysis” section of this Proxy Statement, the accompanying compensation tables and the related narrative compensation disclosures, which discuss in more detail the compensation of our Named Executive Officers and the compensation philosophy and policies that are used to determine such compensation.
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In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Board of Directors will request shareholders to vote on the following resolution at the Annual Meeting:
“RESOLVED, that the shareholders hereby approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the related narrative compensation disclosures.”
This vote is an advisory vote only and will not be binding on the Company, the Board of Directors or the Compensation Committee, and will not be construed as overruling a decision by, or creating or implying any additional fiduciary duty for, the Board of Directors or the Compensation Committee. However, the Compensation Committee, which is responsible for designing and administering the Company’s executive compensation program, values the opinions expressed by shareholders in their vote on this proposal, and will consider the outcome of the vote when making future compensation decisions for our Named Executive Officers.
The Company’s current policy is to provide our shareholders with an advisory vote to approve the compensation of our Named Executive Officers each year at the annual meeting of shareholders. It is expected that the next advisory vote to approve the compensation of our Named Executive Officers will be held at the 20192021 annual meeting of shareholders.
The Board of Directors unanimously recommends a vote FOR the advisory resolution approving the compensation of the Named Executive Officers.
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PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT OF
THE INDEPENDENT AUDITOR
(Item 3 on Proxy Card)
The Audit Committee has selected the firm of Ernst & Young LLP (“Ernst & Young”) to act as the Company’s independent auditor for the fiscal year ending February 2, 2019,January 30, 2021, and recommends that the shareholders vote in favor of such appointment. In making its selection of the independent auditor, the Audit Committee considered whether Ernst & Young’s provision of services other than audit services, including its past and current tax planning and tax advisory services, is compatible with maintaining independence as the Company’s independent registered public accounting firm. Ernst & Young has served as the Company’s independent auditor since March 19, 2007.
Shareholder approval of the selection of Ernst & Young as our independent auditor is not required by our Bylaws or otherwise. The Sarbanes-Oxley Act of 2002 requires the Audit Committee to be directly responsible for the appointment, compensation and oversight of the audit work and the independent auditor. The Audit Committee will consider the results of the shareholder vote for this proposal and, in the event of a negative vote, will reconsider its selection of Ernst & Young. Even if Ernst & Young’s appointment is ratified by the shareholders, the Audit Committee may, at its discretion, appoint a new independent auditing firm at any time if it determines that such a change would be in the best interests of the Company and its shareholders.
We expect that a representative of Ernst & Young will be presentin attendance at the Annual Meeting, will be available to respond to appropriate questions and will have the opportunity to make such statements as he or she may desire.
The favorable vote of the holders of a majority of the shares of Common Stock represented in person or by proxy and entitled to vote on the proposal at the Annual Meeting is required to ratify the selection of Ernst & Young.
The Board of Directors unanimously recommends a voteFOR the ratification of Ernst & Young.
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RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
Independent Registered Public Accountant Fee Summary
Aggregate fees billed to us for the fiscal years ended February 3, 20181, 2020 and January 28, 2017February 2, 2019 by Ernst & Young LLP, our independent auditor, are as follows (dollars in thousands):
Year Ended Feb. 3, 2018 | Year Ended Jan. 28, 2017 | Year Ended Feb. 1, 2020 | Year Ended Feb. 2, 2019 | |||||||||||||
Audit fees(1) | $ | 3,117 | $ | 2,879 | $ | 3,854 | $ | 3,575 | ||||||||
Audit related fees(2) | 35 | 41 | — | 35 | ||||||||||||
Tax fees(3) | 173 | 373 | 86 | 141 | ||||||||||||
All other fees(4) | — | — | 12 | — | ||||||||||||
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Total | $ | 3,325 | $ | 3,293 | $ | 3,952 | $ | 3,751 | ||||||||
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(1) | “Audit fees” consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements included in its Annual Report on Form10-K, including the audit of internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002, the review of financial statements included in Form10-Qs, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements. |
(2) | “Audit related fees” consist of fees for services related to employee benefit plans and certain agreed-upon procedures and other services that are reasonably related to the performance of the audit or review of the Company’s financial statements and internal controls that are not reported under “Audit fees.” |
(3) | “Tax fees” consist of fees for tax compliance and tax advice. For fiscal |
(4) | “All other fees” consist of fees for any services not included in the first three categories. |
Allnon-audit services werepre-approved by our Audit Committee pursuant to thepre-approval policies and procedures described below.
The Audit Committee considered whether the provision ofnon-audit services provided by Ernst & Young during fiscal 20182020 was compatible with maintaining auditor independence. In addition to retaining Ernst & Young to audit and review our consolidated financial statements for fiscal 2018,2020, the Company retained Ernst & Young, as well as other accounting firms, to provide other advisory services in fiscal 2018.2020. The Company understands the need for its independent auditor to maintain objectivity and independence in its audit of the Company’s financial statements.
The Audit Committee utilizes a policy pursuant to which the audit, audit-related, and permissiblenon-audit services to be performed by the independent auditor arepre-approved prior to the engagement to perform such services.Pre-approvals are detailed as to the particular service or category of service and the independent auditor and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor in accordance with thepre-approvals, including the related fees. In addition to regularpre-approvals by the Audit Committee, the Audit Committee Chairperson may alsopre-approve services to be performed by the independent auditor on acase-by-case basis, in accordance with authority delegated by the Audit Committee. Approvals made pursuant to this delegated authority are normally reported to the Audit Committee at its next meeting.
The Audit Committee Charter requires that the lead partner assigned to our audit be rotated at least every five years and that other audit partners be rotated at least every seven years.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the Company’s system of internal control over financial reporting and the qualifications, independence and performance of the Company’s internal audit function and independent auditor. Management is responsible for the financial reporting process, including the Company’s system of internal control over financial reporting, and for the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles in the United States. The Company’s independent auditor is responsible for performing an independent audit of the Company’s financial statements, expressing an opinion as to the conformity of the Company’s audited financial statements with generally accepted accounting principles in the United States, and expressing an opinion on the Company’s internal control over financial reporting.
The Audit Committee has reviewed and discussed with management the Company’s audited financial statements for the fiscal year ended February 3, 2018.1, 2020. In addition, we have discussed with Ernst & Young the matters required to be discussed by Auditing Standards No. 1301,Communications with Audit Committees, issued bythe applicable requirements of the Public Company Accounting Oversight Board.Board and the SEC. We have also received the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, and we have discussed with the independent auditor the independent auditor’s independence.
The Audit Committee has met with Ernst & Young to discuss the overall scope of its audit, the results of its examinations, its evaluations of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting.
Based on the reviews and discussions referred to above, we recommended to the Board of Directors, and the Board of Directors has approved, that the audited financial statements be included in the Company’s Annual Report onForm 10-K for the fiscal year ended February 3, 20181, 2020 for filing with the SEC.
By the Audit Committee, |
Anthony Chidoni, Chairperson Gianluca Bolla Alex Yemenidjian |
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PROPOSAL NO. 4: SHAREHOLDER PROPOSAL REGARDING
EXECUTIVE SEVERANCE ARRANGEMENTS
(Item 4 on Proxy Card)
The Company expects the following shareholder proposal to be presented for consideration at the Annual Meeting. The proposal and supporting statement quoted below were submitted by the New York State Common Retirement Fund, 59 Maiden Lane, 30th Floor, New York, NY 10038, as the owner of 62,200 shares of the Company’s Common Stock. The Board of Directors recommends voting AGAINST the proposal, as described in more detail below. The text of the proposal follows:
RESOLVED: That the shareholders of Guess?, Inc. (the “Company”), urge the Board of Directors to seek shareholder approval of future severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executives’ base salary, plus bonus.
“Future severance agreements” include: employment agreements containing severance provisions, special retirement provisions and agreements renewing, modifying or extending existing agreements.
“Benefits” include lump-sum cash payments (including payments in lieu of medical and other benefits); the payment of any “gross-up” tax liability; the estimated present value of special retirement provisions; any stock or option awards that are awarded under any severance agreement; any prior stock or option awards as to which the executive’s access is accelerated under the severance agreement; fringe benefits; and, consulting fees (including reimbursable expenses) to be paid to the executive.
SUPPORTING STATEMENT:
We believe that requiring shareholder ratification of “golden parachute” severance packages with a total cost exceeding 2.99 times an executive’s base salary, plus bonus, will provide valuable feedback, encourage restraint, and strengthen the hand of the Board’s compensation committee.
According to the Summary of Potential Payments Upon Termination or Change in Control beginning on page 77 of the Company’s 2017 Proxy Statement, if there is a change of control and termination the CEO Paul Marciano would receive a severance payment of three times the sum of his base salary and target annual bonus. According to the Company’s 2017 Proxy Statement, if there had been a change of control and termination on the last business day of fiscal 2017, Mr. Marciano would have received a cash severance of $22.5 million, in addition to payments for equity awards and other benefits.
If you agree with us that the Company should seek shareholder ratification of severance packages with a total cost exceeding 2.99 times an executive’s base salary, plus bonus, then please VOTE FOR this proposal.
BOARD OF DIRECTORS’ STATEMENT AGAINST THIS PROPOSAL:
After careful consideration, the Board of Directors unanimously recommends that shareholders vote AGAINST this proposal. The Board of Directors believes that the proposal is not in the best interests of the Company and its shareholders and opposes it for the reasons described in this statement against the proposal. We also note that virtually identical proposals were submitted at each of the Company’s 2015, 2016 and 2017 annual meetings of shareholders and that, in each of these instances, shareholders overwhelmingly rejected the proposal. Moreover, as discussed further below, the shareholder proposal’s supporting statement relies on inaccurate information to justify the proposal, including misnaming Mr. Paul Marciano as our Chief Executive Officer, when he is our Executive Chairman and Chief Creative Officer, and substantially overstating the amount of cash severance that either our Chief Executive Officer, Mr. Victor Herrero, or our Executive Chairman and Chief Creative Officer, Mr. Marciano, would have received if there had been a change of control and termination of the executive’s employment on the last business day of fiscal 2017.
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The Board of Directors believes that shareholder interests are best protected by providing flexibility to the Compensation Committee, which consists solely of independent directors, obtains advice from an independent compensation consultant, and oversees all matters regarding executive compensation, to assess the needs of the Company, the competition for talent and other relevant factors in making decisions regarding whether, and how, to offer severance benefits to executives. In addition, we believe the Company’s employment agreements with each of Mr. Herrero and Mr. Marciano demonstrate that the proposal is unnecessary because the cash severance multiplier of 2x in Mr. Herrero’s employment agreement is well below the 2.99x cap that the proposal seeks, and the cash severance multiplier of 3x in Mr. Marciano’s employment agreement is nearly identical to the cap that the proposal seeks.
We believe that, in certain cases, it is appropriate to provide our key executive officers with severance protections upon certain types of termination of their employment, such as by the Company without cause, by the executive for good reason or in connection with a change in control in order to support our compensation objective of attracting, retaining and motivating qualified executives. These severance protections are negotiated on an individual-by-individual basis in connection with the negotiation of other employment terms. By restricting the use of this important compensation tool, implementation of the proposal could materially hamper the Company’s ability to attract, retain and motivate the highest quality and most talented senior executive team.
Calling a special meeting of shareholders to obtain prior approval of a severance arrangement that would provide benefits in excess of the specified cap would be expensive and impractical and could severely disadvantage the Company’s ability to recruit qualified executives. Top candidates, when informed that the terms of their compensation arrangements first require shareholder approval, would likely be unwilling to sit on the sidelines pending such approval and may instead seek employment elsewhere, including at one of the Company’s competitors who do not face similar restrictions on their ability to offer severance protection. Even if the severance arrangement could instead be ratified by shareholders after the fact, as the proposal suggests, the potential for shareholders to reject the severance arrangement—potentially many months after entering an agreement—would likely result in the promised severance benefits being viewed by a potential candidate as too uncertain to merit serious consideration. Delay and uncertainty would be injected into the hiring process, disadvantaging the Company in its efforts to recruit and retain the best available executive talent.
It would not be practical simply to avoid shareholder approval by entering into severance arrangements for amounts less than a 2.99x cap. The benefits covered by the proposal include not only cash severance but also the value of prior equity awards that are accelerated upon a severance event. It is invariably the case, particularly with regard to highly sought-after executives, that employment agreements or other severance arrangements require at least partial vesting of equity awards upon certain types of severance events. We consider this appropriate and consistent with market practices given the nature of equity awards, which are generally granted on an annual basis as part of an executive’s total annual compensation opportunity, but structured with multi-year vesting terms to encourage retention. An arrangement that provided for accelerated vesting of stock awards upon severance, even if permitted only on a partial, pro rata basis, would have a higher probability of exceeding the 2.99x cap. In order to implement the proposal and remain competitive in attracting and retaining highly qualified executives, we believe that we would either need to design executive compensation that significantly reduced the role of equity-based pay or reduce or eliminate multi-year vesting requirements for equity-based pay. We believe that shareholder interests are best served by voting AGAINST the proposal so that we can continue to grant equity-based pay with multi-year vesting requirements and remain competitive in attracting and retaining highly qualified executives.
While the proposal addresses future severance agreements, we believe the Company’s employment agreements with Mr. Herrero, our Chief Executive Officer, and Mr. Marciano, our Executive Chairman and Chief Creative Officer (not our Chief Executive Officer, as stated in the shareholder proposal’s supporting statement), demonstrate that the proposal is unnecessary. As a preliminary matter, the shareholder proposal’s supporting statement substantially overstates the amount of cash severance either Mr. Herrero or Mr. Marciano would be entitled to receive under their employment agreements by more than a factor of two. As disclosed in the
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Company’s proxy statement for its 2017 annual meeting, if there had been a change in control and termination of the executive’s employment on the last business day of fiscal 2017, Mr. Herrero would have received cash severance of $7.2 million and Mr. Marciano would have received cash severance of $8.55 million, not cash severance of $22.5 million as claimed in the supporting statement. Even after taking into account the changes to Mr. Marciano’s compensation in fiscal 2018, the cash severance that would have been payable to Mr. Marciano had his employment terminated at the end of fiscal 2018 in connection with a change in control would have been $10.35 million, which is less than half the amount disclosed by the proponent in its supporting statement.
Under Mr. Herrero’s employment agreement, upon a qualified termination (which generally includes a termination by the Company without cause or by the executive for good reason) of his employment with the Company, he is entitled to a cash severance benefit of two times his annual base salary (two times the sum of his annual base salary plus his annual target bonus amount if the termination of employment occurs within a year before or two years after a change in control of the Company). Under Mr. Marciano’s employment agreement, upon a qualified termination of his employment with the Company, he is entitled to a cash severance benefit of three times the sum of his annual base salary plus his annual target bonus amount. The cash severance multiplier of 2x in Mr. Herrero’s employment agreement is well below the 2.99x cap the proposal seeks, and the cash severance multiplier of 3x in Mr. Marciano’s employment agreement is nearly identical to the cap the proposal seeks. In such circumstances, Mr. Herrero would also be entitled to certain continued life and medical insurance benefits, but we expect the cost of these benefits when added to the cash severance amount described above would still be well less than the 2.99x cap the proposal seeks. In the event of a qualified termination of either executive’s employment, the executive’s employment agreement also provides for payment of a pro-rated bonus for the year in which the termination of employment occurs and accelerated vesting of certain equity awards granted by the Company to the executive. We do not believe it is appropriate to apply the limitation called for by the proposal to the pro-rated bonus because the pro-ration reflects payment for the portion of the year actually worked by the executive and, for the reasons discussed above, we do not believe it is appropriate to apply the limitation called for by the proposal to the acceleration of equity awards.
In addition, during merger, reorganizations and other change in control transactions, in particular, it is important for management to remain focused on protecting shareholders’ interests and not be distracted by concerns about the security of their employment. The rigid and arbitrary limitation called for by the proposal could, by jeopardizing management’s ability to realize a benefit from the equity awards granted as part of their regular compensation opportunities, curtail the Company’s ability to ensure the stability of the key executive management team during any change in control situations.
Finally, the proposal is extraordinarily broad and unclear, purporting to address “severance” payments. A careful reading of the proposal, however, shows that the proposal as written actually impacts much more. The payments covered by the proposal do not exclude retirement plan payments, deferred compensation plans, disability benefits, death benefits and other benefits payable at retirement or termination for any other reason, whether or not they were earned and vested prior to the executive’s termination of employment. Because these amounts could be aggregated in determining whether the payments exceeded the limits of the proposal, it could have the effect of prohibiting payments that are made in connection with a retirement or other termination, whether the amounts were previously earned and vested including, for example, the payment of a death benefit or vested retirement plan payments.
For all the above reasons, the Board of Directors unanimously recommends that the Company’s shareholders vote AGAINST this shareholder proposal.
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DIRECTORS AND EXECUTIVE OFFICERS
The directors, director nominees and executive officers of the Company as of May 17, 201811, 2020 are as follows:
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Name | Age | Director | Position | |||||||
Maurice Marciano | 71 | 1981 | Non-Executive Chairman of the Board and Director | |||||||
Paul Marciano | 68 | 1990 | Chief Creative Officer and Director | |||||||
Carlos Alberini(1) | 64 | 2019 | Chief Executive Officer and Director | |||||||
Gianluca Bolla | 61 | 2010 | Director | |||||||
Anthony Chidoni | 68 | 2002 | Director | |||||||
Laurie Ann Goldman | 57 | 2018 | Director | |||||||
Cynthia Livingston | 68 | 2019 | Director | |||||||
Deborah Weinswig(1) | 49 | 2018 | Director | |||||||
Alex Yemenidjian(1) | 64 | 2005 | Director | |||||||
Kathryn Anderson | 38 | N/A | Chief Financial Officer |
(1) | Carlos Alberini and |
Director Tenure
Approximately 45% of our directors have served on the Board for less than five years and the average tenure of our directors is approximately 13 years. The average tenure of our independent directors is approximately eight years.
With respect to the directors and director nominees named above, Gianluca Bolla, Anthony Chidoni, Joseph Gromek, Kay Isaacson-LeibowitzLaurie Ann Goldman, Cynthia Livingston, Deborah Weinswig and Alex Yemenidjian are deemed to be “independent” directors under the director independence standards of the NYSE.
Maurice Marciano was one of the founders of the Company in 1981. Since that time, he has served in a number of senior executive positions with the Company, including his role as executive Chairman of the Board from 2007 until January 28, 2012. Between 1999 and 2007, he served asCo-Chairman of the Board andCo-Chief Executive Officer, together with his brother, Paul Marciano. Mr. Marciano retired as an employee and executive of the Company in January 2012. Following his retirement and until January 28, 2015, he provided consulting services to the Company under the terms of a consulting agreement originally entered into in connection with his retirement. Mr. Marciano has served as a director of the Company since 1981 (except for the
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period from January 1993 to May 1993) and currently serves asnon-executive Chairman Emeritus of the Board.Board, a position he has held since June 11, 2018. In addition, from February 2, 2019 until February 19, 2019, Mr. Marciano served as the Company’s Interim Chief Executive Officer. His present term as a Class I director will expire at the Annual Meeting.2021 annual meeting of shareholders. As aco-founder and leader within the Company for over 35nearly 40 years, Mr. Marciano brings a wealth of both Company-specific and industry-wide knowledge and experience to the Board. His strategic vision and global approach have been instrumental in helping the Board to effectively oversee the overall business and direction of the Company.
Paul Marciano joined the Company two months after its inception in 1981. Since that time, he has served in a number of senior executive positions with the Company, including his current role as Executive Chairman of the Board and Chief Creative Officer, positionsa position he has held since August 2015. From August 2015 until June 2018, he also served as Executive Chairman of the Board. From 2007 until August 2015, Mr. Marciano served as Chief Executive Officer and Vice Chairman of the Board, and between 1999 and 2007, he served asCo-Chairman of the Board andCo-Chief Executive Officer. Mr. Marciano has also served as a director of the Company since 1990. His present term as a Class II director will expire at the 20192022 annual meeting of shareholders. Like his brother, Maurice Marciano, Mr. Marciano brings to the Board a vast amount of knowledge and experience accumulated over the life of the Guess brand. Mr. Marciano’s leadership as Executive Chairman and Chief Creative Officer provides a direct and valuable link between management and the Board and his creative and strategic vision for the brand help to guide the Board’s overall approach.
Victor HerreroCarlos Alberini has served as the Company’s Chief Executive Officer since August 2015. Prior to joiningand a member of the Board of Directors of the Company Mr. Herrero held several positions with Inditex Group, the world’s largest fashion retailer with brands including Zara, Massimo Dutti, Pull & Bear, Bershka, and Stradivarius. From September 2012 until July 2015, Mr. Herrero served Inditex Group as its Head of Asia Pacific, where he was responsible for all aspects of the Asia business for all brands. Prior to that position, Mr. Herrerosince February 2019. He previously served as Inditex Group’s HeadChairman and Chief Executive Officer of North AsiaLucky Brand, a denim-focused apparel company, from February 2014 until February 2019. Mr. Alberini served as theCo-Chief Executive Officer of RH (formerly known as Restoration Hardware Holdings, Inc.), a luxury home-furnishings company, from June 2010 through October 2012 and Indiafrom July 2013 through January 2014, and he served as the sole Chief Executive Officer of RH from October 2012 through July 2013. Mr. Alberini has served on the board of directors of RH since June 2010. Mr. Alberini previously served as the Company’s President and Chief Operating Officer from December 2000 to June 2010 (and as Interim Chief Financial Officer from May 20102006 to August 2012, where he was responsible for all aspects of the business in those markets. Mr. Herrero joined Inditex Group in 2003 and served in a variety of other capacities during his tenure there. Prior
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to joining Inditex Group, Mr. Herrero served as a management consultant for Arthur Andersen in Asia from 1998 to 2002. Mr. Herrero holds an M.B.A. from the Kellogg School of Management at Northwestern University, a B.A. in Business Administration from the Ecole Superieure de Commerce de Paris in Paris, France, and a Bachelor’s of Law Degree from the Universidad de Zaragoza in Spain. Mr. Herrero hasJuly 2006). He also served as a directormember of the Board of Directors of the Company since August 2015.from December 2000 to September 2011. From October 1996 to December 2000, Mr. Alberini served as Senior Vice President and Chief Financial Officer of Footstar, Inc., a retailer of footwear. From May 1995 to October 1996, Mr. Alberini served as Vice President of Finance and Acting Chief Financial Officer of the Melville Corporation, a retail holding corporation. From 1987 to 1995, Mr. Alberini was with TheBon-Ton Stores, Inc., an operator of department stores, in various capacities, including Corporate Controller, Senior Vice President, Chief Financial Officer and Treasurer. Prior to that, Mr. Alberini served in various positions at PricewaterhouseCoopers LLP, an audit firm. His present term as a Class III director will expire at the 2020Annual Meeting and he has been selected as a director nominee for election to a three year term expiring at the 2023 annual meeting of shareholders.meeting. Mr. Herrero’sAlberini’s extensive global retailexecutive leadership experience, particularly in the apparel industry, and strong operational background, together with his intimate knowledge of the Company’s operations as its Chief Executive Officer(from his current and former roles with the Company), provide the Board with valuable strategic and operational insights to the Board.insights.
Gianluca Bolla has been a shareholder and director of Accord Management, S.r.L., an Italian private equity firm that specializes in the Italianmid-market, since the end of 2008. In addition, since 1994, Mr. Bolla has been a shareholder and director of Valdo Spumanti S.r.l., a leading producer of Prosecco, an Italian dry sparkling wine. Mr. Bolla has also served as a member of the board of directors (and member of the audit and nominating and governance committees) of Deoleo, S.A., a Spanish multinational olive oil processing company, since 2016. From 1988 until 2007, Mr. Bolla held a number of executive positions with various subsidiaries of Barilla Holding S.p.A. (“Barilla”), a privately-held Italian food company with global revenues at the time of over €4 billion. He ultimately served from 2001 until 2007 as Chief Executive Officer of Barilla G. e R. Fratelli S.p.A., a global business with revenues at the time of over €2.5 billion. Prior to joining Barilla, Mr. Bolla was a corporate finance associate for two years with Salomon Brothers Inc., where he started after receiving his M.B.A. from the UCLA Graduate School of Management. Mr. Bolla has served as a director of the Company
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since April 2010 and his present term as a Class I director will expire at the Annual Meeting.2021 annual meeting of shareholders. As the Company continues its global expansion throughout Europe and beyond, Mr. Bolla’s experience as the Chief Executive Officer of a large global business based in Italy provides the Board with a valuable and unique perspective into international growth and management.
Anthony Chidoni has been the principal and owner of Lorelle Capital, a private hedge fund, since January 2004. From January 1990 to January 2004, he was the Managing Director of Private Client Business in the Los Angeles office of investment bank Credit Suisse First Boston, and its predecessor Donaldson Lufkin & Jenrette, where he had served in various positions for 21 years. Mr. Chidoni has served as a director of the Company since November 2002 and his present term as a Class II director will expire at the 20192022 annual meeting of shareholders. Mr. Chidoni’s extensive background in investment banking and more recently as the principal and owner of a private hedge fund provides the Board with a valuable Wall Street perspective, a broad and deep insight into the capital markets and direct experience performing detailed review and analysis of public company financial statements.
Joseph GromekLaurie Ann Goldman is the founder and chief executive officer of LA Ventures, an investment and advisory firm for growth-oriented, consumer-facing businesses. She served as President, Chief Executive Officer and director of The Warnaco Group, Inc., a global apparel company, from 2003 until his retirement in 2012. From 1996 to 2002, Mr. Gromek served as President andthe Chief Executive Officer of Brooks Brothers,New Avon LLC, the leading social selling beauty company in North America, from January 2019 until a sale of the company was completed in August 2019. From 2014 until January 2019, she was a private investor and advisor. From 2002 to 2014, Ms. Goldman served as CEO of Spanx, Inc., a private clothing manufacturerwomen’s undergarment and retailapparel company. Prior to that time, heSpanx, Ms. Goldman held senior management positions with Saks Fifth Avenue, Limited Brands, Inc.a number of marketing and Ann Taylor Stores, Inc. Mr. Gromek isoperational roles at the Coca-Cola Company over aten-year period, including serving as Director of Worldwide Licensing. Ms. Goldman currently a member ofserves on the board of directors of Wolverine World Wide,for ServiceMaster Global Holdings, Inc., a leading pest control and cleaning company in the United States (where she also serves on its compensation committee and as chair of its nominating and governance committee), and Joe & The Juice, a global footwear company;chain of juice bars and a member ofcoffee shops, and on the board for a number of directors of The Children’s Place Retail Stores, Inc., a children’s specialty apparel retailer. Among his many philanthropic and civic affiliations, Mr. Gromek is a member of the board of directors of Ronald McDonald House, the board of governors of the Parsons School of Design and the board of trustees of St. Peter’s University, and he is the chairman of the board of trustees of The New School. Mr. Gromekorganizations. Ms. Goldman has served as a director of the Company since April 2014October 2018 and hisher present term as a Class I director will expire at the 2021 annual meeting of shareholders. Ms. Goldman’s deep experience building global consumer product businesses and brands, including growing Spanx from a startup to a global omni-channel retailer, allows her to provide the Board with a valuable customer-focused perspective.
Cynthia Livingston has been theCo-Chairman of the Board of Directors of Bravado Design, a private company specializing in the design and sale of maternity and nursing bras, since 2016. Since September 2019, she has also served as a member of the Board of Directors of Independent Curators International (ICI), anon-profit global arts organization that focuses on the role of the curator in contemporary art. From 2006 to 2016, she served as the President and Chief Executive Officer of Sequel AG, the global watch licensee for Guess. From 1989 to 2005, she served in a number of increasingly senior roles with Callanen International, the global watch licensee for Guess during that period, ultimately serving as President and Chief Executive Officer from 1998 to 2005. Prior to that time, Ms. Livingston spent 15 years with Federated Department Stores, serving in numerous roles, including five years as Vice President, Fine and Fashion Jewelry, Watches, Accessories and Cosmetics. Ms. Livingston has served as a director of the Company since June 2019 and her present term as a Class II director will expire at the 20192022 annual meeting of shareholders. As a leading professional in the apparel sector for more than a quarter century, including extensiveformer top executive and director service with several global, multi-channel companies, Mr. Gromek brings a wealth of valuable experience to the Board that is particularly well-suited for the Company’s global, multi-channel business.watch licensee, Ms. Livingston is able to provide the Board with a distinctive third-party perspective concerning its licensing business and licensing partners, along with a deep knowledge of the Guess brand and the Guess customer.
Kay Isaacson-LeibowitzDeborah Weinswig is the founder and CEO of Coresight Research, a provider of research and advisory services to brands and investors, where she has served since February 2018. From 2014 until February 2018, she served as Executive Vice President of Beauty NichesManaging Director for Victoria’s Secret, aFung Global Retail and Technology (“FGRT”), the think tank for the Fung Group. Prior to leading specialty retailer of women’s intimate and other apparel, from July 2003 to July 2005. From 1995 to 2003,FGRT, Ms. Isaacson-LeibowitzWeinswig served as Executive Vice PresidentChief Customer Officer for Profitect Inc., a predictive analytics and big data software provider, and in a number of Merchandising for Victoria’s Secret. Fromroles with Citigroup, Inc., most recently as Managing Director and Head of the Global Staples and Consumer Discretionary team at Citi Research. She
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1994 to 1995, she served as acting Presidentcurrently serves on the board of directors for Xcel Brands, Inc., a publicly-traded consumer products company, and Senior Vice PresidentKiabi, a private French retail company specializing inready-to-wear apparel, on the advisory board for a number of Merchandisingaccelerators and on the board for Banana Republic, a divisionnumber of The Gap, Inc. From 2004 until 2014,philanthropic organizations. Ms. Isaacson-Leibowitz served asWeinswig is a directorCertified Public Accountant and holds an MBA from the University of Coldwater Creek, a multi-channel specialty retailer of women’s apparel and accessories in the United States, primarily targeting women 35 years of age and older. She is also a co-founder, co-chairperson and board member for World of Children, a non-profit organization devoted to children globally.Chicago. Ms. Isaacson-LeibowitzWeinswig has served as a director of the Company since July 2006 and herOctober 2018. Her present term as a Class III director will expire at the 2020Annual Meeting and she has been selected as a director nominee for election to a three year term expiring at the 2023 annual meeting of shareholders.meeting. Ms. Isaacson-Leibowitz’s extensive careerWeinswig’s experience and expertise in the retail industry,innovation, especially as it relates to data and in particular as an executive and senior merchant for brands such as Victoria’s Secret and Banana Republic, allows her to provide valuable insights to the Board in key areas such as merchandising strategy and brand management,technology, as well as product designher knowledge of the global retail landscape, provides the Board with valuable insights into these important and production.rapidly changing areas.
Alex Yemenidjian has served as Chairman of the Board and Chief Executive Officer of Armenco Holdings, LLC, a private investment company, since January 2005. He was aco-owner and served as Chairman of the Board and Chief Executive Officer of Tropicana Las Vegas Hotel & Casino, Inc. from July 2009 to August 2015. Mr. Yemenidjian served as Chairman of the Board and Chief Executive Officer of Metro-Goldwyn-Mayer Inc., a leading entertainment company, from April 1999 to April 2005 and was a director thereof from November 1997 to April 2005. Mr. Yemenidjian also served as a director of MGM Resorts International, Inc. (“MGM”) (formerly MGM Grand, Inc. and MGM Mirage Resorts, Inc.) from 1989 to 2005 and was its President from 1995 to 1999. He also served MGM in other capacities, including as Chief Operating Officer from 1995 until 1999 and as Chief Financial Officer from 1994 to 1998. In addition, Mr. Yemenidjian served as an executive of Tracinda Corporation, the majority owner of both Metro-Goldwyn-Mayer Inc. and MGM, from 1990 to 1997 and again during 1999. Prior to 1990, Mr. Yemenidjian was the managing partner of Parks, Palmer, Turner & Yemenidjian, Certified Public Accountants. Mr. Yemenidjian is currently a trustee of Baron Investment Funds Trust and Baron Select Funds, both mutual funds.funds, and a director of Green Thumb Industries, Inc., a multi-state grower, producer and retailer of cannabis products. Mr. Yemenidjian has served as a director of the Company since May 2005 and his2005. His present term as a Class III director will expire at the 2020Annual Meeting and he has been selected as a director nominee for election to a three year term expiring at the 2023 annual meeting of shareholders.meeting. Mr. Yemenidjian is able to provide the Board with the unique perspective of someone with significant experience as a Chief Executive Officer. In addition, his strong accounting and finance background, including experience as a Chief Financial Officer, provides the Board with valuable insight and a depth of knowledge and experience with respect to accounting and finance related matters.
Sandeep Reddy was appointed to the position of Chief Financial Officer in July 2013. He previouslyKathryn Anderson has served as the Company’s Vice President and European Chief Financial Officer since December 2019. Prior to joining the Company, she served as Chief Financial Officer of California Pizza Kitchen (“CPK”), a privately-held casual dining restaurant chain, since November 2016. Between 2010 where he was responsible for all aspects of the Company’s European finance functions, including financial planning, treasury, accounting and tax. From 1997 to 2010, Mr. Reddy2016, Ms. Anderson served in a number of positions of increasing responsibility for Mattel Inc., a leading global toy manufacturer, ultimately serving asCPK, including Senior Vice President of Corporate Finance and Supply Chain for Southern Europe (France, Spain, Portugal, Italy). Mr. Reddy has an MBASenior Vice President of Financial Planning and Analysis. After leaving CPK in February 2016 to become the Chief Financial Officer of Sprinkles Cupcakes, a privately-held cupcake bakery chain, she returned to CPK as its Chief Financial Officer in November 2016. Ms. Anderson began her career in investment banking at Citi and then Moelis & Company. She received her B.A. in Economics from CornellNorthwestern University and is a Chartered Financial Analyst.her M.B.A. from UCLA Anderson School of Management.
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CORPORATE GOVERNANCE AND BOARD MATTERS
Board Independence, Structure and Committee Composition
The Board is composed of eightnine directors, fivesix of whom qualify as independent directors pursuant to the rules adopted by the SEC applicable to the corporate governance standards for companies listed on the NYSE. In determining independence, the Board affirmatively determines that directors have no direct or indirect material relationship with the Company. When assessing materiality, the Board considers all relevant facts and circumstances including, without limitation, transactions between the Company and the director directly or organizations with which the director is affiliated, and the frequency and dollar amounts associated with these transactions. The Board further considers whether the transactions were at arm’s length in the ordinary course of business and whether the transactions were consummated on terms and conditions similar to those of unrelated parties. In addition, the Board uses the following categorical standards to determine director independence: (1) not being a present or former employee, or having an immediate family member as an executive officer, of the Company within the past three years; (2) not personally receiving, or having an immediate family member receive, during any twelve-month period within the last three years, more than $120,000 of direct compensation from the Company other than (a) for Board or committee service, pension or other forms of deferred compensation for prior service or (b) by an immediate family member for services as an employee of the Company (other than as an executive officer); (3) not (a) being a current partner or employee of a firm that is the Company’s internal or external auditor; (b) having an immediate family member who is a current partner of such a firm; (c) having an immediate family member who is a current employee of such a firm and personally works on the Company’s audit; or (d) being within the last three years or having an immediate family member who was within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time; (4) not being employed, or having an immediate family member employed, within the past three years as an executive officer of another company where now or at any time during the past three years any of the Company’s present executive officers serve or served on the other company’s compensation committee; (5) not being an executive officer or employee, or having an immediate family member who is an executive officer, of a company that makes or made payments to, or receives or received payments from, the Company, for property or services in an amount which, in any of the past three fiscal years, exceeds or exceeded the greater of $1 million, or 2% of the other company’s consolidated gross revenues; (6) not being an executive officer of a charitable organization of which the Company has within the preceding three years made any contributions to that organization in any single fiscal year that exceeded the greater of $1 million, or 2% of the charitable organization’s consolidated gross revenues; (7) not accepting directly or indirectly any consulting, advisory, or other compensatory fee from the Company or any of its subsidiaries, provided that compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company (provided that such compensation is not contingent in any way on continued service); and (8) not being an affiliated person of the Company or any of its subsidiaries.
Applying these categorical standards and considering all relevant facts and circumstances, the Board determined that the following directors and director nominees qualify as independent: Gianluca Bolla, Anthony Chidoni, Joseph Gromek, Kay Isaacson-LeibowitzLaurie Ann Goldman, Cynthia Livingston, Deborah Weinswig and Alex Yemenidjian (the “Independent Directors”).
Each of the members of each of the committees of the Board is an Independent Director, and, in the case of members of the Audit Committee and the Compensation Committee, also meets the additional criteria for independence of (i) audit committee members set forth inRule 10A-3(b)(1) under the Exchange Act and (ii) compensation committee members set forth in the NYSE listing rules in accordance withRule 10C-1 under the Exchange Act. In addition, our Board has determined that each of the members of the Audit Committee is financially literate and that Anthony Chidoni meets the definition of an audit committee financial expert, as set forth in Item 407(d)(5)(ii) ofRegulation S-K. A brief description of Mr. Chidoni’s background and experience can be found under “Directors and Executive Officers” above.
2019
Our Board had the following three standing committees in fiscal 2018:2020: (1) Audit Committee, (2) Compensation Committee and (3) Nominating and Governance Committee. The current membership as of the date of this Proxy Statement and the function of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. All of the committee charters are available on the Company’s website athttp://investors.guess.com. The Board of Directors held sevenfive meetings during fiscal 2018.2020. Each director attended at least 75 percent of the aggregate of the total Board meetings and total committee meetings on which such director served during fiscal 2018, except Mr. Paul Marciano, who recused himself from three Board meetings as a matter of good corporate governance because the purpose of those meetings related to a previously disclosed investigation involving Mr. Marciano. Excluding the meetings from which he was recused, Mr. Marciano attended all other meetings of the Board that were held during fiscal 2018.2020. Directors are encouraged to attend annual meetings of the Company’s shareholders. All of our then-current directors attended the last annual meeting of shareholders.
Name of Director | Audit Committee | Compensation Committee | Nominating and Governance Committee | Audit Committee | Compensation Committee | Nominating and Governance Committee | ||||||||||||
Independent Directors: | ||||||||||||||||||
Gianluca Bolla | X | X | X | X | ||||||||||||||
Anthony Chidoni | *X | X | *X | X | ||||||||||||||
Joseph Gromek | X | X | ||||||||||||||||
Kay Isaacson-Leibowitz | X | *X | ||||||||||||||||
Laurie Ann Goldman | *X | |||||||||||||||||
Cynthia Livingston(1) | X | |||||||||||||||||
Deborah Weinswig | X | |||||||||||||||||
Alex Yemenidjian | X | *X | X | *X | ||||||||||||||
Other Directors: | ||||||||||||||||||
Maurice Marciano | ||||||||||||||||||
Paul Marciano | ||||||||||||||||||
Victor Herrero | ||||||||||||||||||
Number of Meetings in Fiscal 2018 | 8 | 6 | 3 | |||||||||||||||
Carlos Alberini | ||||||||||||||||||
Number of Meetings in Fiscal 2020 | 9 | 5 | 4 |
X = Committee member; * = Chair
(1) | Ms. Livingston was elected to the Board effective June 10, 2019. |
Audit Committee
The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, the performance of the Company’s internal audit function and independent auditor, and risk assessment and risk management. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit Committee Charter and the Audit Committee’s performance; appoints, evaluates and determines the compensation of our independent auditor; reviews and approves the scope of the annual audit, the audit fees and the financial statements; reviews our disclosure controls and procedures, internal controls, internal audit function, and corporate policies with respect to financial information and earnings guidance; oversees investigations into complaints concerning financial matters; and reviews other risks that may have a significant impact on the Company’s financial statements. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting and other advisors as the Audit Committee deems necessary to carry out its duties.
The report of the Audit Committee is included in this Proxy Statement. A current copy of the Audit Committee Charter is available on the Company’s website athttp://investors.guess.com.
Compensation Committee
The Compensation Committee is responsible for establishing and governing the compensation and benefit practices of the Company. The Compensation Committee reviews and approves the general compensation
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policies of the Company, oversees the administration of all of the Company’s compensation and benefit plans
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and reviews and approves compensation of the executive officers of the Company. A current copy of the Compensation Committee Charter is available on the Company’s website athttp://investors.guess.com. For more information, see “Executive and Director Compensation” below.
Nominating and Governance Committee
The Nominating and Governance Committee assists the Board in identifying individuals qualified to become directors; recommends to the Board the director nominees for the next annual meeting of shareholders, consistent with criteria approved by the Board, and selects, or recommends that the Board select, the director nominees for each annual meeting of shareholders; develops and recommends to the Board a set of Governance Guidelines applicable to the Company; oversees the evaluation of the Company’s management and the Board and its committees;committees (including individual director self-evaluations); and recommends to the Board director assignments and chair appointments for each Board committee, other than the Nominating and Governance Committee. Other specific duties and responsibilities of the Nominating and Governance Committee include: developing membership qualifications and criteria for Board committees; defining specific criteria for director independence; monitoring compliance with Board and Board committee membership criteria; annually reviewing and recommending directors for continued service; coordinating and assisting management and the Board in recruiting new members to the Board; annually, and together with the Chairperson of the Compensation Committee, evaluating the performance of the Chief Executive Officer and presenting the results of such evaluation to the Board and to the Chief Executive Officer; reviewing governance-related shareholder proposals and recommending Board responses; overseeing the evaluation of the Board and management; and conducting a preliminary review of director independence and the financial literacy and expertise of Audit Committee members. A current copy of the Nominating and Governance Committee Charter is available on the Company’s website athttp://investors.guess.com.
Consideration of Director Nominees
Shareholder NomineesRecommendations
The policy of the Nominating and Governance Committee is to consider properly submitted shareholder nominations forrecommendations of candidates for membership on the Board as described below under “—Identifying“Identifying and Evaluating Nominees for Directors.” The Nominating and Governance Committee will evaluate a prospective nominee suggested by any shareholder in the same manner and against the same criteria as any other prospective nominee identified by the Nominating and Governance Committee from any other source. In evaluating such nominations,recommendations of director nominees, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth under “—Director“Director Qualifications” below.
Any shareholder nominationsrecommendations proposed for consideration by the Nominating and Governance Committee should include the following information and documentation:
the nominator’sshareholders’ name, address and phone number and a statement of the number of shares of our Common Stock beneficially owned by the nominatorshareholder during the year preceding the date of nomination;
the nominee’sdirector candidate’s name, age, business address, residence address, phone number, principal occupation and a statement of the number of shares of our Common Stock beneficially owned by the nomineedirector candidate during the year preceding the date of nomination;recommendation;
a statement of the nominee’sdirector candidate’s qualifications for Board membership;
a description of all arrangements or understandings between the nominatorshareholder and each proposed nomineedirector candidate and any other person or persons (including their names) pursuant to which the nomination(s)recommendation(s) are to be made by such nominator;shareholder;
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Any shareholder nominationsrecommendations for candidates for membership on the Board should be addressed to:
Guess?, Inc.
Attn: Chair of the Nominating and Governance Committee
c/o Corporate Secretary
1444 South Alameda Street
Los Angeles, California 90021
Director Qualifications
The Nominating and Governance Committee has established the following minimum criteria for evaluating prospective Board candidates:
reputation for integrity, strong moral character and adherence to high ethical standards;
holds or has held a generally recognized position of leadership in community and/or chosen field of endeavor, and has demonstrated high levels of accomplishment;
demonstrates business acumen and experience, and ability to exercise sound business judgments in matters that relate to the current and long-term objectives of the Company;
ability to read and understand basic financial statements and other financial information pertaining to the Company;
commitment to understand the Company and its business, industry and strategic objectives;
commitment and ability to regularly attend and participate in meetings of the Board of Directors, Board Committees and shareholders, and to generally fulfill all responsibilities as a director of the Company;
willingness to represent and act in the interests of all shareholders of the Company rather than the interests of a particular group;
good health and ability to serve for at least five years; and
for prospectivenon-employee directors, independence under SEC and applicable NYSE rules, and the absence of any conflict of interest (whether due to a business or personal relationship) or legal impediment to, or restriction on, the nominee serving as a director.
The Nominating and Governance Committee will also consider the following factors in connection with its evaluation of each prospective nominee:
whether the nominee possesses the requisite education, training and experience to qualify as “financially literate” or as an audit committee “financial expert” under applicable SEC and NYSE rules;
for incumbent directors standing forre-election, the Nominating and Governance Committee will assess the incumbent director’s performance during his or her term, including the number of meetings attended, level of participation, and overall contribution to the Company; and
whether the prospective nominee will foster a diversity of backgrounds and experiences, and will add to or complement the Board’s existing strengths.
While the Nominating and Governance Committee considers all of these factors, including whether the nominee will foster a diversity of backgrounds and experiences, as part of its evaluation of nominees, no single factor is necessarily determinative in the evaluation process. Instead, all of these factors, and any others deemed relevant by the Nominating and Governance Committee, are considered as a whole in assessing each prospective nominee.
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Identifying and Evaluating Nominees for Directors
The Nominating and Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee evaluates the current members of the Board whose terms are expiring and who are willing to serve an additional term utilizing the criteria described above to determine whether to recommend such directors forre-election. Both of the nominees for election at the Annual Meeting Carlos Alberini and Alex Yemenidjian are current members of the Board who are standing for re-election.re-election at the Annual Meeting. Deborah Weinswig, who was appointed to the Board in October 2018, initially came to the attention of the Nominating and Governance Committee, based upon her experience and expertise in retail innovation, especially as it relates to data and technology, through a reference from the Company’s then Chief Executive Officer.
The Nominating and Governance Committee also regularly assesses whether any vacancies on the Board are expected due to retirement or otherwise or whether it would be advisable to increase the overall size of the Board through the addition of a new director. In the event that vacancies are anticipated, or otherwise arise, or the size of the Board may be increased, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms hired to identify potential nominees, shareholders, members of management or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Governance Committee, and may be considered at any point during the year.
As described above, the Nominating and Governance Committee considers properly submitted shareholder nominationsrecommendations of director candidates for candidates formembership on the Board. Following verification of the shareholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Governance Committee at a regularly scheduled meeting, which is generally the first or second meeting prior to the issuance of the proxy statement for the Company’s annual meeting. If any materials are provided by a shareholder in connection with the nominationrecommendation of a director candidate, such materials are forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee also reviews materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a shareholder. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.
Director Resignation Policy
In April 2011, upon the recommendation of the Nominating and Governance Committee, the Board approved the adoption of a new Director Resignation Policy, which has been incorporated into the Company’s Governance Guidelines. The policy provides that any nominee for director in anon-contested election of directors who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee. The Nominating and Governance Committee (excluding the nominee in question if a member thereof) shall evaluate such offer of resignation in light of the best interests of the Company and its shareholders and shall recommend to the Board the action to be taken with respect thereto. The Board shall then act promptly with respect to the letter of resignation and the Company shall publicly disclose the decision of the Board.
Board Leadership Structure
The Company’s Governance Guidelines provide that the Board should be free to determine, in any manner that it deems best for the Company from time to time, whether the roleroles of Chairman of the Board and Chief Executive Officer (“CEO”) should be separate. From the time that the Company became public in 1996 until August 2015,Since 2007, the roles of Chairman of the Board and CEO were always performed by one or both ofChief Executive Officer have been separate, except for a brief period between February 2, 2019 and February 19, 2019 when Mr. Maurice Marciano a founder of the Company in 1981, and Paul Marciano, a senior executive of the Company since just two months after its inception. On August 1, 2015, Victor Herrero became the first non-Marciano CEO in the Company’s history, Paul Marciano transitioned from his prior roleserved as CEO and Vicebothnon-executive Chairman of the Board to his current roleand Interim Chief Executive Officer (pending the effective start date for Carlos Alberini as the Company’s new Chief Executive Chairman and Chief Creative Officer, andOfficer). Currently, Mr. Maurice Marciano transitioned from his prior roleserves as the Company’snon-executive Chairman of the Board to his current roleand
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Mr. Alberini serves as Chairman Emeritus and member of the Board.Company’s Chief Executive Officer. The Board believes that this is currently the most effective leadership structure for the Company, striking an appropriate balance between strong and consistent leadership and independent and effective oversight of the Company’s business and affairs.
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To further promote the independent and effective oversight of the Board and management, the Board has appointed a Lead Independent Director, currently Alex Yemenidjian, to facilitate free and open discussion and communication among the Independent Directors. The Lead Independent Director presides at all executive sessions of the Board at which only Independent Directors are present. These executive sessions are held to discuss various issues and matters of concern to the Board, including the effectiveness of management, the Company’s performance and the Company’s strategic plans. The executive sessions are generally held in conjunction with the regularly scheduled quarterly meetings of the Board, but may be called at any time by our Lead Independent Director or any of our other Independent Directors. Our Lead Independent Director typically sets the agenda for these executive sessions with input from the other Independent Directors and discusses issues that arise from those sessions with our Chairman of the Board, Chief Executive Chairman, CEOOfficer or other members of management, as appropriate.
The Company also has strong corporate governance structures and processes that are intended to ensure that its Independent Directors will continue to effectively oversee key issues such as strategy, risk and integrity. Each of the committees of the Board is composed solely of Independent Directors. Consequently, Independent Directors oversee such critical matters as the integrity of the Company’s financial statements, the compensation of senior executives, liquidity and capital resource allocation, the selection and evaluation of directors, and the development and implementation of corporate governance programs. Board committees hold independent sessions among their members, without management present, to discuss issues and matters of concern to the committees.
Risk Oversight
The Board executes its risk oversight responsibility for risk management directly and through its committees. Although management is responsible for theday-to-day management of risk, throughout the year the Board regularly discusses and assesses significant risks and mitigation strategies with management. The Board and its appropriate committees consider risks associated with our business plans, operational efficiencies, strategic objectives, investment opportunities, financial reporting, capital structure, cybersecurity, information system infrastructure and controls and others. For instance, the Audit Committee, which is generally responsible for oversight of financial reporting risks, reviews an annual risk assessment prepared by the internal audit department, which identifies strategic, operational and internal control risks, and informs the internal audit plan for the next fiscal year. The Nominating and Governance Committee, on the other hand, oversees and advises the Board with respect to the Company’s positions and practices regarding significant corporate governance risks.ESG (environmental, social and governance) risks, including oversight for the Company’s global sustainability planning andbi-annual Corporate Sustainability Report. Information about the Corporation’s sustainability efforts is available online at http://sustainability.guess.com, which provides information on the Company’s policies, social impact and environmental programs, as well as sustainability strategy, data and reporting. The information contained on, or that may be accessed through, the Company’s websites is not incorporated by reference into, and is not a part of, this Proxy Statement.
In addition, the Compensation Committee and management consider, in establishing and reviewing our compensation arrangements for executives and other employees, whether these arrangements encourage unnecessary or excessive risk taking and we believe that they do not. In particular, our executive compensation program reflects a balanced approach using a mix of different compensation elements without putting an undue emphasis on a single element or applicable performance measure. Base salaries are set at levels that are intended to avoid excessive fixed costs while simultaneously providing sufficient guaranteed annual income to mitigate incentives for executive’s to pursue overly risky business strategies in order to maximize short-term variable compensation. While annual bonus opportunities for our named executive officers generally include a
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pre-established, objective measure of performance for the applicable year, the Compensation Committee retains the ability to adjust the incentives based on its assessment of such other factors as it deems appropriate, and in all cases subject to an applicable maximum level. The Compensation Committee also has discretion to set the appropriate equity award grant levels each year (within any applicable maximum). The Compensation Committee’s ability to exercise discretion in making these determinations helps ensure that there is a clear linkage between pay and performance over both the short- and long-term, and that performance is evaluated based on both the absolute results and the manner in which the results were achieved.
Because equity awards make up a substantial portion of each of our executive’s total compensation opportunity, there is a strong alignment between executives’ interests and those of our shareholders. We believe
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that these awards do not encourage unnecessary or excessive risk taking because the ultimate value of the awards is tied to our stock price, because grants are subject to long-term vesting schedules to help ensure that executives always have significant value tied to long-term stock price performance, and because we utilize multiple performance measures for our equity awards subject to performance-based vesting requirements. For example, ourthe equity awardsaward granted to Mr. Paul Marciano and Mr. Herrero in fiscal 2018 include2020 is a restricted stock units with performance-based vesting requirements withunit award that will not become eligible to vest unless the performance-based measures includingCompany achieves certain performance thresholds tied to the Company’s licensing segment earnings from operations and the Company’s earnings from operations. Additionally, Mr. Alberini received a three-year relativerestricted stock unit award in fiscal 2020 that will not become eligible to vest unless the Company’s total shareholder return (“TSR”) measure for one of the awards, three-year revenue and operating income measures for one of the awards, andexceeds a third award with a measure based on licensing earnings (for Mr. Paul Marciano’s award) or revenues excluding net royalties (for Mr. Herrero’s award).threshold amount.
Potential risks are also mitigated by the significant amounts of our Common Stock that are owned or beneficially owned by Messrs. Maurice and Paul Marciano and, as outlined in the “Compensation Discussion and Analysis” section below, our stock ownership guidelines and compensation “clawback policy” applicable to certain senior executives.
Communications with the Board
You may communicate with the Board by submitting ane-mail to the Company’s Board atbod@guess.com. All directors have access to thise-mail address. Communications from shareholders or any other interested parties that are intended specifically fornon-management directors should be sent to thee-mail address above to the attention of the Lead Independent Director.
Governance Guidelines and Committee Charters
The Company’s Governance Guidelines, which satisfy the NYSE’s listing standards for “corporate governance guidelines,” as well as the charters for each of the committees of the Board, are available athttp://investors.guess.com. Any person may request a copy of the Company’s Governance Guidelines or the charter of any of the committees of the Board, at no cost, by writing to us at the following address: Guess?, Inc., Attn: General Counsel, 1444 South Alameda Street, Los Angeles, California 90021.
Code of Ethics
The policies comprising our code of ethics are set forth in the Company’s Code of Ethics (the “Code of Ethics”). These policies satisfy the NYSE’s and the SEC’s requirements for a “code of ethics,” and apply to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer and controller) and employees. The Code of Ethics is published on our website athttp://investors.guess.com. Any person may request a copy of the Code of Ethics, at no cost, by writing to us at the following address: Guess?, Inc., Attn: General Counsel, 1444 South Alameda Street, Los Angeles, California 90021. To the extent required by rules adopted by the SEC and the NYSE, we intend to promptly disclosure future amendments to certain provisions of the Code of Ethics, or waivers of such provisions granted to executive officers and directors, on our investor website.
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Anti-Hedging Policy
The Company does not have a separate written policy prohibiting hedging transactions. Instead, the Company has a practice of reviewing and restricting, as appropriate, hedging transactions as part of its overall program for reviewing employee and director trading in Company securities. That program is governed by the Company’s written Securities Trading Policy and Restrictions, which generally prohibits insiders with materialnon-public information from engaging in transactions in Company stock, including purchases, sales or any other change in ownership, including gifts, loans, pledges or hedges, or other transfers.
Indemnification of Directors
The General Corporation Law of the State of Delaware provides that a company may indemnify its directors and officers as to certain liabilities. The Company’s Restated Certificate of Incorporation and Third Amended and Restated Bylaws provide for the indemnification of its directors and officers to the fullest extent permitted by law, and the Company has entered into separate indemnification agreements with certain directors and officers to effectuate these provisions and has purchased directors’ and officers’ liability insurance. The effect of such provisions is to indemnify, to the fullest extent permitted by law, the directors and officers of the Company against all costs, expenses and liabilities incurred by them in connection with any action, suit or proceeding in which they are involved by reason of their affiliation with the Company.
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EXECUTIVE AND DIRECTOR COMPENSATION
The Compensation Committee of the Board of Directors is responsible for establishing and governing the executive compensation and benefit practices of the Company. The Compensation Committee reviews and approves the general executive compensation policies of the Company, administers certain of the Company’s compensation plans, and reviews and approves compensation of the executive officers of the Company. The Compensation Committee Charter requires that the Compensation Committee consist of no fewer than two Board members who satisfy the independence requirements of the NYSE, including such additional requirements specific to membership on the Compensation Committee. At all times duringDuring fiscal 2018,2020, the Compensation Committee consisted of fourthree Board members each of whom the Board affirmatively determined satisfied these independence requirements. The Compensation Committee may form and delegate authority to subcommittees when appropriate, although the Compensation Committee did not delegate its authority to any subcommittee in fiscal 2018.2020.
The Compensation Committee Charter sets forth the purpose of and other matters pertaining to the Compensation Committee. The Compensation Committee Charter is available on the Company’s website athttp://investors.guess.com. Pursuant to its Charter, the Compensation Committee’s responsibilities and authorities include the following:
review and approve the corporate goals and objectives relevant to the compensation of the Chief Executive Officer and other officers of the Company;
evaluate the Chief Executive Officer’s performance in light of such goals and objectives;
set officers’ compensation levels, including base salary, annual incentive opportunities, long-term incentive opportunities and benefits;
review and approve employment, consulting, severance or retirement arrangements and/or change in control agreements or provisions covering any current or former officers of the Company;
review and recommend to the Board appropriate director compensation programs fornon-employee directors;
review its own performance and assess the adequacy of its Charter;
approve stock option grants and other equity-based or incentive awards;
the authority to retain and terminate any compensation consultant or other advisor used to assist in the evaluation of officer or director compensation, including to approve the advisor’s fees and other retention terms; and
produce a report of the Compensation Committee and review and recommend to management the inclusion of the Compensation Discussion and Analysis section to be included in the Company’s annual proxy statement.
The Company’s executive compensation programs are determined and approved by the Compensation Committee. Our Chief Executive Officer recommends to the Compensation Committee salary, cash incentive awards, equity-based awards and long-term compensation levels for less senior executives, including the other Named Executive Officers (other than for Mr. Paul Marciano). At the direction of the Compensation Committee, other members of management furnish financial, performance and other information relevant to setting performance goals and certifying results. The Compensation Committee is, however, solely responsible for making the final decisions on compensation for theall Named Executive Officers. Other members of management, including any other Named Executive Officers, (as defined under “Compensation Discussion and Analysis” below). do not currently have any role in determining or recommending the form or amount of compensation paid to our Named Executive Officers.
While the Compensation Committee reviews and makes recommendations regarding compensation paid to thenon-employee directors, the compensation for these directors is ultimately determined by the Board. Equity
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awards to all employees, including all officers subject to Section 16 of the Exchange Act, are made by the Compensation Committee. During fiscal 2018,2020, the Compensation Committee met sixfive times and took action by written consent sevensix times.
As indicated above, pursuant to its Charter, the Compensation Committee is authorized to retain and terminate any compensation consultant engaged to assist in the evaluation of the compensation of our officers (including all of the Named Executive Officers). The Compensation Committee has engaged Frederic W. Cook & Co., Inc. (“FW Cook”) as its compensation consultant. As described below under “Compensation Discussion and Analysis—The Role of the Independent Compensation Consultant,” the Compensation Committee has determined that FW Cook is independent and that its services do not raise any conflict of interest with the Company or any of its executive officers or directors.
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Non-Employee Director Compensation—Fiscal 20182020
Compensation for individuals who were members of our Board of Directors at any time during fiscal 20182020 and who were not also our employees (referred to herein as “Non-Employee“Non-Employee Directors”) generally consisted of annual retainers, fees for attending meetings and equity awards. The compensation paid to Mr. Paul Marciano and Mr. Herrero,Alberini, directors who also served as executive officers of the Company during fiscal 2018,2020, is presented below in the “Summary Compensation Table” and the related explanatory tables covering compensation paid to certain of our executive officers.tables. While employed by the Company, employee-directorsMessrs. Paul Marciano and Alberini are not entitled to receive additional compensation for their services as directors. Mr. Maurice Marciano served as our Interim Chief Executive Officer from February 2, 2019 to February 19, 2019. He did not receive any additional compensation for his service as an executive officer and all his compensation for fiscal 2020 was paid in connection with his role as a director and is reflected in the table below. The following table presents information regarding the compensation paid to ourNon-Employee Directors with respect to fiscal 2018.2020.
Name | Fees Earned or Paid in Cash($) | Stock Awards ($)(1) | All Other Compensation($) | Total($) | Fees Earned or Paid in Cash($) | Stock Awards ($)(1) | All Other Compensation($) | Total($) | ||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (b) | (c) | (d) | (e) | ||||||||||||||||||||||||||||
Maurice Marciano | 45,500 | 179,849 | — | 225,349 | 41,000 | 179,902 | — | 220,902 | ||||||||||||||||||||||||||||
Gianluca Bolla | 62,000 | 179,995 | — | 241,995 | 60,500 | 179,994 | — | 240,494 | ||||||||||||||||||||||||||||
Anthony Chidoni | 86,500 | 179,849 | — | 266,349 | 83,500 | 200,806 | — | 284,306 | ||||||||||||||||||||||||||||
Joseph Gromek | 59,000 | 179,849 | — | 238,849 | ||||||||||||||||||||||||||||||||
Kay Isaacson-Leibowitz | 71,500 | 179,849 | — | 251,349 | ||||||||||||||||||||||||||||||||
Alex Yemenidjian | 84,000 | 179,849 | — | 263,849 | ||||||||||||||||||||||||||||||||
Laurie Ann Goldman | 61,000 | 179,902 | — | 240,902 | ||||||||||||||||||||||||||||||||
Joseph Gromek(4) | 22,847 | 179,902 | — | 202,749 | ||||||||||||||||||||||||||||||||
Cynthia Livingston(5) | 25,000 | — | — | 25,000 | ||||||||||||||||||||||||||||||||
Deborah Weinswig | 45,500 | 179,902 | — | 225,402 | ||||||||||||||||||||||||||||||||
Alex Yemenidjian(3) | 106,000 | 210,788 | — | 316,788 |
(1) | The amounts reported in Column (c) reflect the aggregate grant date fair value of stock awards granted in fiscal |
On January 30, 2017,February 4, 2019, the Company granted each of our then-servingNon-Employee Directors, other than GianlucaMessrs. Bolla, Chidoni and Yemenidjian, an annual award of 14,6109,174 shares of restricted stock. Messrs. Chidoni and Yemenidjian were granted awards of 10,240 and 10,749 of restricted stock, respectively. See footnote (3) below for an explanation of the additional restricted stock awards granted to Messrs. Chidoni and Yemenidjian. Mr. Bolla (who is anon-U.S. resident) was granted an annual award of 14,6109,174 restricted stock units. Each of the restricted stock awards (except for the awards granted to Messrs. Bolla, Chidoni and Yemenidjian) had a grant date fair value equal to $179,849,$179,902. The restricted stock awards granted to Messrs. Chidoni and Yemenidjian had a grant date fair value equal to $200,806 and $210,788, respectively, and the
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restricted stock unit award forgranted to Mr. Bolla had a grant date fair value equal to $179,995.$179,994. See the preceding paragraph regarding the grant date fair value of these awards.
The following table presents the number of shares of our common stock subject to outstanding and unexercised option awards and the number of shares of our common stock subject to unvested stock awards held by each of ourNon-Employee Directors as of February 3, 2018.1, 2020.
Director | Number of Shares Subject to Outstanding and Unexercised Option Awards | Number of Shares Subject to Outstanding and Unvested Stock Awards | ||||||||
Maurice Marciano | 100,475 | 9,174 | ||||||||
Gianluca Bolla | — | 9,174 | ||||||||
Anthony Chidoni | — | 10,240 | ||||||||
Laurie Ann Goldman | — | 9,174 | ||||||||
Joseph Gromek | — | — | ||||||||
Cynthia Livingston | — | — | ||||||||
Deborah Weinswig | — | 9,174 | ||||||||
Alex Yemenidjian | — | 10,749 |
(2) | ||||||||
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Mr. Maurice Marciano served as our Interim Chief Executive Officer from February 2, 2019 to February 19, 2019. He did not receive any additional compensation for service as an executive officer and all his compensation received in fiscal 2020 from the Company was paid in connection with his role as a director and is reflected in the table above. | ||||||||
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(3) | As described under “Annual Retainer and Meeting Fees” below, there is a cap on the maximum cash compensation that aNon-Employee Director may receive during each fiscal year, and any amounts above the cash compensation cap will be paid in the form of restricted stock in the following fiscal year. In fiscal 2019, Messrs. Chidoni and Yemenidjian had excess cash retainer or meeting fees above the annual limit of $20,917 and $30,908, respectively. As a result, Messrs. Chidoni and Yemenidjian received additional restricted stock awards in fiscal 2020 with grant date values approximately equal to the amount of their excess cash compensation from fiscal 2019. |
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(4) | Mr. Gromek did not stand for reelection to our Board of Directors at our 2019 annual meeting, thus his service on our Board of Directors ended on June 10, 2019. In connection with his separation from service at the end of his term, his outstanding and unvested restricted stock awards vested in accordance with the terms of the awards. |
(5) | Ms. Livingston was elected to the Board effective June 10, 2019. |
Annual Retainer and Meeting Fees
The following schedule of annual retainers and meeting fees was used to determine the cash compensation paid to each of ourNon-Employee Directors for their service during fiscal 2018:2020:
Type of Fee | Dollar Amount($) | |||||
Annual Board Retainer | 35,000 | |||||
Additional Annual Retainer to Lead Independent Director | 25,000 | |||||
Additional Annual Retainer to Chair of Audit Committee | 20,000 | |||||
Additional Annual Retainer to Chair of Compensation Committee | 17,500 | |||||
Additional Annual Retainer to Chair of Nominating and Governance Committee | 12,500 | |||||
Additional Monthly Retainer to Chair of a Designated Special Committee | 10,000 | |||||
Additional Monthly Retainer to Member of a Designated Special Committee | 8,000 | |||||
Additional Attendance Fee per Standing Committee Meeting Attended | 1,500 | |||||
Additional Attendance Fee per Board Meeting Attended | 1,500 |
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AllNon-Employee Directors are eligible to defer up to 100% of their annual retainer and meeting fees under the Company’sNon-Qualified Deferred Compensation Plan, as more fully described below under “—Compensation“Compensation Discussion andAnalysis—Non-Qualified Deferred Compensation Plan.” AllNon-Employee Directors are also reimbursed forout-of-pocket expenses they incur in serving as directors.
Pursuant to the terms of the amended and restated Guess?, Inc.Non-Employee Directors’ Compensation Plan, as amended (the “Director Plan”), the maximum cash compensation that may be paid to aNon-Employee Director in any one fiscal year is $125,000 and the maximum restricted stock/stock unit award that may be granted to aNon-Employee Director in any one fiscal year is $275,000. To the extent that aNon-Employee Director is entitled to retainer and meeting fees based on the fee schedule set forth above in excess of $125,000 in any one fiscal year, the excess amount will not be paid but will be added to the annual restricted stock or restricted stock unit award granted to the director in the following year (subject to the $275,000 limit on annual restricted stock awards).
Equity Awards
OurNon-Employee Directors are granted equity awards under the amended and restated Guess?, Inc. Director Plan. EachNon-Employee Directors’ Compensation Plan (the “Director Plan”). Each Non-Employee Director who has not been an employee of the Company at any time during the immediately preceding 12 months is entitled to receive an award of a number of shares of restricted sharesstock (or restricted stock units fornon-U.S. residents) equal in value to $180,000 on the first business day of each fiscal year. In the case of restricted shares,stock, the award recipient is required to pay a purchase price of $0.01 per share. The number of shares of restricted sharesstock or restricted stock units awarded is determined by dividing the applicable dollar amount by the closing price of a share of Common Stock on the NYSE on the date of grant and rounding down to the nearest whole share.
Subject to continued service, each restricted stock or restricted stock unit award granted under the Director Plan becomes vested andnon-forfeitable as to 100% of the shares or units subject to such award on the first to occur of (i) the first year anniversary of the date of grant or (ii) a termination of service if theNon-Employee Director has completed a full term of service and he or she does not stand forre-election at the completion of such term.Non-Employee Directors are entitled to voting and dividend rights with respect to the restricted shares.stock. In the event of a “change in control” of the Company (as defined in the Director Plan), all shares of restricted sharesstock and restricted stock units granted to ourNon-Employee Directors will, to the extent that the awards are then outstanding, vest 100% free of restrictions as of the date of the change in control. Unless otherwise determined by the Board, if aNon-Employee Director’s service as a director terminates for any reason other than a termination in the circumstances described above, any restricted sharesstock or restricted stock units granted to theNon-Employee Director that are not fully vested and free from restriction as of the director’s termination of service will automatically be forfeited and returned to the Company.
Non-Employee Directors are subject to the Company’s Stock Ownership Guidelines, as described in more detail under “Compensation Discussion and Analysis—Stock Ownership Guidelines” below.
Maurice Marciano Retirement
After serving for over 30 years as an executive and leader for Guess,co-founder Maurice Marciano retired from his position as executive Chairman of the Board and as an employee of the Company upon the expiration of his employment agreement on January 28, 2012. Effective June 2018, Mr. Maurice Marciano continues to servebegan serving asnon-executive Chairman of the Board (after previously serving as Chairman Emeritus and member of the Board,Emeritus), for which he is eligible to receive the compensation provided to the Company’s
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Non-Employee Directors, as described above. From February 2, 2019 to February 19, 2019, Mr. Maurice Marciano also served as the Company’s Interim Chief Executive Officer. He did not receive any additional compensation for serving in this role. In addition, as required by the terms of his previous employment agreement, Mr. Maurice Marciano is entitled to receive
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lifetime retiree and family medical coverage. Mr. Maurice Marciano is also entitled to his fully vested benefits (based on his prior employment) pursuant to the standard terms of the Company’s Supplemental Executive Retirement Plan, Deferred Compensation Plan and 401(k) Plan.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Company’s executive compensation program, including a description of the Company’s compensation philosophies and objectives and a discussion of the material elements of compensation awarded to, earned by or paid to the following executive officers, referred to in this Proxy Statement as the “Named Executive Officers,” for their service in fiscal 2018:2020:
Paul Marciano, Executive Chairman and Chief Creative Officer;
Carlos Alberini, Chief Executive Officer; and
Maurice Marciano, Former Interim Chief Executive Officer;
Kathryn Anderson, Chief Financial Officer; and
Sandeep Reddy, Former Chief Financial Officer.
Shareholder Engagement
The Compensation Committee valuesMr. Maurice Marciano served as the input of our shareholders regardingCompany’s Interim Chief Executive Officer from February 2, 2019 to February 19, 2019. He did not receive any additional compensation for serving in this role. Carlos Alberini commenced employment as the designCompany’s Chief Executive Officer, and effectiveness of our executive compensation program. Shareholders overwhelmingly approved of our executive compensation program for fiscal 2017, with over 91%a member of the votes on our advisory “say-on-pay” shareholder vote at our 2017 annual meeting of shareholders cast in favor of our executive compensation program. As in prior years, the Chairperson of the Compensation Committee continued his dialogueBoard, effective February 20, 2019.
Mr. Reddy’s employment with our shareholders in 2017, speaking directly with investors representing an estimated 45% of the issued and outstanding shares of our Common Stock held by persons other than insiders. Based in part on these conversations, the Compensation Committee decided to continue the structure of our fiscal 2017 executive compensation program in fiscal 2018 and to continue to emphasize pay-for-performance, including through the use of robust three-year goals linked to operating earnings and revenues, as well as relative TSR measured over a three-year period. In addition, at our 2017 annual meeting of shareholders, shareholders had the opportunity to cast an advisory vote on the frequency of future say-on-pay votes and, as recommended by the Board, voted for an annual say-on-pay vote. Following the shareholder vote, the Board determined that the Company will hold an annual say-on-pay shareholder vote.
terminated December 1, 2019. The Compensation Committee considers shareholder engagementterms of his Separation and Release Agreement are discussed below under “Separation Agreement with Mr. Reddy.” Ms. Anderson commenced employment as the Company’s Chief Financial Officer effective December 2, 2019. The terms of Ms. Anderson’s offer letter and the equity awards granted to be an important parther in connection with her employment are discussed below under “Description of its decision making processEmployment Agreements” and plans to continue its outreach efforts in order to stay abreast of shareholder perspectives.“Long Term Equity Incentive Awards.”
Overview of Fiscal 20182020 Results and Executive Compensation Actions
Fiscal 20182020 Results
TheFiscal 2020 was a strong year for our Company entered fiscal 2018 with a boldas we increased revenues, achieved significant earnings growth, strategy for Europehad meaningful operating margin expansion and Asiastrengthened our cash position. Our results highlighted the benefits of our global reach, our diversified business model and a focus on improving profitability in the Americas. Underlying these strategies were the five key initiatives previously identified by Mr. Herrero when he arrived at the Company in July 2015 and that remain at the corestrength of management’s overall approach to drive shareholder value:
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Management’s focus on these strategies and initiatives helped deliver strong results for the Company in fiscal 2018 and provide a foundation for continued progress moving forward.our brand. Specifically, in fiscal 2018,2020: (1) the Company’s total Company net revenue increased 8%3% over the prior year (5% in constant currency) to $2.36$2.68 billion, driven by 27%on top of 10% revenue growth in Europe (21%fiscal 2019 (11% in constant currency) and 24% growth; (2) adjusted earnings from operations increased 30% to $150.2 million, after a 32% increase in Asia (22% in constant currency), two areas of focus for the Company. In addition,fiscal 2019; (3) adjusted net earnings increased 51%31% to $105.0 million, after a 37% increase in fiscal 2018, to $58.4 million, and2019; (4) adjusted diluted earnings per share increased 52%48% to $1.45, after a 40% increase in fiscal 2018,2019 and (5) net cash provided by operating activities was $197.9 million, an increase of $116.2 million compared to $0.70.$81.7 million in fiscal 2019, driven by improved operating performance and better management of inventories and working capital. On a GAAP basis, the Company reported a net lossearnings from operations of $7.9$140.7 million for fiscal 2018,2020, compared to $52.2 million in fiscal 2019, net earnings of $96.0 million for fiscal 2020, compared to net earnings of $22.8$14.1 million in fiscal 2017,2019, and diluted lossearnings per share of $0.11$1.33 for fiscal 2018,2020, compared to diluted earnings per share of $0.27 in$0.16 for fiscal 2017. From a balance sheet perspective, the Company ended fiscal 2018 with cash and cash equivalents of $367 million and continued to demonstrate a commitment to delivering value to shareholders by returning $126 million in the form of dividends and share repurchases during fiscal 2018.2019. Please see “Non-GAAP“Non-GAAP Measures” on pages 45 and 4643-45 of the Company’s Fiscal 20182020 Annual Report on Form10-K and pages40-42 of the Company’s Fiscal 2019 Annual Report on Form10-K for additional information regarding the Company’s disclosure of certainnon-GAAP financial information, including constant currency information contained herein.
The increase in European revenues in fiscal 2018 was driven by the continued momentum from the successful implementation of the Company’s strategic initiative to elevate the quality of its sales and merchandising organization. The Company experienced strong comparable store sales and continued to expand its retail presence in the region. The European e-commerce business has experienced rapid growth and is now approaching the size of the e-commerce business in the Americas. In addition, the European wholesale business continues to see strong results.
In Asia, the Company continues to strengthen its retail presence with the opening of stores across the region. At the same time, the Company has experienced significant e-commerce growth in the region, especially in China. In this market alone, the e-commerce business could be as large as the Company’s U.S. e-commerce business within a few years. Management’s strategic initiative to build a major business in Asia has been a positive driver for the Company as demonstrated by ending the year with five consecutive quarters of margin expansion in Asia.31
Profits in the Americas Retail segment have benefited from the Company’s strategic initiative to improve its cost structure by closing unprofitable stores and negotiating better lease terms and from the Company’s strategic initiatives in supply chain and inventory management. Management believes that the Company’s continued celebrity partnerships, together with a focus on the initiative to elevate the sales and merchandising organization, will lead to continued improvement in sales in the Americas over time. It also believes that the profitability of the Americas Retail segment will continue to benefit from the Company’s cost reduction and margin improvement initiatives.
As the Company enters fiscal 2019, management is excited about the overall direction of the business and the opportunities ahead as it continues to focus on the strategic initiatives outlined above.
Fiscal 20182020 Executive Compensation Actions
The highlights of the Company’s executive compensation program for fiscal 20182020 include:
Mr. Alberini become our Chief Executive Officer on February 20, 2019 pursuant to an employment agreement he entered into with the Company in January 2019. Ms. Anderson became our Chief Financial Officer on December 2, 2019 pursuant to an offer letter she entered into with the Company in October 2019. The terms of Mr. Alberini’s employment agreement and Ms. Anderson’s offer letter were negotiated in connection with their hiring. The material terms of the employment agreement and offer letter are summarized below under “Description of Employment Agreements” and “Potential Payments upon Termination or Change in Control.”
No changes were made to Messrs. Herrero orMr. Paul Marciano’s annual base salary for fiscal 2020, and his target annual cash incentive award and target annual equity award amounts were reduced for fiscal 2020 as compared to fiscal 2019. Prior to his separation from employment, no changes were made to Mr. Reddy’s annual base salary or target annual cash incentive award amounts for fiscal 2018.2020.
In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current Named Executive Officers agreed to a temporary reduction of their base salaries, with Messrs. Paul Marciano and a review of compensation levels for similar executive positions at the peer group of companies identified on page 35, the Compensation Committee increased Mr. Paul Marciano’s annual baseAlberini agreeing to reduce their salaries by 70% and Ms. Anderson agreeing to reduce her salary for fiscal 2018 to $950,000, which is still more than a third less than his annual base salary for fiscal 2016. Based on investor feedback and a review of executive compensation practices at the peer group of companies, the Compensation Committee reduced Mr. Paul Marciano’s target annual cash incentive amount for fiscal 2018 from 400% of base salary to 263% of base salary.by 30%.
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The equity award granted to Mr. Paul Marciano for fiscal 2020, and a portion of the equity awards granted to Mr. Paul Marciano and Mr. Herrero forAlberini in connection with his commencement of employment in fiscal 20182020, included performance-based vesting requirements.
Fifty percent of the restricted stock units subject to the award granted to Mr. Paul Marciano became eligible to vest based on the achievement of a threshold level of earnings from operations derived from the Company’s licensing segment for fiscal 2020, and the remaining fifty percent of the restricted stock units became eligible to vest based on the achievement of a threshold level of earnings from operations for fiscal 2020. These threshold performance levels were met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a three-year vesting period.
The restricted stock units granted to Mr. Alberini became eligible to vest based on the achievement of a threshold level of the Company’s total revenue for fiscal 2020. This threshold performance level was met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a four-year vesting period.
Based on a review of compensation levelsthe Company’s strong relative TSR for similar executive positions atthe three year period ended February 1, 2020 (at approximately the 87.5th percentile among the peer group of companies in April 2017used for these awards), the Compensation Committee increased Mr. Herrero’s target annual equity award beginning in fiscal 2018 from 150% of his annual base salary to 233% of his annual base salary.
For more information regarding how the fiscal 2018 compensation decisions and results described above translated into “realizable pay” for Mr. Paul Marciano and Mr. Herrero, see the additional disclosure below under the heading “—Realizable Compensation for CEO and Executive Chairman.”
Realizable Compensation for CEO and Executive Chairman
The realizable compensation amount for fiscal 2018 (determined as described below) for Mr. Herrero is less than his fiscal 2018 total compensation amount as reported in the “Summary Compensation Table” on page 48, principally because the final vesting, if any, of hisFiscal 2018 Relative TSR Award and 2018 LTIP Award will not be known until the end of fiscal 2020. As discussed below in this Compensation Discussion and Analysis,(as defined below) granted to Mr. Paul Marciano was awarded a restricted stock unit award invested at 150% of target. Based on the Company’s strong revenue performance for fiscal 2016 that was subject to a relative TSR measure over a three-year performance period consisting2020, the portion of the Company’s 2016, 2017 and 2018 fiscal years (the “2016 TSR Award”). As a result of the vesting of the 2016 TSR Award at the end of fiscal 2018 based on actual TSR performance for the performance period, Mr. Paul Marciano’s realizable compensation amount for fiscal 2018 (determined as described below) is greater than his fiscal 2018 total compensation amount as reported in the “Summary Compensation Table” on page 48.Fiscal
SEC rules require that all stock awards be reported in the Summary Compensation Table for the year in which they were granted to the Named Executive Officer based on their respective fair values determined at the time of grant of the awards, even if such awards were scheduled to vest in later years, and even if such awards were subsequently forfeited (such as, for example, because an applicable performance-based vesting condition was not satisfied). The following table shows the “realizable” compensation for fiscal 2018 for Mr. Herrero and
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Mr. Paul Marciano compared against each executive’s total compensation reported in the Summary Compensation Table for fiscal 2018. For these purposes, “realizable” compensation is determined in the same manner as total compensation is reported in the Summary Compensation Table, but adjusted to take into account (1) any performance-based equity awards granted during the fiscal year where the performance-based vesting results have not yet been determined, and (2) the change in the value of our Common Stock subject to other equity awards granted during the year. As the final vesting for the executives’ 2018 Relative TSR Awards and 2018 LTIP Awards will not be determined until the completion of fiscal 2020, fiscal 2018 realizable compensation for these executives does not include any value as to those awards. In addition, Mr. Herrero’s 2018 realizable compensation attributable to his 2018 Revenue Award and Mr. Paul Marciano’s 2018 realizable compensation attributable to his 2018 Licensing Award, is based on the value of the award at the end of fiscal 2018. The values of these awards are included because the applicable performance-based vesting conditions were satisfied during fiscal 2018. Consistent with the intent that equity awards align our executives’ interests with those of our shareholders, the value of the shares of our Common Stock subject to both Mr. Herrero’s 2018 Revenue Award and Mr. Paul Marciano’s 2018 Licensing Award at the end of fiscal 2018 (plus dividend equivalents attributable to those shares with respect to fiscal 2018) wasmore than the value of the same number of shares at the time the awards were originally granted. No equity award granted prior to fiscal 2018 to Mr. Paul Marciano or to Mr. Herrero that included performance-based vesting conditions became eligible to vest in fiscal 2018 because the performance conditions were satisfied in that year, other than Mr. Paul Marciano’s 2016 TSR Award. Accordingly, the realizable compensation in the table below includes the value of Mr. Paul Marciano’s 2016 TSR Award at the end of fiscal 2018 and does not include any value for any other equity awards granted prior to fiscal 2018.
As shown in the CEO and Executive Chairman Realizable Compensation Table below, Mr. Herrero’s total realizable compensation calculated in this manner was $6,761,035 for fiscal 2018, which is $1,882,530less than his fiscal 2018 total compensation as required to be disclosed in the Summary Compensation Table and, because of the vesting of his 2016 TSR Award, Mr. Paul Marciano’s total realizable compensation calculated in this manner was $10,818,273 for fiscal 2018, which is $2,398,178 more than his fiscal 2018 total compensation as required to be disclosed in the Summary Compensation Table. The table below supplements, and should be read in connection with, the Summary Compensation Table.
CEO and Executive Chairman Realizable Compensation Table—Fiscal 2018
Name and Principal Position | Fiscal Year | Salary ($) | Bonus/ Non-Equity Incentive Plan Compensation ($) | Stock Awards ($)(1) | All Other Compensation ($) | Total Realizable Compensation ($) | Total Compensation as Reported in the Summary Compensation Table ($) | Difference Between Total Realizable Compensation and Total Compensation as Reported in Summary Compensation Table ($) | ||||||||||||||||||||||||
Victor Herrero | 2018 | 1,200,000 | 3,600,000 | 1,917,488 | 43,547 | 6,761,035 | 8,643,565 | (1,882,530 | ) | |||||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||||||||||
Paul Marciano | 2018 | 950,000 | 3,747,750 | 5,868,201 | 252,322 | 10,818,273 | 8,420,095 | 2,398,178 | ||||||||||||||||||||||||
Executive Chairman and Chief Creative Officer |
2018 LTIP Award (defined below) granted to Mr. |
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For Mr. Paul Marciano, the dollar amount shown in this column is equal to the fiscal 2018 year-end values of his 2018 Licensing and 2016 TSR Awards. The fiscal 2018 year-end value of his 2018 Licensing Award is the product of (1) the number of shares of Company Common Stock subject to the 2018 Licensing Award as of February 3, 2018, multiplied by (2) $15.285 (which is the sum of (a) $14.61, the closing market price of the Company’s Common Stock on February 2, 2018, the last trading day of fiscal 2018, plus (b) $0.675, the aggregate cash value of the dividends paid by the Company on a share of its Common Stock from the time of grant until the end of fiscal 2018, which are being taken into account since Mr. Paul Marciano is entitled to dividend equivalents on the shares subject to his 2018 Licensing Award). The fiscal 2018 year-end value of the 2016 TSR Award is the product of (1) the number of shares of Company Common Stock subject to that award as of February 3, 2018, multiplied by (2) $17.085 (which is the sum of (a) $14.61, the closing market price of the Company’s Common Stock on February 2, 2018, the last trading day of fiscal 2018, plus (b) $2.475, the aggregate cash value of the dividends paid by the Company on a share of its Common Stock from the time of grant until the end of fiscal 2018, which are being taken into account since Mr. Paul Marciano is entitled to dividend equivalents on the shares subject to his 2016 TSR Award).
Executive Compensation Program Philosophies and Objectives
The Company’s executive compensation programs are intended to achieve three fundamental objectives: (1) attract, motivate and retain qualified executives; (2) hold executives accountable for performance; and (3) align executives’ interests with those of our shareholders. In structuring the Company’s current executive compensation programs, we are guided by the following basic philosophies:
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• | Pay for Performance.A substantial portion of compensation should be tied to performance. |
• | Alignment with Shareholder Interests.A substantial portion of compensation should be in the form of equity awards that vest over a |
We also believe shareholder interests are further served by other executive compensation-related practices that we follow. These practices include:
We do not have minimum award levels under our Annual Incentive Bonus Plan or minimum required vesting levelsearnouts for our equity awards with performance-based vesting requirements.
We do not provide excise taxgross-ups on change in control payments.
We do not reprice “underwater” stock options (stock options where the exercise price is above the then-current market price of our stock) without shareholder approval.
Members of our senior management team, and all of our directors, are subject to stock ownership guidelines, which include stock holding requirements for individuals who have not satisfied the guideline level of ownership.
We have a policy to limit the amount of Company shares that a director or executive officer of the Company may pledge or otherwise use as security for a loan, margin account or similar arrangement to no more than 50% of the Company shares beneficially owned by such person after meeting his or her applicable stock ownership guidelines.
We have a “clawback” policy pursuant to which the Board or the Compensation Committee may require reimbursement or cancellation of cash and equity incentive compensation in certain circumstances if the awards are linked to financial results that are subsequently revised.
Our Compensation Committee retains an independent compensation consultant for independent advice and market data.
Consistent with our compensation philosophies described above, our goal for fiscal 20182020 was to provide each Named Executive Officer with a total compensation opportunity that was competitive in light of the compensation provided to comparable executives at our peer group companies and that appropriately reflectedreflects individual and Company performance in fiscal 2018.performance.
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The Role of the Compensation Committee and Management
The Company’s executive compensation programs are determined and approved by the Compensation Committee. Our Chief Executive Officer recommends to the Compensation Committee salary, cash incentive awards, equity-based awards and long-term compensation levels for less senior executives, including the other Named Executive Officers (other than for Mr. Paul Marciano). At the direction of the Compensation Committee, other members of management furnish financial, performance and other information relevant to setting performance goals and certifying results. The Compensation Committee is, however, solely responsible for making the final decisions on compensation for all Named Executive Officers. Other members of management, including any other Named Executive Officers, do not currently have any role in determining or recommending the form or amount of compensation paid to our Named Executive Officers.
The Role of the Independent Compensation Consultant
As indicated above, the Compensation Committee has engaged FW Cook as its independent compensation consultant. During fiscal 2018,2020, FW Cook assisted the Compensation Committee (1) in aits review of executive compensation levels including in its selection of the peer group of companies identified below and assembling and analyzing competitive compensation data for the peer group of companies;select positions; (2) in its shareholder outreach efforts concerning executive compensation matters; and (3) in the designits evaluation of the Company’s fiscal 2018 cash incentive andcertain long-term incentive award structurestructures for executives; and (4) with the development of the shareholder proposal contained in the 2017 proxy statement for the amendment and restatement of the Guess?, Inc. 2004 Equity Incentive Plan.executives.
The services performed by FW Cook for the Company have been exclusively limited to compensation consulting services performed at the request of the Compensation Committee. FW Cook does not undertake any work for the Company at the direction of the Company’s management or other employees, although the consultant communicates with management from time to time to obtain information necessary to advising the Compensation Committee. The Compensation Committee has determined that FW Cook is independent and that its services do not raise any conflict of interest with the Company or any of its executive officers or directors.
The peer group used to inform the Compensation Committee’s judgment in setting executive compensation levels for fiscal 20182020 was initially established prior to fiscal 2020 by the Compensation Committee, taking into account the advice of FW Cook and input from management. In selecting the peer companies, made up of publicly-traded retail apparel and accessories companies, the Compensation Committee considered factors such as the size and business models of each company, as well as whether such companies may compete with Guess for executive talent. The companies that comprised the peer group for fiscal 20182020 were:
Abercrombie & Fitch Co. | Michael Kors Holdings Limited | |
American Eagle Outfitters, Inc. | ||
New York & Company, Inc. | ||
Chico’s FAS, Inc. | PVH Corp. | |
The Children’s Place, Inc. | Ralph Lauren Corporation | |
Deckers Outdoor Corp. | Tapestry, Inc. | |
Express, Inc. | Urban Outfitters, Inc. | |
Fossil Group, Inc. |
The peer group for fiscal 20182020 was the same as the peer group for the prior year, except for the removal of Aéropostale, Inc., ANN INC. and Quiksilver, Inc., eachKate Spade & Company, as a result of which was no longer publicly traded.
The peerits acquisition by Tapestry, Inc.Peer company compensation data provided by FW Cook in fiscal 2018 was used by the Compensation Committee as a general reference point in its compensation reviews. The Compensation Committee does not set compensation levels at any specific level or percentile against this compensation data. Instead, the peer group data is only one point of information taken into account by the Compensation Committee in making
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compensation decisions. Except as otherwise noted, the Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experiences of the members of the Compensation Committee as well as the input from, and peer group data provided by, the Compensation Committee’s independent executive compensation consultant.
The
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Shareholder Engagement and the Role of ShareholderSay-on-Pay Votes
Our shareholders are currently provided with an opportunity to cast an advisory vote on our executive compensation program every year throughThe Board of Directors and the say-on-pay proposal. Our shareholders were last presented with such an opportunity at our 2017 annual meeting of shareholders, where shareholders overwhelmingly approvedCompensation Committee value the input of our executive compensation program for fiscal 2017, with over 91% ofshareholders regarding the votes on our advisory say-on-pay shareholder vote at our 2017 annual meeting of shareholders cast in favorCompany’s governance practices and the design and effectiveness of our executive compensation program. In addition, at our 2017 annual meeting of shareholders, shareholders had the opportunity to cast an advisory vote on the frequency of future say-on-pay votes and, as recommended by the Board, voted for an annual say-on-pay vote. Following the shareholder vote, the Board determined that the Company will hold an annual say-on-pay shareholder vote.
As discussed above, as in prior years, the Company’s Lead Independent Director and Chairperson of the Compensation Committee continued his dialogue with our shareholders in 2017,2019, speaking directly with investors representing an estimated 45%approximately thirty percent of the issued and outstanding shares of our Common Stock held by persons other than insiders. Based in part on these conversations, the Compensation Committee decided to continue to emphasizepay-for-performance and to continue the general structure of our fiscal 20172019 executive compensation program in fiscal 20182020, with the exception of certain changes to our long-term equity incentive awards, as described below.
Our shareholders are currently provided with an opportunity to cast an advisory vote on our executive compensation program every year through thesay-on-pay proposal. Our shareholders were last presented with such an opportunity at our 2019 annual meeting of shareholders, where shareholders approved of our executive compensation program for fiscal 2019, with over 99% of the votes on our advisorysay-on-pay shareholder vote at that meeting cast in favor of our executive compensation program.
The Board and the Compensation Committee consider shareholder engagement to be an important part of their decision making process and plan to continue their outreach efforts in order to emphasize pay-for-performance, including through the usestay abreast of robust three-year goals linked to operating earnings and revenues, as well as relative TSR measured over a three-year period.
shareholder perspectives. When making future compensation decisions for our Named Executive Officers, the Compensation Committee will continue to consider the opinions that shareholders express directly to the Compensation Committee and through our annualsay-on-pay advisory votes.
Executive Compensation Program Elements for Fiscal 20182020
Summary
The materialkey elements of our current executive compensation program for Named Executive Officers consist of base salary, an annual cash incentive opportunity and equity-based long-term incentive opportunities. We also provide anon-qualified deferred compensation plan, a 401(k) plan, a supplemental executive retirement plan for our Chief Creative Officer (and for our Chief Executive ChairmanOfficer, but only with respect to his prior service to the Company ending in June 2010) and severance protection for certain terminations of our Named Executive Officers’ employment.
We believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives. Base salaries, thenon-qualified deferred compensation plan, 401(k) plan, supplemental executive retirement plan and severance and other termination benefits are all primarily intended to attract and retain qualified executives. These are the elements of our current executive compensation program where the value of the benefit in any given year is generally not variable. We believe that in order to attract and retaintop-caliber executives, we need to provide executives with predictable benefit amounts that reward the executive’s continued service. Some of the elements, such as base salaries, are generally paid out on a short-term or current basis. The other elements are generally paid out on a longer-term basis, such as upon retirement or other termination of employment or following a vesting period. We believe that this mix of longer-term and shorter-term elements allows us to achieve our dual goals of attracting and retaining executives.
Our Named Executive Officer’s annual cash incentive opportunities are paid out on an annual basis and are designed to hold executives accountable for annual performance. They also help further align Named Executive
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Officers’ interests with those of our shareholders and help us attract, motivate and retain executives. Our long-term equity incentives are primarily intended to align Named Executive Officers’ interests with those of our shareholders, although they also hold executives accountable for performance (as the value of the awards, as well as the number of shares/units vesting under certain awards, is linked to the achievement of specified performance goals and/or our stock price) and help us attract, motivate and retain executives. These are the elements of our
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current executive compensation program that are designed to reward performance and the creation of shareholder value, and therefore the value of these benefits is dependent on performance and/or share price.
The Compensation Committee uses these elements, as described in more detail below, to create a total compensation package for each Named Executive Officer that it believes supports the Company’s compensation objectives and provides a competitive compensation opportunity tied to both operating performance and changes in shareholder value.
Base Salaries
Base salaries for the Named Executive Officers are designed to compensate executives for their level of responsibility, skill, experience and individual contributions. The Compensation Committee reviews and approves base salaries for Named Executive Officers annually and in connection with promotions or other changes in responsibilities. Base salaries are set at levels that are intended to avoid excessive fixed costs while simultaneously providing sufficient guaranteed annual income to mitigate incentives for executives to pursue overly risky business strategies in order to maximize short-term variable compensation. In determining the appropriate levels of base salary, the Compensation Committee also considers, in its subjective judgment, individual performance, scope of duties, pay history and market data.
For fiscal 2018,2020, Mr. Paul Marciano’s base salary was increased from $570,000 toremained flat at $950,000, the level set by the Compensation Committee for Mr. Paul Marciano in fiscal 2018 and which was still more than a third less than his base salary in fiscal 2016 of $1,500,000. The Compensation Committee considered his continuing substantial contributions to the Company, notably his instrumental contributions to the licensing and marketing areas, and a review of compensation levels for similar executive positions at the peer group of companies in setting his base salary. This increase in
For fiscal 2020, Mr. Alberini’s base salary was accompanied by a significant reductionat an annualized rate of $1,200,000 in Mr. Paul Marciano’s target annual cash incentive amount for fiscal 2018, as more fully described under “—Annual Cash Incentive Awards—Methodology to Determine Cash Awards” below.accordance with his employment agreement with the Company entered into in January 2019.
For fiscal 2018, Mr. Herrero’s base salary remained flat at $1,200,000, the level originally set under his employment agreement entered into in fiscal 2016. Mr. Herrero agreed to defer the portion of his salary in excess of $1,000,000 until the termination of his employment with the Company pursuant to the Company’s Non-Qualified Deferred Compensation Plan (the “DCP”).
During fiscal 2018,2020, Mr. Reddy’s base salary remained flat at $525,000,$650,000, the level set by the Compensation Committee for Mr. Reddy in fiscal 2016.2019.
As provided in her offer letter with the Company, Ms. Anderson’s base salary was set at $550,000 annually upon her commencement of employment in December 2019.
As previously noted, Mr. Maurice Marciano did not receive any base salary for his service in fiscal 2020 as our Interim Chief Executive Officer.
Annual Cash Incentive Awards
We believe that a significant portion of compensation for executive officers should be based on performance, with the opportunity to earn substantial awards in connection with superior performance. Annual cash incentive awards are generally granted to the Company’s Named Executive Officers under the Company’s shareholder-approved Annual Incentive Bonus Plan (the “Bonus Plan”), a performance-based plan intended to motivate key employees by linking cash incentive award opportunities topre-established performance objectives.
As in prior years, theThe Compensation Committee utilized a two-tier funding approach for determiningdetermined the Named Executive Officers’ annual cash incentives under the Bonus Plan for fiscal 2018. For2020 utilizing objective Company performance metrics, with the first tier,amount of the Compensation Committee used pre-established formulas based on the Company’s cash flow from operations for fiscal 2018 to determine the maximum cashannual incentive opportunity that may be awarded to each Named Executive
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Officer under the Bonus Plan for fiscal 2018. The Compensation Committee determined that the second tier for determining actual cash payouts would be based on the Company’s earnings from operations for fiscal 20182020 (and the Company’s licensing segment earnings from operations for fiscal 2018,2020, in the case of Mr. Paul Marciano). These objective metrics were utilized in part to address shareholder concerns regarding a desireprovide an objective framework for less Compensation Committee discretion with respect todetermining the annual cash incentive awards for executives, and also because the Compensation Committee believes that earnings from operations (and licensing segment earnings from operations, in the case of Mr. Paul Marciano) is widely used by investors and shareholders to measure performance and including it as the measurement used to calculate annual cash incentive awards helps to further link the executives’ incentive opportunities to the Company’s financial performance. For
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these purposes, the Compensation Committee established threshold, target and maximum earnings from operations goals for fiscal 20182020 at levels that the Compensation Committee considered to be rigorous. Therigorous, with both the fiscal 2020 earnings from operations goals forgoal and the fiscal 2018 were less than the2020 license segment earnings from operations goal for Mr. Paul Marciano set above the target level goals that were set under the fiscal 2019 executive annual incentive program. In particular, the fiscal 2020 earnings from operations goal was set almost 40% above the fiscal 2019 earnings from operations goal at target level. Mr. Maurice Marciano did not participate in the Bonus Plan or receive a bonus for the prior year mainly due to (i) the Company’s weaker-than-expected actual resultsfiscal 2020. Ms. Anderson’s employment commenced late in its Americas Retail business in fiscal 2017 (athe year, in whichDecember 2019. Accordingly, she did not participate in the Named Executive officers received no cash awards under the annual cash incentive award program) and (ii) the overall challenging nature of the North American retail landscape at the timeBonus Plan for fiscal 2018 goals were established.2020 but she was, as discussed below, considered for a fiscal 2020 bonus.
Methodology to Determine Cash Awards
Each Named Executive Officer has(other than Mr. Maurice Marciano and Ms. Anderson) had a threshold and target cash incentive amount under the Bonus Plan for fiscal 2020, and each executive’s annual cash incentive iswas in all events capped at a maximum amount. ForThe Compensation Committee determined to decrease the threshold, target and maximum amounts for Mr. Paul Marciano thefor fiscal 2020 such that his threshold incentive amount was 131.5%set at 100% of his base salary, his target incentive amount was set at 200% of his base salary and his targetmaximum incentive amount was reduced by an amendment toset at 300% of his employment agreement from 400%base salary. (In the prior year, these percentages were set at 131.5%, 263% and 394.5% of his base salary, to 263% of his base salaryrespectively.) Mr. Alberini’s incentive levels for fiscal 2018, based on investor feedback and a review of executive compensation practices at2020 were the peer group of companies. Forsame as Mr. Herrero, the threshold incentive amount was 100% of his base salary and his target incentive amount was 200% of his base salary.Paul Marciano’s levels. For Mr. Reddy, the threshold incentive amount was 37.5%remained at 45% of his base salary, his target incentive amount remained at 90% of his base salary and pursuant to the terms of his offer letter, his targetmaximum incentive amount was 75%remained at 180% of his base salary.salary for fiscal 2020. At the time each of these target, threshold and thresholdmaximum levels was approved for fiscal 2018,2020, the Compensation Committee believed them to be reasonably competitive for each position.
SubjectPursuant to the terms of her offer letter, Ms. Anderson was entitled to a cash incentive award between $100,000 and $200,000 for fiscal 2020, with a minimum cash incentive award of $100,000. As Ms. Anderson’s employment commenced in December 2019, the Compensation Committee did not set threshold, target and maximum amountincentive amounts for each executive describedher for fiscal 2020. At the recommendation of the Chief Executive Officer and as discussed below, the Compensation Committee considered certainnon-financial performance factors in determining Ms. Anderson’s actual annual incentive award for fiscal 2020.
The Named Executive Officers’ fiscal 20182020 annual cash incentives would bewere determined 100% (in the case of Messrs. Alberini and Reddy) and 50% (in the case of Mr. Paul Marciano) and 100% (in the case of Messrs. Herrero and Reddy) based on the Company’s earnings from operations for fiscal 20182020 and 50% (in the case of Mr. Paul Marciano) based on the Company’s licensing segment earnings from operations for fiscal 20182020 (in eithereach case, excluding the impact of certain specified litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition, tax and accounting related matters)matters, or such other items as the Compensation Committee may in its discretion determine to be appropriate in the circumstances) relative to performance targets established by the Compensation Committee set forth in the table below:
Earnings from for Fiscal 2018 | Annual Cash Incentive Amount (as a Percentage of Target Award) | ||||||||||||||||
Performance Level | P. Marciano | V. Herrero | S. Reddy | ||||||||||||||
Below Threshold | Less than $53.0 million | 0 | % | 0 | % | 0 | % | ||||||||||
Threshold | $53.0 million | 25 | % | 50 | % | 50 | % | ||||||||||
Target | $66.8 million | 50 | % | 100 | % | 100 | % | ||||||||||
Maximum | $80.6 million or more | 75 | %(1) | 150 | %(1) | 200 | %(1) |
Licensing Segment | Annual Cash Incentive Amount (as a Percentage of Target Award) | ||||||||||||||||
Performance Level | P. Marciano | V. Herrero | S. Reddy | ||||||||||||||
Below Threshold | Less than $64.4 million | 0 | % | 0 | % | 0 | % | ||||||||||
Threshold | $64.4 million | 25 | % | 0 | % | 0 | % | ||||||||||
Target | $74.4 million | 50 | % | 0 | % | 0 | % | ||||||||||
Maximum | $77.2 million or more | 75 | %(1) | 0 | % | 0 | % |
Earnings from for Fiscal 2020 | Annual Cash Incentive Amount (as a Percentage of Total Target Award) | ||||||||||||||||
Performance Level | P. Marciano | C. Alberini | S. Reddy | ||||||||||||||
Below Threshold | Less than $141.3 million | 0 | % | 0 | % | 0 | % | ||||||||||
Threshold | $141.3 million | 25 | % | 50 | % | 50 | % | ||||||||||
Target | $161.2 million | 50 | % | 100 | % | 100 | % | ||||||||||
Maximum | $201.5 million or more | 75 | % | 150 | % | 200 | % |
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Licensing Segment | Annual Cash Incentive Amount (as a Percentage of Total Target Award) | ||||||||||||||||
Performance Level | P. Marciano | C. Alberini | S. Reddy | ||||||||||||||
Below Threshold | Less than $59.1 million | 0 | % | — | — | ||||||||||||
Threshold | $59.1 million | 25 | % | — | — | ||||||||||||
Target | $66.9 million | 50 | % | — | — | ||||||||||||
Maximum | $73.5 million or more | 75 | % | — | — |
If the Company’s actual performance fallsfell between the levels indicated above, the payout percentage iswould be determined by linear interpolation between the applicable payout levels.
The maximum individual cash award opportunities for the Named Executive Officers were tied to the Company’s cash flow from operations for fiscal 2018 (excluding the impact of certain specified legal, restructuring, store impairment, acquisition, disposition and accounting related matters) or, if lower, a specified multiple of each Named Executive Officer’s base salary. The maximum individual cash award opportunities for fiscal 2018 were as follows: for Mr. Paul Marciano, a maximum award opportunity equal to the lesser of 4.91% of cash flow from operations for fiscal 2018 or $3,747,750; for Mr. Herrero, a maximum award opportunity equal to the lesser of 4.72% of cash flow from operations for fiscal 2018 or $3,600,000; and for Mr. Reddy, a maximum award opportunity equal to the lesser of 1.04% of cash flow from operations for fiscal 2018 or $787,500. For Mr. Paul Marciano and Mr. Herrero, the maximum award opportunity (calculated based on a percentage of base salary) is provided under the executive’s employment agreement (for Mr. Paul Marciano, as reduced for fiscal 2018 under the amendment to his employment agreement). For Mr. Reddy, the percentage of base salary remained at the level set by the Compensation Committee in fiscal 2016.
The Compensation Committee chose earnings from operations (and licensing segment earnings from operations, in the case of Mr. Paul Marciano) as the measurement used to calculate the final annual cash incentive amount (subject to the applicable maximum) for each executive as a way to further link these executives’ incentive opportunities to the Company’s financial performance. Earnings from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certainnon-operational factors to better assess managements’ operation of the business. Licensing segment earnings from operations was taken into account in determining Mr. Paul Marciano’s award given his continuing contributions to the Company’s licensing business. The Compensation Committee chose cash flow from operations as the measurement used to calculate maximum cash incentive opportunities (and to establish the performance-based aspects of two of our long-term equity incentive awards for Mr. Reddy for fiscal 2018 as described below) as a way to further link these executives’ incentive opportunities to the Company’s financial performance. Cash flow from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certain non-operational factors to better assess managements’ operation of the business, with a focus on the ability of the business to generate cash.
Determination of Actual Cash Awards
In the first quarter of fiscal 2019,April 2020, the Compensation Committee determined that the Company’s earnings from operations (as described above) for fiscal 20182020 was $93,919,000,$152 million, after giving effect to adjustments approved by the Compensation Committee to exclude (i) $8.5 million for assetstore impairment charges, (ii) $11.4$(0.9) million for losses on lease terminations,certain professional service and legal fees and related credits, (iii) $6.5 million for negative impacts related to accounting standard changes, and (iv) $2.4$1.7 million for legal settlement charges, (as specified in the original formula established by the Compensation Committee).(iv) $1.5 million of goodwill impairment charges, and (v) $0.4 million of charges relative to executive separations from service. In the first quarter of fiscal 2019,April 2020, the Compensation Committee determined that the Company’s licensing segment earnings from operations (as described above) for fiscal 20182020 was $82,421,000, after giving effect to an adjustment approved by the Compensation Committee to exclude $6.5 million for negative impacts related to accounting standard changes (as specified in the original formula established by the Compensation Committee).$74.5 million. Applying the payout percentages above, the Company’s performance resulted in a cash incentive award for fiscal 20182020 of $3,747,750$729,305 for Mr. Paul Marciano $3,600,000and $1,842,454 for Mr. Herrero,Alberini with respect to the Company’s earnings from operations for fiscal 2020, and $787,500$1,425,000 for Mr. Reddy.Paul Marciano with respect to the Company’s licensing segment earnings from operations for fiscal 2020. Mr. Reddy was not eligible to receive an annual incentive award for fiscal 2020 as his employment with the Company terminated in December 2019.
Pursuant to the terms of her offer letter, Ms. Anderson was entitled to a cash incentive award between $100,000 and $200,000 for fiscal 2020. As Ms. Anderson’s employment commenced in December 2019, the Compensation Committee did not set threshold, target and maximum incentive amounts for her for fiscal 2020. The Compensation Committee determined that the Company’s cash flow from operations (as described above)to pay Ms. Anderson an annual incentive award for fiscal 2018 was $148,370,000, and that each Named Executive Officer’s annual cash incentive amount as set forth in the preceding paragraph was not greater than the applicable maximum for each executive2020 of $200,000 based on thatits assessment of Ms. Anderson’s successful integration into the Company, her role in developing a business plan and budget for fiscal 2021 and her efforts in ensuring a successful fiscal 2020year-end close and reporting process.
To further align executive officers’ interests with shareholders and to conserve cash flow from operations result. Accordingly,in light of the impact of theCOVID-19 pandemic on the retail industry and the Company, the Compensation Committee determined that each Named Executive Officer’sit was advisable to pay the fiscal 2020 annual incentive awards for executive officers and certain other employees in shares of the Company’s common stock instead of cash. Accordingly, in April 2020, Messrs. Paul Marciano and Alberini and Ms. Anderson received a number of fully-vested shares of the Company equal to the amount of their approved bonuses, less the applicable withholdings and deductions, divided by the closing price per share of the Company’s common stock on April 27, 2020. As the Compensation Committee permitted Mr. Paul Marciano to satisfy the tax withholding obligations for this award with a cash incentivepayment to the Company, the number of shares granted to him reflects his full bonus amount. This resulted in 269,928 shares for fiscal 2018 would be as set forth in the preceding paragraph.Mr. Paul Marciano,
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125,561 shares for Mr. Alberini, and 8,260 shares for Ms. Anderson (Ms. Anderson’s bonus was paid 50% in shares and 50% in cash as Ms. Anderson was guaranteed a $100,000 cash bonus payment for fiscal 2020 pursuant to the terms of her offer letter).
Long-Term Equity Incentive Awards
The Company’s philosophy is that the Named Executive Officers’ long-term compensation should be directly linked to the value provided to our shareholders. Therefore, 100% of the Named Executive Officers’ long-term compensation is currently awarded in the form of stock options, restricted stock and/or restricted stock units. The Compensation Committee has the authority to grant stock options, restricted stock, restricted stock units and other awards under the Company’s 2004 Equity Incentive Plan. The fiscal 20182020 equity awards granted to the Named Executive Officers are described below. Mr. Maurice Marciano did not receive any equity incentive awards in connection with his service in fiscal 2020 as our Interim Chief Executive Officer.
Restricted Stock.
The Compensation Committee primarily utilizes restricted stock (or restricted stock units) as the main component of its long-term incentive grants to our Named Executive Officers. Use of restricted stock (or restricted stock units) instead of stock options reduces the level of potential share dilution that would otherwise develop if larger stock option awards were granted. The Compensation Committee also uses restricted stock awards as a retention incentive as they generally vest over a multi-year period. For fiscal 2018,2020, the Compensation Committee granted certain restricted stock unit awards to the Named Executive Officers that were subject to both performance-based and time-based vesting requirements to provide additional incentives to achieve specified financial goals. In addition, restricted stock promotes commonality of interests between management and shareholders since the awards expose the recipient to both upside and downside risk based on the value of the Company’s Common Stock over time.
Stock Options.
The Compensation Committee also granted a portion of itsthe long-term incentive grant to Mr. ReddyAlberini and Ms. Anderson (and the entire award granted to Mr. Reddy) in the form of stock options with an exercise price that is equal to the closing price of a share of the Company’s Common Stock on the NYSE on the grant date. The Compensation Committee utilizesmay from time to time utilize stock options to help ensure that thein an executive will realizeequity award mix as stock options have value only if our shareholders realize value through stock price appreciation after the grant date.date of the options. Stock options also foster retention of key executives since the awards generally vest over the four-year period following the performance period. The Company did not, however, include stock options in the annual equity award mix
Equity Award for Mr. Paul Marciano or for Mr. Herrero because of the views of certain shareholders and shareholder advisory groups that stock options are not “performance-based” regardless of the fact that the value of the Company’s stock must appreciate after the grant date of the options in order for the options to have value.
Equity Awards for Mr. Paul Marciano and Mr. Herrero for Fiscal 20182020
In April 2017,June 2019, the Compensation Committee granted awardsan award of 205,339 restricted stock units to Mr. Paul Marciano and Mr. Herrero pursuant to the terms of the executives’ employment agreements. The awardsthat were separated into three different award types so that different vesting requirements could be used for different portions of the awards. Each of the awards was subject to both time- and performance-based vesting requirements, with approximately one-third of the totalrequirements. The award value considered by the Compensation Committee allocated to each of the three award types. The awards werewas determined by the Compensation Committee to be, in light of the executives’Mr. Paul Marciano’s role with the Company, an appropriate incentive for the executive both to achieve the specific performance goals identified below and to continue employment with the Company through the vesting period.
Licensing Award and Revenue Award. The first50% of Mr. Paul Marciano’s restricted stock unit awards granted to Mr. Paul Marciano and Mr. Herrero were eligible to vest if the Company achieved a threshold performance goalaward for fiscal 2018. Mr. Paul Marciano’s award, which consists of 110,664 restricted stock units (the “2018 Licensing Award”),2020 was eligible to vest if the Company’s earnings from operations from its licensing segment for fiscal 2018 (excluding the impact of certain specified legal, restructuring, store impairment, acquisition, disposition and accounting related matters)2020 exceeded a threshold amount established by the Compensation Committee of $64.4$59.1 million, and the remaining 50% of Mr. Herrero’s award, which consists of 125,449Paul Marciano’s restricted stock units (the “2018 Revenue Award”),unit award for fiscal 2020 was eligible
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to vest if the Company’s total revenue (excluding net royalties and the impact of certain specified accounting and currency related matters)earnings from operations for fiscal 20182020 exceeded a threshold amount established by the Compensation Committee of $1.98 billion.$141.3 million (in either case, excluding the impact of certain specified litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition and tax and accounting related
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matters). If the applicable threshold goals were met, the awardsaward would be scheduled to vest in three equal installments on each of January 30, 2018,2020, January 30, 20192021 and January 30, 2020.2022, subject to Mr. Paul Marciano’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below.
The Compensation Committee believes that Mr. Paul Marciano continues to make substantial contributions to the Company’s licensing segment. Earnings from operations derived from the Company’s licensing segment was selected as the performance measure for this award as a way to further link Mr. Paul Marciano’s incentives to the performance of that segment of the Company’s business. Earnings from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certainnon-operational factors. Following the end of fiscal 2018,2020, the Compensation Committee determined that the Company’s licensing segment earnings from operations for fiscal 20182020 was $82.4$74.5 million (after giving effect to an adjustment required pursuant toand the terms of the award to exclude $6.5Company’s earnings from operations for fiscal 2020 was $150.0 million, for negative impacts related to accounting standard changes), meaning that the threshold level had been achieved.achieved for both portions of the award. Accordingly,one-third of the award vested upon the Compensation Committee’s determination, and the remainingtwo-thirds is scheduled to vest as described above.
ForEquity Awards for Mr. Herrero,Alberini for Fiscal 2020
In February 2020, in connection with the commencement of Mr. Alberini’s employment, the Compensation Committee granted awards of restricted stock units and stock options to Mr. Alberini. The awards were separated into three different award types so that different vesting requirements could be used for different portions of the awards. The awards were determined by the Compensation Committee to be, in light of Mr. Alberini’s role with the Company, an appropriate incentive for Mr. Alberini to join the Company, to achieve the specific performance goals identified below, and to continue employment with the Company through the vesting period.
Revenue Award. The first award granted to Mr. Alberini was an award of 250,000 restricted stock units that will be eligible to vest if the Company’s total revenue for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $2.3 billion (excluding net royalties and the impact of certain specified accounting changes and currency related matters)fluctuations) (the “2020 Revenue Award”). If the threshold goal was selected asmet, the performance measure for this award as a way2020 Revenue Award would be scheduled to further linkvest in four equal installments on each of February 20, 2020, February 20, 2021, February 20, 2022, and February 20, 2023, subject to Mr. Herrero’s compensationAlberini’s continued service to the performanceCompany through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of the Company as a whole. Plan-Based Awards” below.
Following the end of fiscal 2018,2020, the Compensation Committee determined that the Company’s total revenue (excluding royalties and after giving effect to an adjustment required pursuant to the terms of the award to exclude the impact of currency fluctuations) for fiscal 20182020 was $2.186$2.678 billion, meaning that the threshold level had been achieved.achieved for the 2020 Revenue Award. Accordingly, one-thirdone-fourth of the award vested upon the Compensation Committee’s determination, and the remaining two-thirdsthree-fourths is scheduled to vest as described above.
Relative TSR Performance AwardsOption Award. The second restricted stock unit awardsaward granted to Mr. Paul MarcianoAlberini was an award of an option to purchase 600,000 shares of Company common stock that is scheduled to vest in four equal installments on each of February 20, 2020, February 20, 2021, February 20, 2022, and Mr. Herrero (the “2018 Relative TSR Awards”) areFebruary 20, 2023, subject to a relative TSR vesting requirement that compares the Company’s TSR over a three-year performance period consisting of the Company’s 2018, 2019 and 2020 fiscal yearsMr. Alberini’s continued service to the TSRsCompany through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of a groupPlan-Based Awards” below.
Signing Restricted Stock Unit Award. The third award granted to Mr. Alberini was an award of peer companies selected by the Compensation Committee. The use of a TSR vesting metric addresses prior feedback from shareholders that shareholders wanted to see (1) performance metrics that more closely link executive pay with shareholder value, such as TSR, and (2) longer performance periods for performance-based equity awards. Similar to fiscal 2017, in structuring these executives’ long-term incentive opportunities for fiscal 2018, the Compensation Committee decided to base these awards on the Company’s relative TSR and to provide for a three-year performance period. The Compensation Committee believes this structure helps to further align these executives’ interests with those of our shareholders.
Mr. Paul Marciano’s 2018 Relative TSR Award consists of 116,245150,000 restricted stock units that were fully vested at the “target” level of performance, andgrant. However, if Mr. Herrero’s 2018 Relative TSR Award consists of 131,775 restricted stock units at the “target” level of performance.
Between zero and 150%Alberini had terminated his employment other than for “Good Reason” (as such term is defined in his employment agreement) within one year of the target numberdate of restricted stock unitsgrant, he would have been required to return to the Company the shares subject to each 2018 Relative TSR Award will vest based on the Company’s TSR comparedaward (or the proceeds of the sale if any such shares had been sold). These units were awarded primarily to incentivize Mr. Alberini to accept employment with the TSRsCompany and to make up for compensation opportunities with his prior employer that he forfeited in connection with joining the peer group of companies for the three-year performance period as follows:Company.
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The percentageEquity Awards for Ms. Anderson for Fiscal 2020
In December 2019, in connection with Ms. Anderson’s commencement of targetemployment, the Compensation Committee granted awards of restricted stock units that vest will beand stock options to Ms. Anderson. The awards were determined by linear interpolation if the Company’s TSR percentile is betweenCompensation Committee to be, in light of Ms. Anderson’s role with the levels noted above.Company, an appropriate incentive for Ms. Anderson to join the Company and to continue employment with the Company through the vesting period.
Restricted Stock Award. The portionfirst award granted to Ms. Anderson was an award of the award70,000 shares of restricted stock that is credited to the executive based on the Company’s relative TSR performance will be eligible to vest asin four equal installments on each of the last day of the three year performance period. A dollar denominated payment cap was also imposed on the awards such that, in all events, the number of restricted stock unitsDecember 2, 2020, December 2, 2021, December 2, 2022, and December 2, 2023, subject to each 2018 Relative TSR Award that vest will not exceed the number of restricted stock units determined by dividing a specified dollar amount ($3,705,000 as to Mr. Paul Marciano’s award and $4,200,000 as to Mr. Herrero’s award) by the closing price of a share of the Company’s Common Stock on the applicable vesting date.
The peer group of companies used for purposes of the 2018 Relative TSR Awards is the same fiscal 2018 peer group of companies identified under “—The Role of the Independent Compensation Consultant” above, except that the Compensation Committee, recognizing that company size is less relevant for TSR performance comparisons than it is for determining compensation levels and taking into account the business model of each company and whether each company competes with Guess for executive talent, determined it was appropriate to increase the number of peer companies by adding Columbia Sportswear Company, Gap Inc. and lululemon athletica inc.
LTIP Awards. The third restricted stock unit awards granted to Mr. Paul Marciano and Mr. Herrero will be eligible to vest based on the Company’s revenue (excluding the Americas Retail segment) and earnings from operations for fiscal 2020 (the “2018 LTIP Awards”). Each of Mr. Paul Marciano’s and Mr. Herrero’s 2018 LTIP Award consists of 89,606 restricted stock units at the “target” level of performance. Between zero and 200% of the target number of restricted stock units subject to each award will vest based on the Company’s performance in fiscal 2020 measured against pre-established goals, with each award being weighted 25% for revenue (excluding the Americas Retail segment) performance and 75% for earnings from operations performance (in either case, as determined in accordance with GAAP and reflected in the Company’s financial reports, in each case excluding the impact of certain specified legal, restructuring, store impairment, acquisition, disposition, accounting and currency related items). The portion of each award that is credited to the executive based on the Company’s performance in 2020 will be eligible to vest as of the last day of the performance period.
For each of the fiscal 2018 equity awards granted to Mr. Paul Marciano and Mr. Herrero described above, vesting of the award is contingent on the executive’sMs. Anderson’s continued service to the Company through the applicable vesting date, although this service-based vesting requirement would be deemed met ifupon a “change in control” of the executive’s employment terminatesCompany (as such term is defined in certain circumstances set forthher offer letter).
Option Award. The second award granted to Ms. Anderson was an award of an option to purchase 130,000 shares of the Company’s stock that is scheduled to vest in four equal installments on each of December 2, 2020, December 2, 2021, December 2, 2022, and December 2, 2023, subject to Ms. Anderson’s continued service to the Company through the applicable award agreement.vesting date, although this service-based vesting requirement would be deemed met upon a “change in control” of the Company (as such term is defined in her offer letter).
Equity Awards for Mr. Reddy for Fiscal 20182020
As in prior years, the Compensation Committee utilized atwo-tier approach for equity awards to Mr. Reddy for fiscal 2018 that gives the Compensation Committee greater flexibility to consider all aspects of performance and other factors the Compensation Committee considers relevant.2020. Under this approach, the Compensation Committee approves approvedpre-established formulas to determine the maximum value of the equity incentive opportunities that may be awarded to Mr. Reddy, then exercisesexercised its discretion in determining the number of shares to be subject to the actual equity awards, which will bewere at levels at or below the calculated maximum award levels. The maximum number of shares of the Company’s Common Stock subject to each annual award iswas intended to create a meaningful opportunity for stock ownership in light of Mr. Reddy’s current position with the Company, the size of comparable awards to comparable executives at our peer group companies, and Mr. Reddy’s personal performance in recent periods.
Calculation of Maximum Eligible Equity Awards for Fiscal 2018. In April 2017,June 2019, the Compensation Committee established maximum equity incentive opportunities in the form of stock options and restricted stock for Mr. Reddy pursuant to a specific formula tied to the Company’s cash flow from operations (excluding the impact of certain specifiedlitigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition and tax and accounting related matters) for fiscal 2018.2020. The maximum individual equity award opportunities for Mr. Reddy for fiscal 2018
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2020 consisted of a maximum stock option award opportunity value equal to the lesser of 0.21%0.19% of cash flow from operations for fiscal 20182020 or 30% of base salary and a maximum restricted stock award opportunity value equal to the lesser of 0.55%0.49% of cash flow from operations for fiscal 20182020 or 80% of base salary. Mr. Reddy forfeited these equity award opportunities as his employment terminated prior to the end of fiscal 2020.
In the first quarter of fiscalJune 2019, the Compensation Committee determined the Company’s cash flow from operations (as described above) for fiscal 2018 was $148.4 million, which resulted in the maximum grant dateawarded Mr. Reddy, along with other select members of management (other than Messrs. Paul Marciano and Alberini), aone-time stock option value for Mr. Reddy being 30% of his base salary (or $157,500), andaward intended as an additional incentive to increase the maximum grant date restricted stock award value for Mr. Reddy being 80% of his base salary (or $420,000). These maximum award opportunities were then converted from dollar amounts to shares, with stock options valued using the Black Scholes Model and restricted stock valued at the closing price of the Company’s unrestricted Common Stock on the NYSE, in each case on a pre-determined measurement date with respectstock. Mr. Reddy was awarded an option to the grant date. For fiscal 2018, the grant date occurred on March 30, 2018, the datepurchase 128,700 shares of the first quarter Compensation Committee meeting where the Compensation Committee approved the awards,Company’s stock that was scheduled to vest in four equal installments on each of June 10, 2020, June 10, 2021, June 10, 2022, and the pre-determined measurement date occurred five business days prior to the grant date in order to allow the Compensation Committee sufficient time to review final maximum share and option opportunities prior to making its final award decisions.
Determination of Actual Equity Awards for Fiscal 2018. Once the maximum payout levels are established, the Compensation Committee then determines actual equity awards for Mr. Reddy under the annual equity program (subject to the calculated maximum payout levels) based on its review and subjective assessment of the executive’s performance during the fiscal year. The Compensation Committee does not give any specific weighting to any particular performance criterion and evaluates individual performance in a non-formulaic manner, making an overall subjective assessment of Company and individual performance during the year. Based on its review, including its assessment of the significant individual efforts exhibited by Mr. Reddy, the Compensation Committee decided to provide equity awardsJune 10, 2023, subject to Mr. Reddy with grant-date values that were approximately equal to the maximum eligible payout levels described above.
The actual equity awards approved by the Compensation Committee for Mr. Reddywith respect to fiscal 2018 performance are presented in footnote (4) to the “Grants of Plan-Based Awards in Fiscal 2018” table below. In accordance with applicable SEC rules, the “Grants of Plan-Based Awards in Fiscal 2018” table reflects equity awards actually granted by the Companyin fiscal 2018 to Mr. Reddy. The material terms of the equity awards granted to our Named Executive Officers during fiscal 2018 are described below under “—Description of Plan-Based Awards.” Since our equity awards granted to Mr. Reddy in fiscal 2018 under the annual program related to performance in fiscal 2017, the basis for these awards was included in the “Compensation Discussion and Analysis” section of our proxy statement filed with the SEC on May 26, 2017 with respect to our 2017 annual meeting of shareholders. The equity awards described in the preceding paragraphs, which were awarded in the first quarter of fiscal 2019 based on fiscal 2018 performance, will, in accordance with applicable SEC rules, be reflected in the “Grants of Plan-Based Awards” table included in our proxy statement next year with respect to our 2019 annual meeting of shareholders.
LTIP Award. The Compensation Committee also awarded Mr. Reddy a 2018 LTIP Award eligible to vest based on the Company’s revenue and operating income levels for fiscal 2020, with similar terms to the 2018 LTIP Awards granted to Mr. Paul Marciano and Mr. Herrero as described above. Mr. Reddy’s 2018 LTIP Award consisted of 51,747 restricted stock units at the “target” level of performance. Between zero and 200% of the target number of restricted stock units subject to the award are eligible to vest based on the Company’s revenue (excluding the Americas Retail segment) and earnings from operations for fiscal 2020 on terms similar to the 2018 LTIP Awards, described above, for Mr. Paul Marciano and Mr. Herrero.
For each of the fiscal 2018 equity awards granted to Mr. Reddy described above, vesting of the award is contingent on the executive’s continued service to the Company through the applicable vesting date. Mr. Reddy forfeited this option award in full as his employment terminated prior to the first vesting date.
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Fiscal 20162018 Annual Equity Award- Awards—Final Vesting
Fiscal 2018 Relative TSR Award
In fiscal 2016,2018, the Compensation Committee awarded Mr. Paul Marciano a restricted stock unit award that had a structure similar tovested based on the 2018 Relative TSR Award outlined above (the “2016 TSR Award”),Company’s relative total shareholder return, with a three-year performance period consisting
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of the Company’s 2016, 20172018, 2019 and 20182020 fiscal years.years (the “2018 Relative TSR Award”). In February 2018,2020, the Compensation Committee determined that the Company’s TSR for the three-year performance period was in the 66.6687.5th percentile compared to the TSRs for the peer group of companies used for purposes of the award for the three-year performance period. As a result, the Compensation Committee determined that Mr. Paul Marciano’s 2016the 2018 Relative TSR AwardAwards vested at the end of the performance period as to 133.32%150% of the target number of restricted stock units subject to the award.award (with Mr. Paul Marciano vesting as to 174,025 shares).
Material Compensation Committee Actions After Fiscal 2018 LTIP Award
In Marchfiscal 2018, after a review of compensation levels for similar executive positions at the peer group of companies, the Compensation Committee increased Mr. Reddy’s annual base salaryawarded Messrs. Paul Marciano and Reddy a restricted stock unit award, which was eligible to vest based 25% on the Company’s revenue (excluding Americas Retail segment) and 75% on the Company’s earnings from operations levels for fiscal 2019 from $525,0002020 (the “2018 LTIP Award”). In April 2020, the Compensation Committee determined that, for purposes of the 2018 LTIP Award, the Company’s fiscal 2020 revenue (excluding Americas Retail segment and after giving effect to $650,000adjustments required pursuant to the terms of the award to exclude the impact of certain specified accounting and hiscurrency related matters) was $1,779 million, which was approximately 104% of the target annual cash incentive amountrevenue performance level (the target performance level was $1,707 million for fiscal 20192020 revenue (excluding Americas Retail segment)), and the Company’s fiscal 2020 earnings from 75%operations (after giving effect to 90%adjustments required pursuant to the terms of the award to exclude the impact of certain currency related matters, as well as store impairments and certain legal charges) was $104 million, which was below the threshold earnings from operations performance level established for the 2018 LTIP Awards (the threshold performance level was $127 million for fiscal 2020 earnings from operations). As a result, 44.4% of the 2018 LTIP Awards vested (with Mr. Paul Marciano vesting as to 39,785 shares). Mr. Reddy forfeited his base salary. His base salary2018 LTIP Award as his employment terminated prior to the end of fiscal 2020.
Cash Signing Bonuses
In connection with the commencement of Mr. Alberini and target annualMs. Anderson’s employment, and pursuant to the terms of the executive’s employment agreement or offer letter, as applicable, Mr. Alberini received a cash incentive amount had previously remained atsigning bonus of $1,000,000 and Ms. Anderson received a cash signing bonus of $300,000. If either executive terminates his or her employment prior to the same levels since fiscal 2016.first anniversary of the executive’s employment commencement date, other than a resignation due to “good reason” (as such term is defined in the executive’s employment agreement or offer letter, as applicable), the executive will be required to repay the signing bonus in full. The signing bonuses were negotiated to encourage each executive to accept employment with the Company and make up for compensation opportunities with the executive’s prior employer that were forfeited in connection with joining the Company.
As disclosed inFiscal 2021 Base Salaries
In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current report on Form 8-K filedexecutive officers agreed to a temporary reduction of their base salaries, with the SEC on February 20, 2018, the Board of Directors and Mr. Paul Marciano agreeing to reduce his base salary from $950,000 to $285,000, Mr. Alberini agreeing to reduce his base salary from $1,200,000 to $360,000, and Ms. Anderson agreeing to reduce her base salary from $550,000 to $385,000. The reductions will end, and their prior base salary levels will be restored, on such future date as may be agreed in February 2018upon by the Compensation Committee and the executives. The executives will not be entitled to any back pay for the period of time that he would relinquish his day-to-day responsibilities pendingtheir base salaries are reduced.
Separation Agreement with Mr. Reddy
In December 2019, the completion of an investigation of improper conduct byCompany entered into a separation and release agreement with Mr. Paul Marciano being overseen by a Special CommitteeReddy pursuant to which Mr. Reddy’s employment with the Company terminated effective December 1, 2019 (the “Separation Agreement”). The terms of the Board comprised of two independent directors. During this period, Mr. Paul Marciano will not receive salary.Separation Agreement are described in more detail under “Potential Payments Upon Termination or Change in Control” below.
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401(k) Retirement Benefits
The Company’s employees, including the Named Executive Officers, are eligible to participate in the Company’stax-qualified 401(k) plan and are eligible to receive a discretionary matching contribution from the Company after one year of service. In calendar year 2017,2019, the Company made a discretionary matching contribution on behalf of each eligible participant equal to 50% of the first 6% of compensation contributed by the participant. Theseparticipant.These Company matching contributions can function as a retention incentive as they vest over the first five (5) years of service with the Company. The Named Executive Officers participate in the plan on the same terms as our other participating employees.
Non-Qualified Deferred Compensation Plan
The Company has maintained aNon-Qualified Deferred Compensation Plan (the “DCP”) since 2006. Under the DCP, select employees who satisfy certain eligibility requirements, including each of the Named Executive Officers and members of the Board, may make annual irrevocable elections to defer up to 75% of their base salary, 100% of their annual cash incentive, 100% of their cash compensation earned under any Company long-term incentive plan or 100% of their cash director fees to be earned during the following calendar year. In addition, the Company may make contributions to “make up” for Company match amounts under the Company’s 401(k) plan that cannot be made to Named Executive Officers because of applicable Internal Revenue Code limits. The Company may also make other discretionary contributions, although it did not do so for fiscal 2018.2020. The Company believes that providing the Named Executive Officers with deferred compensation opportunities is a cost-effective way to permit officers to receive the tax benefits associated with delaying the income tax event on the compensation deferred, even though the related deduction for the Company is also deferred. Information with respect to the Named Executive Officers’ participation in the DCP is presented in, and the material terms of the DCP are described following, the “Non-Qualified“Non-Qualified Deferred Compensation Plan Table—Fiscal 2018”2020” below.
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SupplementalJoseph Gromek
Cynthia Livingston
Deborah Weinswig
Alex Yemenidjian
(2) | Mr. Maurice Marciano served as our Interim Chief Executive
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(3) | As described under “Annual Retainer and Meeting Fees” below, there is |
(4) | Mr. Gromek did not stand for reelection to our Board of Directors at our 2019 annual meeting, thus his service on our Board of Directors ended on June 10, 2019. In connection with |
(5) |
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Annual Retainer and Meeting Fees
The following schedule of annual retainers and meeting fees was used to determine the cash compensation paid to each of ourNon-Employee Directors for their service during fiscal 2020:
Type of Fee | Dollar Amount($) | ||||
Annual Board Retainer | 35,000 | ||||
Additional Annual Retainer to Lead Independent Director | 25,000 | ||||
Additional Annual Retainer to Chair of Audit Committee | 20,000 | ||||
Additional Annual Retainer to Chair of Compensation Committee | 17,500 | ||||
Additional Annual Retainer to Chair of Nominating and | 12,500 | ||||
Additional Monthly Retainer to Chair of | 10,000 | ||||
Additional Monthly Retainer to Member of | 8,000 | ||||
| 1,500 | ||||
Additional Attendance Fee per Board Meeting Attended | 1,500 |
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AllNon-Employee Directors are eligible to defer up to 100% of their annual retainer and meeting fees under the Company’sNon-Qualified Deferred Compensation Plan, as more fully described below under “Compensation Discussion andAnalysis—Non-Qualified Deferred Compensation Plan.” AllNon-Employee Directors are also reimbursed forout-of-pocket expenses they incur in serving as directors.
Pursuant to the terms of the amended and restated Guess?, Inc.Non-Employee Directors’ Compensation Plan, as amended (the “Director Plan”), the maximum cash compensation that may be paid to aNon-Employee Director in any one fiscal year is $125,000 and the maximum restricted stock/stock unit award that may be granted to aNon-Employee Director in any one fiscal year is $275,000. To the extent that aNon-Employee Director is entitled to retainer and meeting fees based on the fee schedule set forth above in excess of $125,000 in any one fiscal year, the excess amount will not be paid but will be added to the annual restricted stock or restricted stock unit award granted to the director in the following year (subject to the $275,000 limit on annual restricted stock awards).
Equity Awards
OurNon-Employee Directors are granted equity awards under the Director Plan. EachNon-Employee Director who has not been an employee of the Company at any time during the immediately preceding 12 months is entitled to receive an award of a number of shares of restricted stock (or restricted stock units fornon-U.S. residents) equal in value to $180,000 on the first business day of each fiscal year. In the case of restricted stock, the award recipient is required to pay a purchase price of $0.01 per share. The number of shares of restricted stock or restricted stock units awarded is determined by dividing the applicable dollar amount by the closing price of a share of Common Stock on the NYSE on the date of grant and rounding down to the nearest whole share.
Subject to continued service, each restricted stock or restricted stock unit award granted under the Director Plan becomes vested andnon-forfeitable as to 100% of the shares or units subject to such award on the first to occur of (i) the first year anniversary of the date of grant or (ii) a termination of service if theNon-Employee Director has completed a full term of service and he or she does not stand forre-election at the completion of such term.Non-Employee Directors are entitled to voting and dividend rights with respect to the restricted stock. In the event of a “change in control” of the Company (as defined in the Director Plan), all shares of restricted stock and restricted stock units granted to ourNon-Employee Directors will, to the extent that the awards are then outstanding, vest 100% free of restrictions as of the date of the change in control. Unless otherwise determined by the Board, if aNon-Employee Director’s service as a director terminates for any reason other than a termination in the circumstances described above, any restricted stock or restricted stock units granted to theNon-Employee Director that are not fully vested and free from restriction as of the director’s termination of service will automatically be forfeited and returned to the Company.
Non-Employee Directors are subject to the Company’s Stock Ownership Guidelines, as described in more detail under “Compensation Discussion and Analysis—Stock Ownership Guidelines” below.
Maurice Marciano Retirement
After serving for over 30 years as an executive and leader for Guess,co-founder Maurice Marciano retired from his position as executive Chairman of the Board and as an employee of the Company upon the expiration of his employment agreement on January 28, 2012. Effective June 2018, Mr. Maurice Marciano began serving asnon-executive Chairman of the Board (after previously serving as Chairman Emeritus), for which he is eligible to receive the compensation provided to the Company’sNon-Employee Directors, as described above. From February 2, 2019 to February 19, 2019, Mr. Maurice Marciano also served as the Company’s Interim Chief Executive Officer. He did not receive any additional compensation for serving in this role. In addition, as required by the terms of his previous employment agreement, Mr. Maurice Marciano is entitled to receive
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lifetime retiree and family medical coverage. Mr. Maurice Marciano is also entitled to his fully vested benefits (based on his prior employment) pursuant to the standard terms of the Company’s Supplemental Executive Retirement Plan, Deferred Compensation Plan and 401(k) Plan.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Company’s executive compensation program, including a description of the Company’s compensation philosophies and objectives and a discussion of the material elements of compensation awarded to, earned by or paid to the following executive officers, referred to in this Proxy Statement as the “Named Executive Officers,” for their service in fiscal 2020:
Paul Marciano, Chief Creative Officer;
Carlos Alberini, Chief Executive Officer;
Maurice Marciano, Former Interim Chief Executive Officer;
Kathryn Anderson, Chief Financial Officer; and
Sandeep Reddy, Former Chief Financial Officer.
Mr. Maurice Marciano served as the Company’s Interim Chief Executive Officer from February 2, 2019 to February 19, 2019. He did not receive any additional compensation for serving in this role. Carlos Alberini commenced employment as the Company’s Chief Executive Officer, and a member of the Board, effective February 20, 2019.
Mr. Reddy’s employment with the Company terminated December 1, 2019. The terms of his Separation and Release Agreement are discussed below under “Separation Agreement with Mr. Reddy.” Ms. Anderson commenced employment as the Company’s Chief Financial Officer effective December 2, 2019. The terms of Ms. Anderson’s offer letter and the equity awards granted to her in connection with her employment are discussed below under “Description of Employment Agreements” and “Long Term Equity Incentive Awards.”
Overview of Fiscal 2020 Results and Executive Compensation Actions
Fiscal 2020 Results
Fiscal 2020 was a strong year for our Company as we increased revenues, achieved significant earnings growth, had meaningful operating margin expansion and strengthened our cash position. Our results highlighted the benefits of our global reach, our diversified business model and the strength of our brand. Specifically, in fiscal 2020: (1) the Company’s total revenue increased 3% over the prior year (5% in constant currency) to $2.68 billion, on top of 10% revenue growth in fiscal 2019 (11% in constant currency); (2) adjusted earnings from operations increased 30% to $150.2 million, after a 32% increase in fiscal 2019; (3) adjusted net earnings increased 31% to $105.0 million, after a 37% increase in fiscal 2019; (4) adjusted diluted earnings per share increased 48% to $1.45, after a 40% increase in fiscal 2019 and (5) net cash provided by operating activities was $197.9 million, an increase of $116.2 million compared to $81.7 million in fiscal 2019, driven by improved operating performance and better management of inventories and working capital. On a GAAP basis, the Company reported earnings from operations of $140.7 million for fiscal 2020, compared to $52.2 million in fiscal 2019, net earnings of $96.0 million for fiscal 2020, compared to net earnings of $14.1 million in fiscal 2019, and diluted earnings per share of $1.33 for fiscal 2020, compared to diluted earnings per share of $0.16 for fiscal 2019. Please see“Non-GAAP Measures” on pages43-45 of the Company’s Fiscal 2020 Annual Report on Form10-K and pages40-42 of the Company’s Fiscal 2019 Annual Report on Form10-K for additional information regarding the Company’s disclosure of certainnon-GAAP financial information contained herein.
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Fiscal 2020 Executive Compensation Actions
The highlights of the Company’s executive compensation program for fiscal 2020 include:
Mr. Alberini become our Chief Executive Officer on February 20, 2019 pursuant to an employment agreement he entered into with the Company in January 2019. Ms. Anderson became our Chief Financial Officer on December 2, 2019 pursuant to an offer letter she entered into with the Company in October 2019. The terms of Mr. Alberini’s employment agreement and Ms. Anderson’s offer letter were negotiated in connection with their hiring. The material terms of the employment agreement and offer letter are summarized below under “Description of Employment Agreements” and “Potential Payments upon Termination or Change in Control.”
No changes were made to Mr. Paul Marciano’s annual base salary for fiscal 2020, and his target annual cash incentive award and target annual equity award amounts were reduced for fiscal 2020 as compared to fiscal 2019. Prior to his separation from employment, no changes were made to Mr. Reddy’s annual base salary or target annual cash incentive award for fiscal 2020.
In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current Named Executive Officers agreed to a temporary reduction of their base salaries, with Messrs. Paul Marciano and Alberini agreeing to reduce their salaries by 70% and Ms. Anderson agreeing to reduce her salary by 30%.
The Company’s annual cash incentive awards for the Named Executive Officers for fiscal 2020 were determined based on the Company’s earnings from operations during the fiscal year, relative topre-established performance targets considered by the Compensation Committee to be rigorous. In the case of Mr. Paul Marciano, half of his annual cash incentive award was determined based on earnings from operations for the Company’s licensing segment, which was an area of focus for Mr. Paul Marciano. The cash incentive awards paid at approximately 77% of the earnings from operations target and 150% of the licensing earnings from operations target for Mr. Paul Marciano. However, to further align the executive officers’ interests with shareholders and to conserve cash in light of the impact of theCOVID-19 pandemic, the Compensation Committee determined in April 2020 to pay certain fiscal 2020 annual incentive awards, including the awards paid to our Named Executive Officers (other than a guaranteed cash award set forth in Ms. Anderson’s offer letter), in shares of the Company’s common stock instead of cash. See “Annual Incentive Awards” below for more information.
The equity award granted to Mr. Paul Marciano for fiscal 2020, and a portion of the equity awards granted to Mr. Alberini in connection with his commencement of employment in fiscal 2020, included performance-based vesting requirements.
Fifty percent of the restricted stock units subject to the award granted to Mr. Paul Marciano became eligible to vest based on the achievement of a threshold level of earnings from operations derived from the Company’s licensing segment for fiscal 2020, and the remaining fifty percent of the restricted stock units became eligible to vest based on the achievement of a threshold level of earnings from operations for fiscal 2020. These threshold performance levels were met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a three-year vesting period.
The restricted stock units granted to Mr. Alberini became eligible to vest based on the achievement of a threshold level of the Company’s total revenue for fiscal 2020. This threshold performance level was met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a four-year vesting period.
Based on the Company’s strong relative TSR for the three year period ended February 1, 2020 (at approximately the 87.5th percentile among the peer group of companies used for these awards), the Fiscal 2018 Relative TSR Award (as defined below) granted to Mr. Paul Marciano vested at 150% of target. Based on the Company’s strong revenue performance for fiscal 2020, the portion of the Fiscal
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2018 LTIP Award (defined below) granted to Mr. Paul Marciano
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Executive Compensation Program Philosophies and Objectives
The Company’s executive compensation programs are intended to achieve three fundamental objectives: (1) attract, motivate and retain qualified executives; (2) hold executives accountable for performance; and (3) align executives’ interests with those of our shareholders. In structuring the Company’s current executive compensation programs, we are guided by the following basic philosophies:
• | Competition for Executive Talent.The Company should provide competitive compensation opportunities so that we can attract, motivate and retain qualified executives. |
• | Pay for Performance.A substantial portion of |
• | Alignment with Shareholder Interests.A substantial portion of compensation should be in the |
We also believe shareholder interests are further served by other executive compensation-related practices that we follow. These practices include:
We do not have minimum award levels under our Annual Incentive Bonus Plan or minimum earnouts for our equity awards with performance-based vesting requirements.
We do not provide excise taxgross-ups on change in control payments.
We do not reprice “underwater” stock options (stock options where the exercise price is above the then-current market price of our stock) without shareholder approval.
Members of our senior management team, and all of our directors, are subject to stock ownership guidelines, which include holding requirements for individuals who have not satisfied the guideline level of ownership.
We have a policy to limit the amount of Company shares that a director or executive officer of the Company may pledge or otherwise use as security for a loan, margin account or similar arrangement to no more than 50% of the Company shares beneficially owned by such person after meeting his or her applicable stock ownership guidelines.
We have a “clawback” policy pursuant to which the Board or the Compensation Committee may require reimbursement or cancellation of cash and equity incentive compensation in certain circumstances if the awards are linked to financial results that are subsequently revised.
Our Compensation Committee retains an independent compensation consultant for independent advice and market data.
Consistent with our compensation philosophies described above, our goal for fiscal 2020 was to provide each Named Executive Officer with a total compensation opportunity that was competitive in light of the compensation provided to comparable executives at our peer group companies and that appropriately reflects individual and Company performance.
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The Role of the Compensation Committee and Management
The Company’s executive compensation programs are determined and approved by the Compensation Committee. Our Chief Executive Officer recommends to the Compensation Committee salary, cash incentive awards, equity-based awards and long-term compensation levels for less senior executives, including the other Named Executive Officers (other than for Mr. Paul Marciano). At the direction of the Compensation Committee, other members of management furnish financial, performance and other information relevant to setting performance goals and certifying results. The Compensation Committee is, however, solely responsible for making the final decisions on compensation for all Named Executive Officers. Other members of management, including any other Named Executive Officers, do not currently have any role in determining or recommending the form or amount of compensation paid to our Named Executive Officers.
The Role of the Independent Compensation Consultant
As indicated above, the Compensation Committee has engaged FW Cook as its independent compensation consultant. During fiscal 2020, FW Cook assisted the Compensation Committee (1) in its review of executive compensation levels for select positions; (2) in its shareholder outreach efforts concerning executive compensation matters; and (3) in its evaluation of certain long-term incentive award structures for executives.
The services performed by FW Cook for the Company have been exclusively limited to compensation consulting services performed at the request of the Compensation Committee. FW Cook does not undertake any work for the Company at the direction of the Company’s management or other employees, although the consultant communicates with management from time to time to obtain information necessary to advising the Compensation Committee. The Compensation Committee has determined that FW Cook is independent and that its services do not raise any conflict of interest with the Company or any of its executive officers or directors.
The peer group used to inform the Compensation Committee’s judgment in setting executive compensation levels for fiscal 2020 was initially established prior to fiscal 2020 by the Compensation Committee, taking into account the advice of FW Cook and input from management. In selecting the peer companies, made up of publicly-traded retail apparel and accessories companies, the Compensation Committee considered factors such as the size and business models of each company, as well as whether such companies may compete with Guess for executive talent. The companies that comprised the peer group for fiscal 2020 were:
| Michael Kors Holdings Limited | |
American Eagle Outfitters, Inc. | New York & Company, Inc. | |
Chico’s FAS, Inc. | PVH Corp. | |
The Children’s Place, Inc. | Ralph Lauren Corporation | |
Deckers Outdoor Corp. | Tapestry, Inc. | |
Express, Inc. | Urban Outfitters, Inc. | |
Fossil Group, Inc. |
The peer group for fiscal 2020 was the same as the peer group for the prior year, except for the removal of Kate Spade & Company, as a result of its acquisition by Tapestry, Inc.Peer company compensation data was used by the Compensation Committee as a general reference point in its compensation reviews. The Compensation Committee does not set compensation levels at any specific level or percentile against this compensation data. Instead, the peer group data is only one point of information taken into account by the Compensation Committee in making compensation decisions. Except as otherwise noted, the Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experiences of the members of the Compensation Committee as well as the input from, and peer group data provided by, the Compensation Committee’s independent executive compensation consultant.
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Shareholder Engagement and the Role of ShareholderSay-on-Pay Votes
The Board of Directors and the Compensation Committee value the input of our shareholders regarding the Company’s governance practices and the design and effectiveness of our executive compensation program. As in prior years, the Company’s Lead Independent Director and Chairperson of the Compensation Committee continued his dialogue with our shareholders in 2019, speaking directly with investors representing approximately thirty percent of the issued and outstanding shares of our Common Stock held by persons other than insiders. Based in part on these conversations, the Compensation Committee decided to continue to emphasizepay-for-performance and to continue the general structure of our fiscal 2019 executive compensation program in fiscal 2020, with the exception of certain changes to our long-term equity incentive awards, as described below.
Our shareholders are currently provided with an opportunity to cast an advisory vote on our executive compensation program every year through thesay-on-pay proposal. Our shareholders were last presented with such an opportunity at our 2019 annual meeting of shareholders, where shareholders approved of our executive compensation program for fiscal 2019, with over 99% of the votes on our advisorysay-on-pay shareholder vote at that meeting cast in favor of our executive compensation program.
The Board and the Compensation Committee consider shareholder engagement to be an important part of their decision making process and plan to continue their outreach efforts in order to stay abreast of shareholder perspectives. When making future compensation decisions for our Named Executive Officers, the Compensation Committee will continue to consider the opinions that shareholders express directly to the Compensation Committee and through our annualsay-on-pay advisory votes.
Executive Compensation Program Elements for Fiscal 2020
Summary
The key elements of our current executive compensation program for Named Executive Officers consist of base salary, an annual cash incentive opportunity and equity-based long-term incentive opportunities. We also provide anon-qualified deferred compensation plan, a 401(k) plan, a supplemental executive retirement plan for our Chief Creative Officer (and for our Chief Executive Officer, but only with respect to his prior service to the Company ending in June 2010) and severance protection for certain terminations of our Named Executive Officers’ employment.
We believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives. Base salaries, thenon-qualified deferred compensation plan, 401(k) plan, supplemental executive retirement plan and severance and other termination benefits are all primarily intended to attract and retain qualified executives. These are the elements of our current executive compensation program where the value of the benefit in any given year is generally not variable. We believe that in order to attract and retaintop-caliber executives, we need to provide executives with predictable benefit amounts that reward the executive’s continued service. Some of the elements, such as base salaries, are generally paid out on a short-term or current basis. The other elements are generally paid out on a longer-term basis, such as upon retirement or other termination of employment or following a vesting period. We believe that this mix of longer-term and shorter-term elements allows us to achieve our dual goals of attracting and retaining executives.
Our Named Executive Officer’s annual incentive opportunities are paid out on an annual basis and are designed to hold executives accountable for annual performance. They also help further align Named Executive Officers’ interests with those of our shareholders and help us attract, motivate and retain executives. Our long-term equity incentives are primarily intended to align Named Executive Officers’ interests with those of our shareholders, although they also hold executives accountable for performance (as the value of the awards, as well as the number of shares/units vesting under certain awards, is linked to the achievement of specified performance goals and/or our stock price) and help us attract, motivate and retain executives. These are the elements of our
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current executive compensation program that are designed to reward performance and the creation of shareholder value, and therefore the value of these benefits is dependent on performance and/or share price.
The Compensation Committee uses these elements, as described in more detail below, to create a total compensation package for each Named Executive Officer that it believes supports the Company’s compensation objectives and provides a competitive compensation opportunity tied to both operating performance and changes in shareholder value.
Base Salaries
Base salaries for the Named Executive Officers are designed to compensate executives for their level of responsibility, skill, experience and individual contributions. The Compensation Committee reviews and approves base salaries for Named Executive Officers annually and in connection with promotions or other changes in responsibilities. Base salaries are set at levels that are intended to avoid excessive fixed costs while simultaneously providing sufficient guaranteed annual income to mitigate incentives for executives to pursue overly risky business strategies in order to maximize short-term variable compensation. In determining the appropriate levels of base salary, the Compensation Committee also considers, in its subjective judgment, individual performance, scope of duties, pay history and market data.
For fiscal 2020, Mr. Paul Marciano’s base salary remained flat at $950,000, the level set by the Compensation Committee for Mr. Paul Marciano in fiscal 2018 and which was more than a third less than his base salary in fiscal 2016 of $1,500,000.
For fiscal 2020, Mr. Alberini’s base salary was at an annualized rate of $1,200,000 in accordance with his employment agreement with the Company entered into in January 2019.
For fiscal 2020, Mr. Reddy’s base salary remained flat at $650,000, the level set by the Compensation Committee in fiscal 2019.
As provided in her offer letter with the Company, Ms. Anderson’s base salary was set at $550,000 annually upon her commencement of employment in December 2019.
As previously noted, Mr. Maurice Marciano did not receive any base salary for his service in fiscal 2020 as our Interim Chief Executive Officer.
Annual Incentive Awards
We believe that a significant portion of compensation for executive officers should be based on performance, with the opportunity to earn substantial awards in connection with superior performance. Annual incentive awards are generally granted to the Company’s Named Executive Officers under the Company’s shareholder-approved Annual Incentive Bonus Plan (the “Bonus Plan”), a performance-based plan intended to motivate key employees by linking cash incentive award opportunities topre-established performance objectives.
The Compensation Committee determined the Named Executive Officers’ annual incentives under the Bonus Plan for fiscal 2020 utilizing objective Company performance metrics, with the amount of the annual incentive determined based on the Company’s earnings from operations for fiscal 2020 (and the Company’s licensing segment earnings from operations for fiscal 2020, in the case of Mr. Paul Marciano). These objective metrics were utilized in part to provide an objective framework for determining the annual incentive awards for executives, and also because the Compensation Committee believes that earnings from operations (and licensing segment earnings from operations, in the case of Mr. Paul Marciano) is widely used by investors and shareholders to measure performance and including it as the measurement used to calculate annual cash incentive awards helps to further link the executives’ incentive opportunities to the Company’s financial performance. For
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these purposes, the Compensation Committee established threshold, target and maximum earnings from operations goals for fiscal 2020 at levels that the Compensation Committee considered to be rigorous, with both the fiscal 2020 earnings from operations goal and the fiscal 2020 license segment earnings from operations goal for Mr. Paul Marciano set above the target level goals set under the fiscal 2019 executive annual incentive program. In particular, the fiscal 2020 earnings from operations goal was set almost 40% above the fiscal 2019 earnings from operations goal at target level. Mr. Maurice Marciano did not participate in the Bonus Plan or receive a bonus for fiscal 2020. Ms. Anderson’s employment commenced late in the year, in December 2019. Accordingly, she did not participate in the Bonus Plan for fiscal 2020 but she was, as discussed below, considered for a fiscal 2020 bonus.
Methodology to Determine Awards
Each Named Executive Officer (other than Mr. Maurice Marciano and Ms. Anderson) had a threshold and target cash incentive amount under the Bonus Plan for fiscal 2020, and each executive’s annual cash incentive was in all events capped at a maximum amount. The Compensation Committee determined to decrease the threshold, target and maximum amounts for Mr. Paul Marciano for fiscal 2020 such that his threshold incentive amount was set at 100% of his base salary, his target incentive amount was set at 200% of his base salary and his maximum incentive amount was set at 300% of his base salary. (In the prior year, these percentages were set at 131.5%, 263% and 394.5% of his base salary, respectively.) Mr. Alberini’s incentive levels for fiscal 2020 were the same as Mr. Paul Marciano’s levels. For Mr. Reddy, the threshold incentive amount remained at 45% of his base salary, his target incentive amount remained at 90% of his base salary and his maximum incentive amount remained at 180% of his base salary for fiscal 2020. At the time each of these target, threshold and maximum levels was approved for fiscal 2020, the Compensation Committee believed them to be reasonably competitive for each position.
Pursuant to the terms of her offer letter, Ms. Anderson was entitled to a cash incentive award between $100,000 and $200,000 for fiscal 2020, with a minimum cash incentive award of $100,000. As Ms. Anderson’s employment commenced in December 2019, the Compensation Committee did not set threshold, target and maximum incentive amounts for her for fiscal 2020. At the recommendation of the Chief Executive Officer and as discussed below, the Compensation Committee considered certainnon-financial performance factors in determining Ms. Anderson’s actual annual incentive award for fiscal 2020.
The Named Executive Officers’ fiscal 2020 annual incentives were determined 100% (in the case of Messrs. Alberini and Reddy) and 50% (in the case of Mr. Paul Marciano) based on the Company’s earnings from operations for fiscal 2020 and 50% (in the case of Mr. Paul Marciano) based on the Company’s licensing segment earnings from operations for fiscal 2020 (in each case, excluding the impact of certain specified litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition, tax and accounting related matters, or such other items as the Compensation Committee may in its discretion determine to be appropriate in the circumstances) relative to performance targets established by the Compensation Committee set forth in the table below:
Earnings from for Fiscal 2020 | Annual Cash Incentive Amount (as a Percentage of Total Target Award) | ||||||||||||||||
Performance Level | P. Marciano | C. Alberini | S. Reddy | ||||||||||||||
Below Threshold | Less than $141.3 million | 0 | % | 0 | % | 0 | % | ||||||||||
Threshold | $141.3 million | 25 | % | 50 | % | 50 | % | ||||||||||
Target | $161.2 million | 50 | % | 100 | % | 100 | % | ||||||||||
Maximum | $201.5 million or more | 75 | % | 150 | % | 200 | % |
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| Annual Cash Incentive Amount (as a Percentage of | ||||||||||||||||
Performance Level | P. Marciano | C. Alberini | S. Reddy | ||||||||||||||
Below Threshold | Less than $59.1 million | 0 | % | — | — | ||||||||||||
Threshold | $59.1 million | 25 | % | — | — | ||||||||||||
Target | $66.9 million | 50 | % | — | — | ||||||||||||
Maximum | $73.5 million or | 75 | % | — | — |
If the Company’s actual performance fell between the levels indicated above, the payout percentage would be determined by linear interpolation between the applicable payout levels.
The Compensation Committee chose earnings from operations (and licensing segment earnings from operations, in the case of Mr. Paul Marciano) as the measurement used to calculate the annual cash incentive amount for each executive as a way to further link these executives’ incentive opportunities to the Company’s financial performance. Earnings from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certainnon-operational factors to better assess managements’ operation of the business. Licensing segment earnings from operations was taken into account in determining Mr. Paul Marciano’s award given his continuing contributions to the Company’s licensing business.
Determination of Actual Awards
In April 2020, the Compensation Committee determined that the Company’s earnings from operations (as described above) for fiscal 2020 was $152 million, after giving effect to adjustments approved by the Compensation Committee to exclude (i) $8.5 million for store impairment charges, (ii) $(0.9) million for certain professional service and legal fees and related credits, (iii) $1.7 million for legal charges, (iv) $1.5 million of goodwill impairment charges, and (v) $0.4 million of charges relative to executive separations from service. In April 2020, the Compensation Committee determined that the Company’s licensing segment earnings from operations (as described above) for fiscal 2020 was $74.5 million. Applying the payout percentages above, the Company’s performance resulted in a cash incentive award for fiscal 2020 of $729,305 for Mr. Paul Marciano and $1,842,454 for Mr. Alberini with respect to the Company’s earnings from operations for fiscal 2020, and $1,425,000 for Mr. Paul Marciano with respect to the Company’s licensing segment earnings from operations for fiscal 2020. Mr. Reddy was not eligible to receive an annual incentive award for fiscal 2020 as his employment with the Company terminated in December 2019.
Pursuant to the terms of her offer letter, Ms. Anderson was entitled to a cash incentive award between $100,000 and $200,000 for fiscal 2020. As Ms. Anderson’s employment commenced in December 2019, the Compensation Committee did not set threshold, target and maximum incentive amounts for her for fiscal 2020. The Compensation Committee determined to pay Ms. Anderson an annual incentive award for fiscal 2020 of $200,000 based on its assessment of Ms. Anderson’s successful integration into the Company, her role in developing a business plan and budget for fiscal 2021 and her efforts in ensuring a successful fiscal 2020year-end close and reporting process.
To further align executive officers’ interests with shareholders and to conserve cash in light of the impact of theCOVID-19 pandemic on the retail industry and the Company, the Compensation Committee determined it was advisable to pay the fiscal 2020 annual incentive awards for executive officers and certain other employees in shares of the Company’s common stock instead of cash. Accordingly, in April 2020, Messrs. Paul Marciano and Alberini and Ms. Anderson received a number of fully-vested shares of the Company equal to the amount of their approved bonuses, less the applicable withholdings and deductions, divided by the closing price per share of the Company’s common stock on April 27, 2020. As the Compensation Committee permitted Mr. Paul Marciano to satisfy the tax withholding obligations for this award with a cash payment to the Company, the number of shares granted to him reflects his full bonus amount. This resulted in 269,928 shares for Mr. Paul Marciano,
38 125,561 shares for Mr. Alberini, and 8,260 shares for Ms. Anderson (Ms. Anderson’s bonus was paid 50% in shares and 50% in cash as Ms. Anderson was guaranteed a $100,000 cash bonus payment for fiscal 2020 pursuant to the terms of her offer letter). Long-Term Equity Incentive Awards The Company’s philosophy is that the Named Executive Officers’ long-term compensation should be directly linked to the value provided to our shareholders. Therefore, 100% of the Named Executive Officers’ long-term compensation is currently awarded in the form of stock options, restricted stock and/or restricted stock units. The Compensation Committee has the authority to grant stock options, restricted stock, restricted stock units and other awards under the Company’s 2004 Equity Incentive Plan. The fiscal 2020 equity awards granted to the Named Executive Officers are described below. Mr. Maurice Marciano did not receive any equity incentive awards in connection with his service in fiscal 2020 as our Interim Chief Executive Officer. Restricted Stock. The Compensation Committee primarily utilizes restricted stock (or restricted stock units) as the main component of its long-term incentive grants to our Named Executive Officers. Use of restricted stock (or restricted stock units) instead of stock options reduces the level of potential share dilution that would otherwise develop if larger stock option awards were granted. The Compensation Committee also uses restricted stock awards as a retention incentive as they generally vest over a multi-year period. For fiscal 2020, the Compensation Committee granted certain restricted stock unit awards to the Named Executive Officers that were subject to both performance-based and time-based vesting requirements to provide additional incentives to achieve specified financial goals. In addition, restricted stock promotes commonality of interests between management and shareholders since the awards expose the recipient to both upside and downside risk based on the value of the Company’s Common Stock over time. Stock Options. The Compensation Committee also granted a portion of the long-term incentive grant to Mr. Alberini and Ms. Anderson (and the entire award granted to Mr. Reddy) in the form of stock options with an exercise price that is equal to the closing price of a share of the Company’s Common Stock on the NYSE on the grant date. The Compensation Committee may from time to time utilize stock options in an executive equity award mix as stock options have value only if our shareholders realize value through stock price appreciation after the grant date of the options. Stock options also foster retention of key executives since the awards generally vest over the four-year period following the performance period. Equity Award for Mr. Paul Marciano for Fiscal 2020 In June 2019, the Compensation Committee granted an award of 205,339 restricted stock units to Mr. Paul Marciano that were subject to both time- and performance-based vesting requirements. The award was determined by the Compensation Committee to be, in light of Mr. Paul Marciano’s role with the Company, an appropriate incentive both to achieve the specific performance goals identified below and to continue employment with the Company through the vesting period. 50% of Mr. Paul Marciano’s restricted stock unit award for fiscal 2020 was eligible to vest if the Company’s earnings from operations from its licensing segment for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $59.1 million, and the remaining 50% of Mr. Paul Marciano’s restricted stock unit award for fiscal 2020 was eligible to vest if the Company’s earnings from operations for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $141.3 million (in either case, excluding the impact of certain specified litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition and tax and accounting related 39 matters). If the applicable threshold goals were met, the award would be scheduled to vest in three equal installments on each of January 30, 2020, January 30, 2021 and January 30, 2022, subject to Mr. Paul Marciano’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below. The Compensation Committee believes that Mr. Paul Marciano continues to make substantial contributions to the Company’s licensing segment. Earnings from operations derived from the Company’s licensing segment was selected as the performance measure for this award as a way to further link Mr. Paul Marciano’s incentives to the performance of that segment of the Company’s business. Earnings from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certainnon-operational factors. Following the end of fiscal 2020, the Compensation Committee determined that the Company’s licensing segment earnings from operations for fiscal 2020 was $74.5 million and the Company’s earnings from operations for fiscal 2020 was $150.0 million, meaning that the threshold level had been achieved for both portions of the award. Accordingly,one-third of the award vested upon the Compensation Committee’s determination, and the remainingtwo-thirds is scheduled to vest as described above. Equity Awards for Mr. Alberini for Fiscal 2020 In February 2020, in connection with the commencement of Mr. Alberini’s employment, the Compensation Committee granted awards of restricted stock units and stock options to Mr. Alberini. The awards were separated into three different award types so that different vesting requirements could be used for different portions of the awards. The awards were determined by the Compensation Committee to be, in light of Mr. Alberini’s role with the Company, an appropriate incentive for Mr. Alberini to join the Company, to achieve the specific performance goals identified below, and to continue employment with the Company through the vesting period. Revenue Award. The first award granted to Mr. Alberini was an award of 250,000 restricted stock units that will be eligible to vest if the Company’s total revenue for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $2.3 billion (excluding the impact of certain accounting changes and currency fluctuations) (the “2020 Revenue Award”). If the threshold goal was met, the 2020 Revenue Award would be scheduled to vest in four equal installments on each of February 20, 2020, February 20, 2021, February 20, 2022, and February 20, 2023, subject to Mr. Alberini’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below. Following the end of fiscal 2020, the Compensation Committee determined that the Company’s total revenue for fiscal 2020 was $2.678 billion, meaning that the threshold level had been achieved for the 2020 Revenue Award. Accordingly,one-fourth of the award vested upon the Compensation Committee’s determination, and the remaining three-fourths is scheduled to vest as described above. Option Award. The second award granted to Mr. Alberini was an award of an option to purchase 600,000 shares of Company common stock that is scheduled to vest in four equal installments on each of February 20, 2020, February 20, 2021, February 20, 2022, and February 20, 2023, subject to Mr. Alberini’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below. Signing Restricted Stock Unit Award. The third award granted to Mr. Alberini was an award of 150,000 restricted stock units that were fully vested at grant. However, if Mr. Alberini had terminated his employment other than for “Good Reason” (as such term is defined in his employment agreement) within one year of the date of grant, he would have been required to return to the Company the shares subject to the award (or the proceeds of the sale if any such shares had been sold). These units were awarded primarily to incentivize Mr. Alberini to accept employment with the Company and to make up for compensation opportunities with his prior employer that he forfeited in connection with joining the Company. 40 Equity Awards for Ms. Anderson for Fiscal 2020 In December 2019, in connection with Ms. Anderson’s commencement of employment, the Compensation Committee granted awards of restricted stock and stock options to Ms. Anderson. The awards were determined by the Compensation Committee to be, in light of Ms. Anderson’s role with the Company, an appropriate incentive for Ms. Anderson to join the Company and to continue employment with the Company through the vesting period. Restricted Stock Award. The first award granted to Ms. Anderson was an award of 70,000 shares of restricted stock that will be eligible to vest in four equal installments on each of December 2, 2020, December 2, 2021, December 2, 2022, and December 2, 2023, subject to Ms. Anderson’s continued service to the Company through the applicable vesting date, although this service-based vesting requirement would be deemed met upon a “change in control” of the Company (as such term is defined in her offer letter). Option Award. The second award granted to Ms. Anderson was an award of an option to purchase 130,000 shares of the Company’s stock that is scheduled to vest in four equal installments on each of December 2, 2020, December 2, 2021, December 2, 2022, and December 2, 2023, subject to Ms. Anderson’s continued service to the Company through the applicable vesting date, although this service-based vesting requirement would be deemed met upon a “change in control” of the Company (as such term is defined in her offer letter). Equity Awards for Mr. Reddy for Fiscal 2020 As in prior years, the Compensation Committee utilized atwo-tier approach for equity awards to Mr. Reddy for fiscal 2020. Under this approach, the Compensation Committee approvedpre-established formulas to determine the maximum value of the equity incentive opportunities that may be awarded to Mr. Reddy, then exercised its discretion in determining the number of shares to be subject to the actual equity awards, which were at levels at or below the calculated maximum award levels. The maximum number of shares of the Company’s Common Stock subject to each annual award was intended to create a meaningful opportunity for stock ownership in light of Mr. Reddy’s position with the Company, the size of comparable awards to comparable executives at our peer group companies, and Mr. Reddy’s personal performance in recent periods. In June 2019, the Compensation Committee established maximum equity incentive opportunities in the form of stock options and restricted stock for Mr. Reddy pursuant to a specific formula tied to the Company’s cash flow from operations (excluding the impact of certain litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition and tax and accounting related matters) for fiscal 2020. The maximum individual equity award opportunities for Mr. Reddy for fiscal 2020 consisted of a maximum stock option award opportunity value equal to the lesser of 0.19% of cash flow from operations for fiscal 2020 or 30% of base salary and a maximum restricted stock award opportunity value equal to the lesser of 0.49% of cash flow from operations for fiscal 2020 or 80% of base salary. Mr. Reddy forfeited these equity award opportunities as his employment terminated prior to the end of fiscal 2020. In June 2019, the Compensation Committee awarded Mr. Reddy, along with other select members of management (other than Messrs. Paul Marciano and Alberini), aone-time stock option award intended as an additional incentive to increase the value of the Company’s stock. Mr. Reddy was awarded an option to purchase 128,700 shares of the Company’s stock that was scheduled to vest in four equal installments on each of June 10, 2020, June 10, 2021, June 10, 2022, and June 10, 2023, subject to Mr. Reddy’s continued service to the Company through the applicable vesting date. Mr. Reddy forfeited this option award in full as his employment terminated prior to the first vesting date. Fiscal 2018 Annual Equity Awards—Final Vesting Fiscal 2018 Relative TSR Award In fiscal 2018, the Compensation Committee awarded Mr. Paul Marciano a restricted stock unit award that vested based on the Company’s relative total shareholder return, with a three-year performance period consisting 41 of the Company’s 2018, 2019 and 2020 fiscal years (the “2018 Relative TSR Award”). In February 2020, the Compensation Committee determined that the Company’s TSR for the three-year performance period was in the 87.5th percentile compared to the TSRs for the peer group of companies used for purposes of the award for the three-year performance period. As a result, the Compensation Committee determined that the 2018 Relative TSR Awards vested at the end of the performance period as to 150% of the target number of restricted stock units subject to the award (with Mr. Paul Marciano vesting as to 174,025 shares). Fiscal 2018 LTIP Award In fiscal 2018, the Compensation Committee awarded Messrs. Paul Marciano and Reddy a restricted stock unit award, which was eligible to vest based 25% on the Company’s revenue (excluding Americas Retail segment) and 75% on the Company’s earnings from operations levels for fiscal 2020 (the “2018 LTIP Award”). In April 2020, the Compensation Committee determined that, for purposes of the 2018 LTIP Award, the Company’s fiscal 2020 revenue (excluding Americas Retail segment and after giving effect to adjustments required pursuant to the terms of the award to exclude the impact of certain specified accounting and currency related matters) was $1,779 million, which was approximately 104% of the target revenue performance level (the target performance level was $1,707 million for fiscal 2020 revenue (excluding Americas Retail segment)), and the Company’s fiscal 2020 earnings from operations (after giving effect to adjustments required pursuant to the terms of the award to exclude the impact of certain currency related matters, as well as store impairments and certain legal charges) was $104 million, which was below the threshold earnings from operations performance level established for the 2018 LTIP Awards (the threshold performance level was $127 million for fiscal 2020 earnings from operations). As a result, 44.4% of the 2018 LTIP Awards vested (with Mr. Paul Marciano vesting as to 39,785 shares). Mr. Reddy forfeited his 2018 LTIP Award as his employment terminated prior to the end of fiscal 2020. Cash Signing Bonuses In connection with the commencement of Mr. Alberini and Ms. Anderson’s employment, and pursuant to the terms of the executive’s employment agreement or offer letter, as applicable, Mr. Alberini received a cash signing bonus of $1,000,000 and Ms. Anderson received a cash signing bonus of $300,000. If either executive terminates his or her employment prior to the first anniversary of the executive’s employment commencement date, other than a resignation due to “good reason” (as such term is defined in the executive’s employment agreement or offer letter, as applicable), the executive will be required to repay the signing bonus in full. The signing bonuses were negotiated to encourage each executive to accept employment with the Company and make up for compensation opportunities with the executive’s prior employer that were forfeited in connection with joining the Company. Fiscal 2021 Base Salaries In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current executive officers agreed to a temporary reduction of their base salaries, with Mr. Paul Marciano agreeing to reduce his base salary from $950,000 to $285,000, Mr. Alberini agreeing to reduce his base salary from $1,200,000 to $360,000, and Ms. Anderson agreeing to reduce her base salary from $550,000 to $385,000. The reductions will end, and their prior base salary levels will be restored, on such future date as may be agreed upon by the Compensation Committee and the executives. The executives will not be entitled to any back pay for the period of time that their base salaries are reduced. Separation Agreement with Mr. Reddy In December 2019, the Company entered into a separation and release agreement with Mr. Reddy pursuant to which Mr. Reddy’s employment with the Company terminated effective December 1, 2019 (the “Separation Agreement”). The terms of the Separation Agreement are described in more detail under “Potential Payments Upon Termination or Change in Control” below. 42 401(k) Retirement Benefits The Company’s employees, including the Named Executive Officers, are eligible to participate in the Company’stax-qualified 401(k) plan and are eligible to receive a discretionary matching contribution from the Company after one year of service. In calendar year 2019, the Company made a discretionary matching contribution on behalf of each eligible participant equal to 50% of the first 6% of compensation contributed by the participant.These Company matching contributions can function as a retention incentive as they vest over the first five (5) years of service with the Company. The Named Executive Officers participate in the plan on the same terms as our other participating employees. Non-Qualified Deferred Compensation Plan The Company has maintained aNon-Qualified Deferred Compensation Plan (the “DCP”) since 2006. Under the DCP, select employees who satisfy certain eligibility requirements, including each of the Named Executive Officers and members of the Board, may make annual irrevocable elections to defer up to 75% of their base salary, 100% of their annual cash incentive, 100% of their cash compensation earned under any Company long-term incentive plan or 100% of their cash director fees to be earned during the following calendar year. In addition, the Company may make contributions to “make up” for Company match amounts under the Company’s 401(k) plan that cannot be made to Named Executive Officers because of applicable Internal Revenue Code limits. The Company may also make other discretionary contributions, although it did not do so for fiscal 2020. The Company believes that providing the Named Executive Officers with deferred compensation opportunities is a cost-effective way to permit officers to receive the tax benefits associated with delaying the income tax event on the compensation deferred, even though the related deduction for the Company is also deferred. Information with respect to the Named Executive Officers’ participation in the DCP is presented in, and the material terms of the DCP are described following, the“Non-Qualified Deferred Compensation Plan Table—Fiscal 2020” below. |
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Until a participant has met the applicable ownership guideline, the participant is expected to retain an amount equal to 50% of the net shares (after payment of any exercise price and related taxes) received as a result of the exercise, vesting or payment of equity awards (including stock options and restricted stock) granted by the Company to the participant. Once a participant has met the applicable ownership guideline, ownership of the guideline amount is expected to be maintained. For purposes of satisfying the Stock Ownership Guidelines, the following holdings count toward the required holding amounts: (1) shares owned directly (including through open market purchases, vesting of restricted stock awards or exercise of stock options), (2) shares held by spouses or children or through certain trusts for the benefit of the participant, a spouse and/or children and (3) stock option equivalents based on the value of “in-the-money” vested and unexercised stock options.
Executive Compensation Clawback Policy
The Company maintains a policy regarding the recoupment of certain performance-based compensation payments to executive officers (the “Clawback Policy”). The Clawback Policy provides that the Board or the Compensation Committee may require reimbursement or cancellation of all or a portion of certain short or long-term cash or equity awards made to an executive officer to the extent that: (1) the amount of, or number of shares included in, any such payment was calculated based on the achievement of financial results that were subsequently revised and (2) a lesser payment of cash or equity awards would have been made to the executive officer based upon the revised financial results. Where the achievement of a financial result was considered in determining performance-based compensation awarded, but the compensation was not awarded on a formulaic basis, the Board or Compensation Committee will determine in its discretion the amount, if any, to seek for reimbursement.
Section 162(m) Policy
Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally disallows a tax deduction to publicly-held companies for compensation paid to a current or former named executive officer that exceeds $1 million during the tax year. Certain awards granted before November 2, 2017 that were based upon attaining pre-established performance measures that were set by the Compensation Committee under a plan approved by the Company’s shareholders, as well as amounts payable to former executives pursuant to a written binding contract that was in effect on November 2, 2017, may qualify for an exception to the $1 million deductibility limit. As one of the factors in its consideration of compensation matters, the Compensation Committee notes this deductibility limitation. However, the Compensation Committee has the flexibility to take any compensation-related actions that it determines are in the best interests of the Company and its shareholders, including awarding compensation that may not be deductible for tax purposes. There can be no assurance that any compensation will in fact be deductible.
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Compensation Committee
Report on Executive Compensation(1)
The Compensation Committee has certain duties and powers as described in its Charter. The Compensation Committee is currently composed of the four Non-Employee Directors named at the end of this report, each of whom the Board has determined to be independent as defined by the NYSE listing standards.
The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this Proxy Statement. Based upon this review and our discussions, the Compensation Committee has recommended to our Board of Directors that the Compensation Discussion and Analysis section be included in the Company’s Fiscal 2018 Annual Report on Form 10-K and in this Proxy Statement for the 2018 Annual Meeting, each as filed with the SEC.
By the Compensation Committee,
Alex Yemenidjian, Chairperson
Anthony Chidoni
Joseph Gromek
Kay Isaacson-Leibowitz
— | — |
Compensation CommitteeCynthia Livingston
Interlocks and Insider ParticipationDeborah Weinswig
All of the Compensation Committee members whose names appear on the Compensation Committee Report above were committee members during all of fiscal 2018. No director whoAlex Yemenidjian
(2) | Mr. Maurice Marciano served |
(3) | As described under “Annual Retainer and Meeting Fees” below, there is a cap on the maximum cash compensation that aNon-Employee Director may receive during each fiscal year, and any amounts above the cash compensation cap will be paid in the form of restricted stock in the following fiscal year. In fiscal 2019, Messrs. Chidoni and Yemenidjian had excess cash retainer or meeting fees above the annual limit of $20,917 and $30,908, respectively. As a |
(4) | Mr. Gromek did not stand for reelection to our Board of Directors at our 2019 annual meeting, thus his service on our Board of Directors ended on June 10, 2019. In connection with his separation from service at the end of his term, his outstanding and unvested restricted stock awards vested in accordance with the terms of the awards. |
(5) | Ms. Livingston was elected to the Board effective June 10, 2019. |
Annual Retainer and Meeting Fees
The following schedule of annual retainers and meeting fees was used to determine the cash compensation paid to each of ourNon-Employee Directors for their service during fiscal 2020:
Type of Fee | Dollar Amount($) | ||||
Annual Board Retainer | 35,000 | ||||
Additional Annual Retainer to Lead Independent Director | 25,000 | ||||
Additional Annual Retainer to Chair of Audit Committee | 20,000 | ||||
Additional Annual Retainer to Chair of Compensation Committee | 17,500 | ||||
Additional Annual Retainer to Chair of Nominating and Governance Committee | 12,500 | ||||
Additional Monthly Retainer to Chair of a | 10,000 | ||||
Additional Monthly Retainer to Member of | 8,000 | ||||
Additional Attendance Fee per Standing Committee Meeting Attended | 1,500 | ||||
| 1,500 |
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AllNon-Employee Directors are eligible to defer up to 100% of their annual retainer and meeting fees under the Company’sNon-Qualified Deferred Compensation Plan, as more fully described below under “Compensation Discussion andAnalysis—Non-Qualified Deferred Compensation Plan.” AllNon-Employee Directors are also reimbursed forout-of-pocket expenses they incur in serving as directors.
Pursuant to the terms of the amended and restated Guess?, Inc.Non-Employee Directors’ Compensation Plan, as amended (the “Director Plan”), the maximum cash compensation that may be paid to aNon-Employee Director in any one fiscal year is $125,000 and the maximum restricted stock/stock unit award that may be granted to aNon-Employee Director in any one fiscal year is $275,000. To the extent that aNon-Employee Director is entitled to retainer and meeting fees based on the fee schedule set forth above in excess of $125,000 in any one fiscal year, the excess amount will not be paid but will be added to the annual restricted stock or restricted stock unit award granted to the director in the following year (subject to the $275,000 limit on annual restricted stock awards).
Equity Awards
OurNon-Employee Directors are granted equity awards under the Director Plan. EachNon-Employee Director who has not been an employee of the Company at any time during the immediately preceding 12 months is entitled to receive an award of a number of shares of restricted stock (or restricted stock units fornon-U.S. residents) equal in value to $180,000 on the first business day of each fiscal year. In the case of restricted stock, the award recipient is required to pay a purchase price of $0.01 per share. The number of shares of restricted stock or restricted stock units awarded is determined by dividing the applicable dollar amount by the closing price of a share of Common Stock on the NYSE on the date of grant and rounding down to the nearest whole share.
Subject to continued service, each restricted stock or restricted stock unit award granted under the Director Plan becomes vested andnon-forfeitable as to 100% of the shares or units subject to such award on the first to occur of (i) the first year anniversary of the date of grant or (ii) a termination of service if theNon-Employee Director has completed a full term of service and he or she does not stand forre-election at the completion of such term.Non-Employee Directors are entitled to voting and dividend rights with respect to the restricted stock. In the event of a “change in control” of the Company (as defined in the Director Plan), all shares of restricted stock and restricted stock units granted to ourNon-Employee Directors will, to the extent that the awards are then outstanding, vest 100% free of restrictions as of the date of the change in control. Unless otherwise determined by the Board, if aNon-Employee Director’s service as a director terminates for any reason other than a termination in the circumstances described above, any restricted stock or restricted stock units granted to theNon-Employee Director that are not fully vested and free from restriction as of the director’s termination of service will automatically be forfeited and returned to the Company.
Non-Employee Directors are subject to the Company’s Stock Ownership Guidelines, as described in more detail under “Compensation Discussion and Analysis—Stock Ownership Guidelines” below.
Maurice Marciano Retirement
After serving for over 30 years as an executive and leader for Guess,co-founder Maurice Marciano retired from his position as executive Chairman of the Board and as an employee of the Company upon the expiration of his employment agreement on January 28, 2012. Effective June 2018, Mr. Maurice Marciano began serving asnon-executive Chairman of the Board (after previously serving as Chairman Emeritus), for which he is eligible to receive the compensation provided to the Company’sNon-Employee Directors, as described above. From February 2, 2019 to February 19, 2019, Mr. Maurice Marciano also served as the Company’s Interim Chief Executive Officer. He did not receive any additional compensation for serving in this role. In addition, as required by the terms of his previous employment agreement, Mr. Maurice Marciano is entitled to receive
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lifetime retiree and family medical coverage. Mr. Maurice Marciano is also entitled to his fully vested benefits (based on his prior employment) pursuant to the standard terms of the Company’s Supplemental Executive Retirement Plan, Deferred Compensation Plan and 401(k) Plan.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Company’s executive compensation program, including a description of the Company’s compensation philosophies and objectives and a discussion of the material elements of compensation awarded to, earned by or paid to the following executive officers, referred to in this Proxy Statement as the “Named Executive Officers,” for their service in fiscal 2020:
Paul Marciano, Chief Creative Officer;
Carlos Alberini, Chief Executive Officer;
Maurice Marciano, Former Interim Chief Executive Officer;
Kathryn Anderson, Chief Financial Officer; and
Sandeep Reddy, Former Chief Financial Officer.
Mr. Maurice Marciano served as the Company’s Interim Chief Executive Officer from February 2, 2019 to February 19, 2019. He did not receive any additional compensation for serving in this role. Carlos Alberini commenced employment as the Company’s Chief Executive Officer, and a member of the Board, effective February 20, 2019.
Mr. Reddy’s employment with the Company terminated December 1, 2019. The terms of his Separation and Release Agreement are discussed below under “Separation Agreement with Mr. Reddy.” Ms. Anderson commenced employment as the Company’s Chief Financial Officer effective December 2, 2019. The terms of Ms. Anderson’s offer letter and the equity awards granted to her in connection with her employment are discussed below under “Description of Employment Agreements” and “Long Term Equity Incentive Awards.”
Overview of Fiscal 2020 Results and Executive Compensation Actions
Fiscal 2020 Results
Fiscal 2020 was a strong year for our Company as we increased revenues, achieved significant earnings growth, had meaningful operating margin expansion and strengthened our cash position. Our results highlighted the benefits of our global reach, our diversified business model and the strength of our brand. Specifically, in fiscal 2020: (1) the Company’s total revenue increased 3% over the prior year (5% in constant currency) to $2.68 billion, on top of 10% revenue growth in fiscal 2019 (11% in constant currency); (2) adjusted earnings from operations increased 30% to $150.2 million, after a 32% increase in fiscal 2019; (3) adjusted net earnings increased 31% to $105.0 million, after a 37% increase in fiscal 2019; (4) adjusted diluted earnings per share increased 48% to $1.45, after a 40% increase in fiscal 2019 and (5) net cash provided by operating activities was $197.9 million, an increase of $116.2 million compared to $81.7 million in fiscal 2019, driven by improved operating performance and better management of inventories and working capital. On a GAAP basis, the Company reported earnings from operations of $140.7 million for fiscal 2020, compared to $52.2 million in fiscal 2019, net earnings of $96.0 million for fiscal 2020, compared to net earnings of $14.1 million in fiscal 2019, and diluted earnings per share of $1.33 for fiscal 2020, compared to diluted earnings per share of $0.16 for fiscal 2019. Please see“Non-GAAP Measures” on pages43-45 of the Company’s Fiscal 2020 Annual Report on Form10-K and pages40-42 of the Company’s Fiscal 2019 Annual Report on Form10-K for additional information regarding the Company’s disclosure of certainnon-GAAP financial information contained herein.
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Fiscal 2020 Executive Compensation Actions
The highlights of the Company’s executive compensation program for fiscal 2020 include:
Mr. Alberini become our Chief Executive Officer on February 20, 2019 pursuant to an employment agreement he entered into with the Company in January 2019. Ms. Anderson became our Chief Financial Officer on December 2, 2019 pursuant to an offer letter she entered into with the Company in October 2019. The terms of Mr. Alberini’s employment agreement and Ms. Anderson’s offer letter were negotiated in connection with their hiring. The material terms of the employment agreement and offer letter are summarized below under “Description of Employment Agreements” and “Potential Payments upon Termination or Change in Control.”
No changes were made to Mr. Paul Marciano’s annual base salary for fiscal 2020, and his target annual cash incentive award and target annual equity award amounts were reduced for fiscal 2020 as compared to fiscal 2019. Prior to his separation from employment, no changes were made to Mr. Reddy’s annual base salary or target annual cash incentive award for fiscal 2020.
In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current Named Executive Officers agreed to a temporary reduction of their base salaries, with Messrs. Paul Marciano and Alberini agreeing to reduce their salaries by 70% and Ms. Anderson agreeing to reduce her salary by 30%.
The Company’s annual cash incentive awards for the Named Executive Officers for fiscal 2020 were determined based on the Company’s earnings from operations during the fiscal year, relative topre-established performance targets considered by the Compensation Committee to be rigorous. In the case of Mr. Paul Marciano, half of his annual cash incentive award was determined based on earnings from operations for the Company’s licensing segment, which was an area of focus for Mr. Paul Marciano. The cash incentive awards paid at approximately 77% of the earnings from operations target and 150% of the licensing earnings from operations target for Mr. Paul Marciano. However, to further align the executive officers’ interests with shareholders and to conserve cash in light of the impact of theCOVID-19 pandemic, the Compensation Committee determined in April 2020 to pay certain fiscal 2020 annual incentive awards, including the awards paid to our Named Executive Officers (other than a guaranteed cash award set forth in Ms. Anderson’s offer letter), in shares of the Company’s common stock instead of cash. See “Annual Incentive Awards” below for more information.
The equity award granted to Mr. Paul Marciano for fiscal 2020, and a portion of the equity awards granted to Mr. Alberini in connection with his commencement of employment in fiscal 2020, included performance-based vesting requirements.
Fifty percent of the restricted stock units subject to the award granted to Mr. Paul Marciano became eligible to vest based on the achievement of a threshold level of earnings from operations derived from the Company’s licensing segment for fiscal 2020, and the remaining fifty percent of the restricted stock units became eligible to vest based on the achievement of a threshold level of earnings from operations for fiscal 2020. These threshold performance levels were met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a three-year vesting period.
The restricted stock units granted to Mr. Alberini became eligible to vest based on the achievement of a threshold level of the Company’s total revenue for fiscal 2020. This threshold performance level was met and the award remains subject to vesting based on the satisfaction of a continued service requirement over a four-year vesting period.
Based on the Company’s strong relative TSR for the three year period ended February 1, 2020 (at approximately the 87.5th percentile among the peer group of companies used for these awards), the Fiscal 2018 Relative TSR Award (as defined below) granted to Mr. Paul Marciano vested at 150% of target. Based on the Company’s strong revenue performance for fiscal 2020, the portion of the Fiscal
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Executive Compensation Program Philosophies and Objectives
The Company’s executive compensation programs are intended to achieve three fundamental objectives: (1) attract, motivate and retain qualified executives; (2) hold executives accountable for performance; and (3) align executives’ interests with those of our shareholders. In structuring the Company’s current executive compensation programs, we are guided by the following basic philosophies:
• | Competition for Executive Talent.The Company should provide competitive compensation opportunities so that we can attract, motivate and retain qualified executives. |
• | Pay for Performance.A substantial portion of compensation should be tied to performance. |
• | Alignment with Shareholder Interests.A substantial portion of compensation should be in the form of equity awards that vest over a multi-year period, thus further aligning the interests of shareholders and executives. |
We also believe shareholder interests are further served by other executive compensation-related practices that we follow. These practices include:
We do not have minimum award levels under our Annual Incentive Bonus Plan or minimum earnouts for our equity awards with performance-based vesting requirements.
We do not provide excise taxgross-ups on change in control payments.
We do not reprice “underwater” stock options (stock options where the exercise price is above the then-current market price of our stock) without shareholder approval.
Members of our senior management team, and all of our directors, are subject to stock ownership guidelines, which include holding requirements for individuals who have not satisfied the guideline level of ownership.
We have a policy to limit the amount of Company shares that a director or executive officer of the Company may pledge or otherwise use as security for a loan, margin account or similar arrangement to no more than 50% of the Company shares beneficially owned by such person after meeting his or her applicable stock ownership guidelines.
We have a “clawback” policy pursuant to which the Board or the Compensation Committee may require reimbursement or cancellation of cash and equity incentive compensation in certain circumstances if the awards are linked to financial results that are subsequently revised.
Our Compensation Committee retains an independent compensation consultant for independent advice and market data.
Consistent with our compensation philosophies described above, our goal for fiscal 2020 was to provide each Named Executive Officer with a total compensation opportunity that was competitive in light of the compensation provided to comparable executives at our peer group companies and that appropriately reflects individual and Company performance.
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The Role of the Compensation Committee and Management
The Company’s executive compensation programs are determined and approved by the Compensation Committee. Our Chief Executive Officer recommends to the Compensation Committee salary, cash incentive awards, equity-based awards and long-term compensation levels for less senior executives, including the other Named Executive Officers (other than for Mr. Paul Marciano). At the direction of the Compensation Committee, other members of management furnish financial, performance and other information relevant to setting performance goals and certifying results. The Compensation Committee is, however, solely responsible for making the final decisions on compensation for all Named Executive Officers. Other members of management, including any other Named Executive Officers, do not currently have any role in determining or recommending the form or amount of compensation paid to our Named Executive Officers.
The Role of the Independent Compensation Consultant
As indicated above, the Compensation Committee has engaged FW Cook as its independent compensation consultant. During fiscal 2020, FW Cook assisted the Compensation Committee (1) in its review of executive compensation levels for select positions; (2) in its shareholder outreach efforts concerning executive compensation matters; and (3) in its evaluation of certain long-term incentive award structures for executives.
The services performed by FW Cook for the Company have been exclusively limited to compensation consulting services performed at the request of the Compensation Committee. FW Cook does not undertake any work for the Company at the direction of the Company’s management or other employees, although the consultant communicates with management from time to time to obtain information necessary to advising the Compensation Committee. The Compensation Committee has determined that FW Cook is independent and that its services do not raise any conflict of interest with the Company or any of its executive officers or directors.
The peer group used to inform the Compensation Committee’s judgment in setting executive compensation levels for fiscal 2020 was initially established prior to fiscal 2020 by the Compensation Committee, taking into account the advice of FW Cook and input from management. In selecting the peer companies, made up of publicly-traded retail apparel and accessories companies, the Compensation Committee considered factors such as the size and business models of each company, as well as whether such companies may compete with Guess for executive talent. The companies that comprised the peer group for fiscal 2020 were:
Abercrombie & Fitch Co. | Michael Kors Holdings Limited | |
American Eagle Outfitters, Inc. | New York & Company, Inc. | |
Chico’s FAS, Inc. | PVH Corp. | |
The Children’s Place, Inc. | Ralph Lauren Corporation | |
Deckers Outdoor Corp. | Tapestry, Inc. | |
Express, Inc. | Urban Outfitters, Inc. | |
Fossil Group, Inc. |
The peer group for fiscal 2020 was the same as the peer group for the prior year, except for the removal of Kate Spade & Company, as a result of its acquisition by Tapestry, Inc.Peer company compensation data was used by the Compensation Committee as a general reference point in its compensation reviews. The Compensation Committee does not set compensation levels at any specific level or percentile against this compensation data. Instead, the peer group data is only one point of information taken into account by the Compensation Committee in making compensation decisions. Except as otherwise noted, the Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experiences of the members of the Compensation Committee as well as the input from, and peer group data provided by, the Compensation Committee’s independent executive compensation consultant.
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Shareholder Engagement and the Role of ShareholderSay-on-Pay Votes
The Board of Directors and the Compensation Committee value the input of our shareholders regarding the Company’s governance practices and the design and effectiveness of our executive compensation program. As in prior years, the Company’s Lead Independent Director and Chairperson of the Compensation Committee continued his dialogue with our shareholders in 2019, speaking directly with investors representing approximately thirty percent of the issued and outstanding shares of our Common Stock held by persons other than insiders. Based in part on these conversations, the Compensation Committee decided to continue to emphasizepay-for-performance and to continue the general structure of our fiscal 2019 executive compensation program in fiscal 2020, with the exception of certain changes to our long-term equity incentive awards, as described below.
Our shareholders are currently provided with an opportunity to cast an advisory vote on our executive compensation program every year through thesay-on-pay proposal. Our shareholders were last presented with such an opportunity at our 2019 annual meeting of shareholders, where shareholders approved of our executive compensation program for fiscal 2019, with over 99% of the votes on our advisorysay-on-pay shareholder vote at that meeting cast in favor of our executive compensation program.
The Board and the Compensation Committee consider shareholder engagement to be an important part of their decision making process and plan to continue their outreach efforts in order to stay abreast of shareholder perspectives. When making future compensation decisions for our Named Executive Officers, the Compensation Committee will continue to consider the opinions that shareholders express directly to the Compensation Committee and through our annualsay-on-pay advisory votes.
Executive Compensation Program Elements for Fiscal 2020
Summary
The key elements of our current executive compensation program for Named Executive Officers consist of base salary, an annual cash incentive opportunity and equity-based long-term incentive opportunities. We also provide anon-qualified deferred compensation plan, a 401(k) plan, a supplemental executive retirement plan for our Chief Creative Officer (and for our Chief Executive Officer, but only with respect to his prior service to the Company ending in June 2010) and severance protection for certain terminations of our Named Executive Officers’ employment.
We believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives. Base salaries, thenon-qualified deferred compensation plan, 401(k) plan, supplemental executive retirement plan and severance and other termination benefits are all primarily intended to attract and retain qualified executives. These are the elements of our current executive compensation program where the value of the benefit in any given year is generally not variable. We believe that in order to attract and retaintop-caliber executives, we need to provide executives with predictable benefit amounts that reward the executive’s continued service. Some of the elements, such as base salaries, are generally paid out on a short-term or current basis. The other elements are generally paid out on a longer-term basis, such as upon retirement or other termination of employment or following a vesting period. We believe that this mix of longer-term and shorter-term elements allows us to achieve our dual goals of attracting and retaining executives.
Our Named Executive Officer’s annual incentive opportunities are paid out on an annual basis and are designed to hold executives accountable for annual performance. They also help further align Named Executive Officers’ interests with those of our shareholders and help us attract, motivate and retain executives. Our long-term equity incentives are primarily intended to align Named Executive Officers’ interests with those of our shareholders, although they also hold executives accountable for performance (as the value of the awards, as well as the number of shares/units vesting under certain awards, is linked to the achievement of specified performance goals and/or our stock price) and help us attract, motivate and retain executives. These are the elements of our
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current executive compensation program that are designed to reward performance and the creation of shareholder value, and therefore the value of these benefits is dependent on performance and/or share price.
The Compensation Committee uses these elements, as described in more detail below, to create a total compensation package for each Named Executive Officer that it believes supports the Company’s compensation objectives and provides a competitive compensation opportunity tied to both operating performance and changes in shareholder value.
Base Salaries
Base salaries for the Named Executive Officers are designed to compensate executives for their level of responsibility, skill, experience and individual contributions. The Compensation Committee reviews and approves base salaries for Named Executive Officers annually and in connection with promotions or other changes in responsibilities. Base salaries are set at levels that are intended to avoid excessive fixed costs while simultaneously providing sufficient guaranteed annual income to mitigate incentives for executives to pursue overly risky business strategies in order to maximize short-term variable compensation. In determining the appropriate levels of base salary, the Compensation Committee also considers, in its subjective judgment, individual performance, scope of duties, pay history and market data.
For fiscal 2020, Mr. Paul Marciano’s base salary remained flat at $950,000, the level set by the Compensation Committee for Mr. Paul Marciano in fiscal 2018 and which was more than a third less than his base salary in fiscal 2016 of $1,500,000.
For fiscal 2020, Mr. Alberini’s base salary was at an annualized rate of $1,200,000 in accordance with his employment agreement with the Company entered into in January 2019.
For fiscal 2020, Mr. Reddy’s base salary remained flat at $650,000, the level set by the Compensation Committee in fiscal 2019.
As provided in her offer letter with the Company, Ms. Anderson’s base salary was set at $550,000 annually upon her commencement of employment in December 2019.
As previously noted, Mr. Maurice Marciano did not receive any base salary for his service in fiscal 2020 as our Interim Chief Executive Officer.
Annual Incentive Awards
We believe that a significant portion of compensation for executive officers should be based on performance, with the opportunity to earn substantial awards in connection with superior performance. Annual incentive awards are generally granted to the Company’s Named Executive Officers under the Company’s shareholder-approved Annual Incentive Bonus Plan (the “Bonus Plan”), a performance-based plan intended to motivate key employees by linking cash incentive award opportunities topre-established performance objectives.
The Compensation Committee determined the Named Executive Officers’ annual incentives under the Bonus Plan for fiscal 2020 utilizing objective Company performance metrics, with the amount of the annual incentive determined based on the Company’s earnings from operations for fiscal 2020 (and the Company’s licensing segment earnings from operations for fiscal 2020, in the case of Mr. Paul Marciano). These objective metrics were utilized in part to provide an objective framework for determining the annual incentive awards for executives, and also because the Compensation Committee believes that earnings from operations (and licensing segment earnings from operations, in the case of Mr. Paul Marciano) is widely used by investors and shareholders to measure performance and including it as the measurement used to calculate annual cash incentive awards helps to further link the executives’ incentive opportunities to the Company’s financial performance. For
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these purposes, the Compensation Committee established threshold, target and maximum earnings from operations goals for fiscal 2020 at levels that the Compensation Committee considered to be rigorous, with both the fiscal 2020 earnings from operations goal and the fiscal 2020 license segment earnings from operations goal for Mr. Paul Marciano set above the target level goals set under the fiscal 2019 executive annual incentive program. In particular, the fiscal 2020 earnings from operations goal was set almost 40% above the fiscal 2019 earnings from operations goal at target level. Mr. Maurice Marciano did not participate in the Bonus Plan or receive a bonus for fiscal 2020. Ms. Anderson’s employment commenced late in the year, in December 2019. Accordingly, she did not participate in the Bonus Plan for fiscal 2020 but she was, as discussed below, considered for a fiscal 2020 bonus.
Methodology to Determine Awards
Each Named Executive Officer (other than Mr. Maurice Marciano and Ms. Anderson) had a threshold and target cash incentive amount under the Bonus Plan for fiscal 2020, and each executive’s annual cash incentive was in all events capped at a maximum amount. The Compensation Committee determined to decrease the threshold, target and maximum amounts for Mr. Paul Marciano for fiscal 2020 such that his threshold incentive amount was set at 100% of his base salary, his target incentive amount was set at 200% of his base salary and his maximum incentive amount was set at 300% of his base salary. (In the prior year, these percentages were set at 131.5%, 263% and 394.5% of his base salary, respectively.) Mr. Alberini’s incentive levels for fiscal 2020 were the same as Mr. Paul Marciano’s levels. For Mr. Reddy, the threshold incentive amount remained at 45% of his base salary, his target incentive amount remained at 90% of his base salary and his maximum incentive amount remained at 180% of his base salary for fiscal 2020. At the time each of these target, threshold and maximum levels was approved for fiscal 2020, the Compensation Committee believed them to be reasonably competitive for each position.
Pursuant to the terms of her offer letter, Ms. Anderson was entitled to a cash incentive award between $100,000 and $200,000 for fiscal 2020, with a minimum cash incentive award of $100,000. As Ms. Anderson’s employment commenced in December 2019, the Compensation Committee did not set threshold, target and maximum incentive amounts for her for fiscal 2020. At the recommendation of the Chief Executive Officer and as discussed below, the Compensation Committee considered certainnon-financial performance factors in determining Ms. Anderson’s actual annual incentive award for fiscal 2020.
The Named Executive Officers’ fiscal 2020 annual incentives were determined 100% (in the case of Messrs. Alberini and Reddy) and 50% (in the case of Mr. Paul Marciano) based on the Company’s earnings from operations for fiscal 2020 and 50% (in the case of Mr. Paul Marciano) based on the Company’s licensing segment earnings from operations for fiscal 2020 (in each case, excluding the impact of certain specified litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition, tax and accounting related matters, or such other items as the Compensation Committee may in its discretion determine to be appropriate in the circumstances) relative to performance targets established by the Compensation Committee set forth in the table below:
Earnings from for Fiscal 2020 | Annual Cash Incentive Amount (as a Percentage of Total Target Award) | ||||||||||||||||
Performance Level | P. Marciano | C. Alberini | S. Reddy | ||||||||||||||
Below Threshold | Less than $141.3 million | 0 | % | 0 | % | 0 | % | ||||||||||
Threshold | $141.3 million | 25 | % | 50 | % | 50 | % | ||||||||||
Target | $161.2 million | 50 | % | 100 | % | 100 | % | ||||||||||
Maximum | $201.5 million or more | 75 | % | 150 | % | 200 | % |
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Licensing Segment | Annual Cash Incentive Amount (as a Percentage of Total Target Award) | ||||||||||||||||
Performance Level | P. Marciano | C. Alberini | S. Reddy | ||||||||||||||
Below Threshold | Less than $59.1 million | 0 | % | — | — | ||||||||||||
Threshold | $59.1 million | 25 | % | — | — | ||||||||||||
Target | $66.9 million | 50 | % | — | — | ||||||||||||
Maximum | $73.5 million or more | 75 | % | — | — |
If the Company’s actual performance fell between the levels indicated above, the payout percentage would be determined by linear interpolation between the applicable payout levels.
The Compensation Committee chose earnings from operations (and licensing segment earnings from operations, in the case of Mr. Paul Marciano) as the measurement used to calculate the annual cash incentive amount for each executive as a way to further link these executives’ incentive opportunities to the Company’s financial performance. Earnings from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certainnon-operational factors to better assess managements’ operation of the business. Licensing segment earnings from operations was taken into account in determining Mr. Paul Marciano’s award given his continuing contributions to the Company’s licensing business.
Determination of Actual Awards
In April 2020, the Compensation Committee determined that the Company’s earnings from operations (as described above) for fiscal 2020 was $152 million, after giving effect to adjustments approved by the Compensation Committee to exclude (i) $8.5 million for store impairment charges, (ii) $(0.9) million for certain professional service and legal fees and related credits, (iii) $1.7 million for legal charges, (iv) $1.5 million of goodwill impairment charges, and (v) $0.4 million of charges relative to executive separations from service. In April 2020, the Compensation Committee determined that the Company’s licensing segment earnings from operations (as described above) for fiscal 2020 was $74.5 million. Applying the payout percentages above, the Company’s performance resulted in a cash incentive award for fiscal 2020 of $729,305 for Mr. Paul Marciano and $1,842,454 for Mr. Alberini with respect to the Company’s earnings from operations for fiscal 2020, and $1,425,000 for Mr. Paul Marciano with respect to the Company’s licensing segment earnings from operations for fiscal 2020. Mr. Reddy was not eligible to receive an annual incentive award for fiscal 2020 as his employment with the Company terminated in December 2019.
Pursuant to the terms of her offer letter, Ms. Anderson was entitled to a cash incentive award between $100,000 and $200,000 for fiscal 2020. As Ms. Anderson’s employment commenced in December 2019, the Compensation Committee did not set threshold, target and maximum incentive amounts for her for fiscal 2020. The Compensation Committee determined to pay Ms. Anderson an annual incentive award for fiscal 2020 of $200,000 based on its assessment of Ms. Anderson’s successful integration into the Company, her role in developing a business plan and budget for fiscal 2021 and her efforts in ensuring a successful fiscal 2020year-end close and reporting process.
To further align executive officers’ interests with shareholders and to conserve cash in light of the impact of theCOVID-19 pandemic on the retail industry and the Company, the Compensation Committee determined it was advisable to pay the fiscal 2020 annual incentive awards for executive officers and certain other employees in shares of the Company’s common stock instead of cash. Accordingly, in April 2020, Messrs. Paul Marciano and Alberini and Ms. Anderson received a number of fully-vested shares of the Company equal to the amount of their approved bonuses, less the applicable withholdings and deductions, divided by the closing price per share of the Company’s common stock on April 27, 2020. As the Compensation Committee permitted Mr. Paul Marciano to satisfy the tax withholding obligations for this award with a cash payment to the Company, the number of shares granted to him reflects his full bonus amount. This resulted in 269,928 shares for Mr. Paul Marciano,
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125,561 shares for Mr. Alberini, and 8,260 shares for Ms. Anderson (Ms. Anderson’s bonus was paid 50% in shares and 50% in cash as Ms. Anderson was guaranteed a $100,000 cash bonus payment for fiscal 2020 pursuant to the terms of her offer letter).
Long-Term Equity Incentive Awards
The Company’s philosophy is that the Named Executive Officers’ long-term compensation should be directly linked to the value provided to our shareholders. Therefore, 100% of the Named Executive Officers’ long-term compensation is currently awarded in the form of stock options, restricted stock and/or restricted stock units. The Compensation Committee has the authority to grant stock options, restricted stock, restricted stock units and other awards under the Company’s 2004 Equity Incentive Plan. The fiscal 2020 equity awards granted to the Named Executive Officers are described below. Mr. Maurice Marciano did not receive any equity incentive awards in connection with his service in fiscal 2020 as our Interim Chief Executive Officer.
Restricted Stock.
The Compensation Committee primarily utilizes restricted stock (or restricted stock units) as the main component of its long-term incentive grants to our Named Executive Officers. Use of restricted stock (or restricted stock units) instead of stock options reduces the level of potential share dilution that would otherwise develop if larger stock option awards were granted. The Compensation Committee also uses restricted stock awards as a retention incentive as they generally vest over a multi-year period. For fiscal 2020, the Compensation Committee granted certain restricted stock unit awards to the Named Executive Officers that were subject to both performance-based and time-based vesting requirements to provide additional incentives to achieve specified financial goals. In addition, restricted stock promotes commonality of interests between management and shareholders since the awards expose the recipient to both upside and downside risk based on the value of the Company’s Common Stock over time.
Stock Options.
The Compensation Committee also granted a portion of the long-term incentive grant to Mr. Alberini and Ms. Anderson (and the entire award granted to Mr. Reddy) in the form of stock options with an exercise price that is equal to the closing price of a share of the Company’s Common Stock on the NYSE on the grant date. The Compensation Committee may from time to time utilize stock options in an executive equity award mix as stock options have value only if our shareholders realize value through stock price appreciation after the grant date of the options. Stock options also foster retention of key executives since the awards generally vest over the four-year period following the performance period.
Equity Award for Mr. Paul Marciano for Fiscal 2020
In June 2019, the Compensation Committee granted an award of 205,339 restricted stock units to Mr. Paul Marciano that were subject to both time- and performance-based vesting requirements. The award was determined by the Compensation Committee to be, in light of Mr. Paul Marciano’s role with the Company, an appropriate incentive both to achieve the specific performance goals identified below and to continue employment with the Company through the vesting period.
50% of Mr. Paul Marciano’s restricted stock unit award for fiscal 2020 was eligible to vest if the Company’s earnings from operations from its licensing segment for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $59.1 million, and the remaining 50% of Mr. Paul Marciano’s restricted stock unit award for fiscal 2020 was eligible to vest if the Company’s earnings from operations for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $141.3 million (in either case, excluding the impact of certain specified litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition and tax and accounting related
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matters). If the applicable threshold goals were met, the award would be scheduled to vest in three equal installments on each of January 30, 2020, January 30, 2021 and January 30, 2022, subject to Mr. Paul Marciano’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below.
The Compensation Committee believes that Mr. Paul Marciano continues to make substantial contributions to the Company’s licensing segment. Earnings from operations derived from the Company’s licensing segment was selected as the performance measure for this award as a way to further link Mr. Paul Marciano’s incentives to the performance of that segment of the Company’s business. Earnings from operations is also a consistently applied, easily understood and widely used metric that provides a measurement of operating performance that excludes certainnon-operational factors. Following the end of fiscal 2020, the Compensation Committee determined that the Company’s licensing segment earnings from operations for fiscal 2020 was $74.5 million and the Company’s earnings from operations for fiscal 2020 was $150.0 million, meaning that the threshold level had been achieved for both portions of the award. Accordingly,one-third of the award vested upon the Compensation Committee’s determination, and the remainingtwo-thirds is scheduled to vest as described above.
Equity Awards for Mr. Alberini for Fiscal 2020
In February 2020, in connection with the commencement of Mr. Alberini’s employment, the Compensation Committee granted awards of restricted stock units and stock options to Mr. Alberini. The awards were separated into three different award types so that different vesting requirements could be used for different portions of the awards. The awards were determined by the Compensation Committee to be, in light of Mr. Alberini’s role with the Company, an appropriate incentive for Mr. Alberini to join the Company, to achieve the specific performance goals identified below, and to continue employment with the Company through the vesting period.
Revenue Award. The first award granted to Mr. Alberini was an award of 250,000 restricted stock units that will be eligible to vest if the Company’s total revenue for fiscal 2020 exceeded a threshold amount established by the Compensation Committee of $2.3 billion (excluding the impact of certain accounting changes and currency fluctuations) (the “2020 Revenue Award”). If the threshold goal was met, the 2020 Revenue Award would be scheduled to vest in four equal installments on each of February 20, 2020, February 20, 2021, February 20, 2022, and February 20, 2023, subject to Mr. Alberini’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below.
Following the end of fiscal 2020, the Compensation Committee determined that the Company’s total revenue for fiscal 2020 was $2.678 billion, meaning that the threshold level had been achieved for the 2020 Revenue Award. Accordingly,one-fourth of the award vested upon the Compensation Committee’s determination, and the remaining three-fourths is scheduled to vest as described above.
Option Award. The second award granted to Mr. Alberini was an award of an option to purchase 600,000 shares of Company common stock that is scheduled to vest in four equal installments on each of February 20, 2020, February 20, 2021, February 20, 2022, and February 20, 2023, subject to Mr. Alberini’s continued service to the Company through the applicable vesting date, subject to accelerated vesting in certain circumstances as discussed in “Description of Plan-Based Awards” below.
Signing Restricted Stock Unit Award. The third award granted to Mr. Alberini was an award of 150,000 restricted stock units that were fully vested at grant. However, if Mr. Alberini had terminated his employment other than for “Good Reason” (as such term is defined in his employment agreement) within one year of the date of grant, he would have been required to return to the Company the shares subject to the award (or the proceeds of the sale if any such shares had been sold). These units were awarded primarily to incentivize Mr. Alberini to accept employment with the Company and to make up for compensation opportunities with his prior employer that he forfeited in connection with joining the Company.
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Equity Awards for Ms. Anderson for Fiscal 2020
In December 2019, in connection with Ms. Anderson’s commencement of employment, the Compensation Committee granted awards of restricted stock and stock options to Ms. Anderson. The awards were determined by the Compensation Committee to be, in light of Ms. Anderson’s role with the Company, an appropriate incentive for Ms. Anderson to join the Company and to continue employment with the Company through the vesting period.
Restricted Stock Award. The first award granted to Ms. Anderson was an award of 70,000 shares of restricted stock that will be eligible to vest in four equal installments on each of December 2, 2020, December 2, 2021, December 2, 2022, and December 2, 2023, subject to Ms. Anderson’s continued service to the Company through the applicable vesting date, although this service-based vesting requirement would be deemed met upon a “change in control” of the Company (as such term is defined in her offer letter).
Option Award. The second award granted to Ms. Anderson was an award of an option to purchase 130,000 shares of the Company’s stock that is scheduled to vest in four equal installments on each of December 2, 2020, December 2, 2021, December 2, 2022, and December 2, 2023, subject to Ms. Anderson’s continued service to the Company through the applicable vesting date, although this service-based vesting requirement would be deemed met upon a “change in control” of the Company (as such term is defined in her offer letter).
Equity Awards for Mr. Reddy for Fiscal 2020
As in prior years, the Compensation Committee utilized atwo-tier approach for equity awards to Mr. Reddy for fiscal 2020. Under this approach, the Compensation Committee approvedpre-established formulas to determine the maximum value of the equity incentive opportunities that may be awarded to Mr. Reddy, then exercised its discretion in determining the number of shares to be subject to the actual equity awards, which were at levels at or below the calculated maximum award levels. The maximum number of shares of the Company’s Common Stock subject to each annual award was intended to create a meaningful opportunity for stock ownership in light of Mr. Reddy’s position with the Company, the size of comparable awards to comparable executives at our peer group companies, and Mr. Reddy’s personal performance in recent periods.
In June 2019, the Compensation Committee established maximum equity incentive opportunities in the form of stock options and restricted stock for Mr. Reddy pursuant to a specific formula tied to the Company’s cash flow from operations (excluding the impact of certain litigation charges, certain professional service and legal fees and related costs, restructuring, store impairment, acquisition, disposition and tax and accounting related matters) for fiscal 2020. The maximum individual equity award opportunities for Mr. Reddy for fiscal 2020 consisted of a maximum stock option award opportunity value equal to the lesser of 0.19% of cash flow from operations for fiscal 2020 or 30% of base salary and a maximum restricted stock award opportunity value equal to the lesser of 0.49% of cash flow from operations for fiscal 2020 or 80% of base salary. Mr. Reddy forfeited these equity award opportunities as his employment terminated prior to the end of fiscal 2020.
In June 2019, the Compensation Committee awarded Mr. Reddy, along with other select members of management (other than Messrs. Paul Marciano and Alberini), aone-time stock option award intended as an additional incentive to increase the value of the Company’s stock. Mr. Reddy was awarded an option to purchase 128,700 shares of the Company’s stock that was scheduled to vest in four equal installments on each of June 10, 2020, June 10, 2021, June 10, 2022, and June 10, 2023, subject to Mr. Reddy’s continued service to the Company through the applicable vesting date. Mr. Reddy forfeited this option award in full as his employment terminated prior to the first vesting date.
Fiscal 2018 Annual Equity Awards—Final Vesting
Fiscal 2018 Relative TSR Award
In fiscal 2018, the Compensation Committee awarded Mr. Paul Marciano a restricted stock unit award that vested based on the Company’s relative total shareholder return, with a three-year performance period consisting
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of the Company’s 2018, 2019 and 2020 fiscal years (the “2018 Relative TSR Award”). In February 2020, the Compensation Committee determined that the Company’s TSR for the three-year performance period was in the 87.5th percentile compared to the TSRs for the peer group of companies used for purposes of the award for the three-year performance period. As a result, the Compensation Committee determined that the 2018 Relative TSR Awards vested at the end of the performance period as to 150% of the target number of restricted stock units subject to the award (with Mr. Paul Marciano vesting as to 174,025 shares).
Fiscal 2018 LTIP Award
In fiscal 2018, the Compensation Committee awarded Messrs. Paul Marciano and Reddy a restricted stock unit award, which was eligible to vest based 25% on the Company’s revenue (excluding Americas Retail segment) and 75% on the Company’s earnings from operations levels for fiscal 2020 (the “2018 LTIP Award”). In April 2020, the Compensation Committee determined that, for purposes of the 2018 LTIP Award, the Company’s fiscal 2020 revenue (excluding Americas Retail segment and after giving effect to adjustments required pursuant to the terms of the award to exclude the impact of certain specified accounting and currency related matters) was $1,779 million, which was approximately 104% of the target revenue performance level (the target performance level was $1,707 million for fiscal 2020 revenue (excluding Americas Retail segment)), and the Company’s fiscal 2020 earnings from operations (after giving effect to adjustments required pursuant to the terms of the award to exclude the impact of certain currency related matters, as well as store impairments and certain legal charges) was $104 million, which was below the threshold earnings from operations performance level established for the 2018 LTIP Awards (the threshold performance level was $127 million for fiscal 2020 earnings from operations). As a result, 44.4% of the 2018 LTIP Awards vested (with Mr. Paul Marciano vesting as to 39,785 shares). Mr. Reddy forfeited his 2018 LTIP Award as his employment terminated prior to the end of fiscal 2020.
Cash Signing Bonuses
In connection with the commencement of Mr. Alberini and Ms. Anderson’s employment, and pursuant to the terms of the executive’s employment agreement or offer letter, as applicable, Mr. Alberini received a cash signing bonus of $1,000,000 and Ms. Anderson received a cash signing bonus of $300,000. If either executive terminates his or her employment prior to the first anniversary of the executive’s employment commencement date, other than a resignation due to “good reason” (as such term is defined in the executive’s employment agreement or offer letter, as applicable), the executive will be required to repay the signing bonus in full. The signing bonuses were negotiated to encourage each executive to accept employment with the Company and make up for compensation opportunities with the executive’s prior employer that were forfeited in connection with joining the Company.
Fiscal 2021 Base Salaries
In response to the impact of theCOVID-19 pandemic on the retail industry and the Company, effective April 5, 2020, the Company’s current executive officers agreed to a temporary reduction of their base salaries, with Mr. Paul Marciano agreeing to reduce his base salary from $950,000 to $285,000, Mr. Alberini agreeing to reduce his base salary from $1,200,000 to $360,000, and Ms. Anderson agreeing to reduce her base salary from $550,000 to $385,000. The reductions will end, and their prior base salary levels will be restored, on such future date as may be agreed upon by the Compensation Committee and the executives. The executives will not be entitled to any back pay for the period of time that their base salaries are reduced.
Separation Agreement with Mr. Reddy
In December 2019, the Company entered into a separation and release agreement with Mr. Reddy pursuant to which Mr. Reddy’s employment with the Company terminated effective December 1, 2019 (the “Separation Agreement”). The terms of the Separation Agreement are described in more detail under “Potential Payments Upon Termination or Change in Control” below.
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401(k) Retirement Benefits
The Company’s employees, including the Named Executive Officers, are eligible to participate in the Company’stax-qualified 401(k) plan and are eligible to receive a discretionary matching contribution from the Company after one year of service. In calendar year 2019, the Company made a discretionary matching contribution on behalf of each eligible participant equal to 50% of the first 6% of compensation contributed by the participant.These Company matching contributions can function as a retention incentive as they vest over the first five (5) years of service with the Company. The Named Executive Officers participate in the plan on the same terms as our other participating employees.
Non-Qualified Deferred Compensation Plan
The Company has maintained aNon-Qualified Deferred Compensation Plan (the “DCP”) since 2006. Under the DCP, select employees who satisfy certain eligibility requirements, including each of the Named Executive Officers and members of the Board, may make annual irrevocable elections to defer up to 75% of their base salary, 100% of their annual cash incentive, 100% of their cash compensation earned under any Company long-term incentive plan or 100% of their cash director fees to be earned during the following calendar year. In addition, the Company may make contributions to “make up” for Company match amounts under the Company’s 401(k) plan that cannot be made to Named Executive Officers because of applicable Internal Revenue Code limits. The Company may also make other discretionary contributions, although it did not do so for fiscal 2020. The Company believes that providing the Named Executive Officers with deferred compensation opportunities is a cost-effective way to permit officers to receive the tax benefits associated with delaying the income tax event on the compensation deferred, even though the related deduction for the Company is also deferred. Information with respect to the Named Executive Officers’ participation in the DCP is presented in, and the material terms of the DCP are described following, the“Non-Qualified Deferred Compensation Plan Table—Fiscal 2020” below.
Supplemental Executive Retirement Plan
The Company has also maintained a Supplemental Executive Retirement Plan (“SERP”) since 2006. The only executive officers that were participants in the SERP as of February 1, 2020 were Messrs. Paul Marciano and Alberini. The SERP provides Mr. Paul Marciano with supplemental pension benefits in prescribed circumstances. The Company included Mr. Paul Marciano as a participant in the SERP in 2006 to provide him with supplemental pension benefits in recognition of his substantial contributions and to provide a valuable retention incentive. Mr. Alberini’s benefit under the SERP was accrued with respect to his service to the Company between 2006 and 2010. Mr. Alberini is not accruing additional SERP benefits with respect to his current service as Chief Executive Officer. Additional information with respect to the SERP is presented in, and the material terms of the SERP are described following, the “Pension Benefits Table—Fiscal 2020” below. Additional information concerning potential payments under the SERP upon certain terminations or a change in control is presented in “Potential Payments Upon Termination or Change in Control” below.
Severance and Other Benefits Upon Termination of Employment
In order to support our compensation objectives of attracting, retaining and motivating qualified executives, we believe that, in certain cases, it is appropriate to provide our key executive officers with severance protections upon certain types of termination of their employment. These severance protections are negotiated on an individual basis in connection with the negotiation of other employment terms, typically in connection with the entering into of employment agreements or employment offer letters with each Named Executive Officer. In each case, the Compensation Committee determined that the severance provisions for each executive were reasonable in light of market practices and the importance to the Company and its shareholders of securing the continued service of these executives.
The equity awards granted to Mr. Paul Marciano in fiscal years 2018, 2019 and 2020, and the performance-based vesting awards granted to other employees in fiscal 2018, 2019 and 2020, provide that the award will not
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automatically accelerate on a change in control unless either the award is to be terminated in connection with the event (that is, the award is not assumed or continued by the successor entity) or the executive’s employment terminates in certain circumstances specified in the award agreement. Under the terms of our equity incentive plans, if a change in control of the Company occurs, certain awards granted in prior years that remain outstanding, as well as certain new awards granted to employees other than Messrs. Paul Marciano and Alberini, would (unless otherwise determined by the Compensation Committee) generally become fully vested or paid, as applicable.
None of the employment agreements or other compensation arrangements we maintain for our Named Executive Officers include a right to receive any“gross-up” payment for change in control excise taxes. Additional information concerning potential payments that may be made to the Named Executive Officers in connection with their termination of employment or a change in control is presented in “Potential Payments Upon Termination or Change in Control” below.
Security Protections
We provide Mr. Paul Marciano with certain security protections. The Compensation Committee believes that these protections are appropriate for Mr. Paul Marciano in light of the high profile nature of his position as a founder of the Company. These protections are not intended to provide a personal benefit (other than the intended security) to Mr. Paul Marciano and we do not view these security protections as compensation for Mr. Paul Marciano. However, as required under applicable SEC rules, we include the Company’s cost of providing these protections for the applicable year as compensation for Mr. Paul Marciano for that year in the “Summary Compensation Table” below.
Stock Ownership Guidelines
In order to encourage stock ownership by senior management andNon-Employee Directors of the Company, the Company maintains Stock Ownership Guidelines. The Stock Ownership Guidelines are intended to further align the financial interests of senior management andNon-Employee Directors with those of the Company’s shareholders. Under the Stock Ownership Guidelines, certain specified senior executives, including all of the Named Executive Officers, and ourNon-Employee Directors are required to accumulate, and then retain while they remain employed by the Company or on the Board of Directors, the following amounts of Company Common Stock:
Position | Stock Ownership Requirement | |
CEO | Six times annual base salary | |
Select Senior Executives (including all other Named Executive Officers) | Two andone-half times annual base salary | |
Non-Employee Directors | Five times annual board retainer |
Until a participant has met the applicable ownership guideline, the participant is expected to retain an amount equal to 50% of the net shares (after payment of any exercise price and related taxes) received as a result of the exercise, vesting or payment of equity awards (including stock options and restricted stock) granted by the Company to the participant. Once a participant has met the applicable ownership guideline, ownership of the guideline amount is expected to be maintained. For purposes of satisfying the Stock Ownership Guidelines, the following holdings count toward the required holding amounts: (1) shares owned directly (including through open market purchases, vesting of restricted stock awards or exercise of stock options), (2) shares held by spouses or children or through certain trusts for the benefit of the participant, a spouse and/or children and (3) stock option equivalents based on the value of“in-the-money” vested and unexercised stock options.
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Executive Compensation Clawback Policy
The Company maintains a policy regarding the recoupment of certain performance-based compensation payments to executive officers (the “Clawback Policy”). The Clawback Policy provides that the Board or the Compensation Committee may require reimbursement or cancellation of all or a portion of certain short or long-term cash or equity awards made to an executive officer to the extent that: (1) the amount of, or number of shares included in, any such payment was calculated based on the achievement of financial results that were subsequently revised and (2) a lesser payment of cash or equity awards would have been made to the executive officer based upon the revised financial results. Where the achievement of a financial result was considered in determining performance-based compensation awarded, but the compensation was not awarded on a formulaic basis, the Board or Compensation Committee will determine in its discretion the amount, if any, to seek for reimbursement. The Clawback Policy was amended in fiscal 2020 to also provide that the Board or Compensation Committee may require reimbursement or cancellation of all or a portion of any discretionary short or long-term cash awards made to an executive officer for reasons pertaining to harassment, discrimination and/or retaliation committed by such executive officer, including, but not limited to, the failure to respond appropriately to allegations or complaints.
Section 162(m) Policy
Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally disallows a tax deduction to publicly-held companies for compensation paid to a current or former named executive officer that exceeds $1 million during the tax year. Certain awards granted before November 2, 2017 that were based upon attainingpre-established performance measures that were set by the Compensation Committee under a plan approved by the Company’s shareholders, as well as amounts payable to former executives pursuant to a written binding contract that was in effect on November 2, 2017, may qualify for an exception to the $1 million deductibility limit. As one of the factors in its consideration of compensation matters, the Compensation Committee notes this deductibility limitation. However, the Compensation Committee has the flexibility to take any compensation-related actions that it determines are in the best interests of the Company and its shareholders, including awarding compensation that may not be deductible for tax purposes. There can be no assurance that any compensation will in fact be deductible.
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Compensation Committee
Report on Executive Compensation(1)
The Compensation Committee has certain duties and powers as described in its Charter. The Compensation Committee is currently composed of the threeNon-Employee Directors named at the end of this report, each of whom the Board has determined to be independent as defined by the NYSE listing standards.
The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this Proxy Statement. Based upon this review and our discussions, the Compensation Committee has recommended to our Board of Directors that the Compensation Discussion and Analysis section be included in the Company’s Fiscal 2020 Annual Report onForm 10-K and in this Proxy Statement for the 2020 Annual Meeting, each as filed with the SEC.
By the Compensation Committee,
Alex Yemenidjian, Chairperson
Anthony Chidoni
Cynthia Livingston
(1) | SEC filings sometimes “incorporate information by reference.” This means the Company is referring you to information that has previously been filed with the SEC, and that this information should be considered as part of the |
Compensation Committee
Interlocks and Insider Participation
All of the Compensation Committee members whose names appear on the Compensation Committee Report above were committee members during all of fiscal 2020, except that Ms. Livingston joined the committee in June 2019. Joseph Gromek was also a member of the Compensation Committee from the start of fiscal 2020 until his retirement from the Board in June 2019. No director who served on the Compensation Committee during fiscal 2020 is a current or former executive officer or employee of the Company or had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director or member of the Company’s Compensation Committee during fiscal 2020.
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Summary Compensation Table—Fiscal 2018-2020
The following table presents information regarding compensation of our Named Executive Officers for services rendered with respect to the covered fiscal years.
As required by SEC rules, stock awards (including restricted stock units) and option awards are shown as compensation in the Summary Compensation Table for the year in which they were granted (even if they have multi-year vesting schedules and/or performance-based vesting requirements), and are valued based on their grant date fair values for accounting purposes. Accordingly, the table includes stock and option awards granted in the years shown even if they were scheduled to vest in later years, and even if they were subsequently forfeited (such as, for example, because an applicable performance-based vesting condition was not satisfied). Therefore, the stock and option columns donot report whether the officer realized a financial benefit from the awards (such as by vesting in stock or exercising options).
Name and Principal | Fiscal Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
Paul Marciano | 2020 | 950,000 | — | 3,000,003 | — | 2,154,305 | — | 273,245 | 6,377,553 | |||||||||||||||||||||||||||
Chief Creative Officer | 2019 | 661,346 | — | 3,470,032 | — | 1,873,875 | — | 279,529 | 6,284,782 | |||||||||||||||||||||||||||
2018 | 950,000 | — | 3,470,023 | — | 3,747,750 | — | 252,322 | 8,420,095 | ||||||||||||||||||||||||||||
Carlos Alberini | 2020 | 1,121,539 | 1,000,000 | 8,552,000 | 4,035,540 | 1,842,454 | 698,312 | 52,692 | 17,302,537 | |||||||||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Maurice Marciano(6) | 2020 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Former Interim Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Kathryn Anderson | 2020 | 84,615 | 500,000 | 1,339,800 | 865,852 | — | — | — | 2,790,267 | |||||||||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Sandeep Reddy(7) | 2020 | 552,746 | — | — | 601,145 | — | — | 749,189 | 1,903,080 | |||||||||||||||||||||||||||
Former Chief Financial Officer | 2019 | 650,000 | — | 1,142,616 | 157,116 | — | — | 32,830 | 1,982,562 | |||||||||||||||||||||||||||
2018 | 525 000 | — | 735,277 | 51,528 | 787,500 | — | 30,347 | 2,129,652 |
(1) | The amount reported in Column (d) above for Mr. Alberini reflects the cash signing bonus paid to Mr. Alberini in connection with the commencement of his employment in fiscal 2020, and for Ms. Anderson reflects (1) the $300,000 cash signing bonus paid to Ms. Anderson in connection with the commencement of her employment in fiscal 2020 and (2) the $200,000 annual incentive payment paid to Ms. Anderson (of which $100,000 was guaranteed by her offer letter and was paid in cash and the remaining $100,000 (after reducing for withholdings and deductions) was paid in fully-vested shares of the Company’s common stock in April 2020). |
(2) | In accordance with the SEC’s disclosure rules, the amounts reported in Columns (e) and (f) above reflect the aggregate grant date fair value of |
The fiscal 2020 amount in Column (e) above for Mr. Paul Marciano represents the fair value of a performance-based award of restricted stock units granted to him during fiscal 2020, determined as of the grant date under generally accepted accounting principles based on the outcome of the performance conditions applicable to the award that we determined to be probable for these purposes at the time of grant of the award (which was the target level of performance). The grant date fair value of the award assuming the maximum level of performance applicable to the award would be achieved was the same as the grant date fair value of the award based on the probable outcome of the performance condition applicable to the award. Of the fiscal 2020 amount in Column (e) above for Mr. Alberini, $5,345,000 represents the fair value of the 2020 Revenue Award granted to Mr. Alberini, determined as of the grant date under generally
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accepted accounting principles based on the outcome of the performance conditions applicable to the award that we determined to be probable for these purposes at the time of grant of the award (which was the target level of performance). The grant date fair value of the award assuming the maximum level of performance applicable to the award would be achieved was the same as the grant date fair value of the award based on the probable outcome of the performance condition applicable to the award.
The fiscal 2019 amount in Column (e) above for Mr. Paul Marciano represents the fair value of three performance-based awards of restricted stock units granted to him during fiscal 2019 ($1,235,010 for the 2019 Licensing Award, $1,235,011 for the 2019 Relative TSR Award and $1,000,010 for the 2019 LTIP Award), determined as of the grant date under generally accepted accounting principles based on the outcome of the performance conditions applicable to the awards that we determined to be probable for these purposes at the time of grant of the awards (which, in each case, was the target level of performance). The grant date fair value of the 2019 Licensing Award assuming the maximum level of performance applicable to the award would be achieved was the same as the grant date fair value of the award based on the probable outcome of the performance condition applicable to those awards. The grant date fair value of the 2019 Relative TSR Award assuming the maximum level of performance applicable to the awards would be achieved was $1,852,517. The grant date fair value of the 2019 LTIP Award assuming the maximum level of performance applicable to the award would be achieved was $2,000,020. Of the fiscal 2019 amount in Column (e) above for Mr. Reddy, $714,998 represents the fair value of the 2019 LTIP Award granted to Mr. Reddy, determined as of the grant date under generally accepted accounting principles based on the outcome of the performance conditions applicable to the award that we determined to be probable for these purposes at the time of grant of the award (which was the target level of performance). The grant date fair value of Mr. Reddy’s 2019 LTIP Award assuming the maximum level of performance applicable to the award would be achieved was $1,429,996. The remaining portion of the fiscal 2019 amount in Column (e) above for Mr. Reddy and the fiscal 2019 amount in Column (f) for Mr. Reddy represents the annual equity awards granted to Mr. Reddy in fiscal 2019 based on performance in fiscal 2018.
The fiscal 2018 amount in Column (e) above for Mr. Paul Marciano represents the fair value of three performance-based awards of restricted stock units granted to him during fiscal 2018 ($1,235,010 for the 2018 Licensing Award, $1,235,010 for the 2018 Relative TSR Award and $1,000,003 for the 2018 LTIP Award), determined as of the grant date under generally accepted accounting principles based on the outcome of the performance conditions applicable to the awards that we determined to be probable for these purposes at the time of grant of the awards (which, in each case, was the target level of performance). The grant date fair value of the 2018 Licensing Award assuming the maximum level of performance applicable to the award would be achieved was the same as the grant date fair value of the award based on the probable outcome of the performance condition applicable to the award. The grant date fair value of the 2018 Relative TSR Award assuming the maximum level of performance applicable to the award would be achieved was $1,852,515. The grant date fair value of the 2018 LTIP Award assuming the maximum level of performance applicable to the award would be achieved was $2,000,006. Of the fiscal 2018 amount in Column (e) above for Mr. Reddy, $577,497 represents the fair value of the 2018 LTIP Award granted to Mr. Reddy, determined as of the grant date under generally accepted accounting principles based on the outcome of the performance conditions applicable to the award that we determined to be probable for these purposes at the time of grant of the award (which was the target level of performance). The grant date fair value of Mr. Reddy’s 2018 LTIP Award assuming the maximum level of performance applicable to the award would be achieved was $1,154,993. The remaining portion of the fiscal 2018 amount in Column (e) above for Mr. Reddy and the fiscal 2018 amount in Column (f) for Mr. Reddy represents the annual equity awards granted to Mr. Reddy in fiscal 2018 based on performance in fiscal 2017.
(3) | The amounts reported in Column (g) above reflect the aggregate dollar amounts paid to Named Executive Officers as cash incentive awards with respect to performance for the covered fiscal years under the terms of the Company’s Bonus Plan. The annual cash incentive awards reported in Column (g) for each fiscal year were generally paid in the first quarter of the following fiscal year. The net (after withholdings and deductions, except that Mr. Paul Marciano satisfied his tax withholding obligations for this award with a cash payment to the |
(4) | Amounts reported in Column (h) represent the annual changes in the actuarial present value of Messrs. Paul Marciano and Alberini’s accrued aggregate pension benefit with respect to the Company’s Supplemental Executive Retirement Plan, or SERP. None of the other Named Executive Officers participate in the SERP. See “Pension Benefits Table—Fiscal 2020” below for a discussion of the change in the actuarial present value of Messrs. Paul Marciano and Alberini’s benefits for fiscal 2020. For Mr. Paul Marciano, the actuarial present value decreased in fiscal 2020 as compared to fiscal 2019 and in fiscal 2019 as compared to fiscal 2018. While the actuarial present value of Mr. Paul Marciano’s benefit increased in fiscal 2018 as compared to fiscal 2017, the reported amount for fiscal 2018 for Mr. Paul Marciano is $0 because he has overall experienced a net loss in the actuarial present value of his accrued pension benefit since fiscal 2012 (as described in more detail under the “Pension Benefits Table—Fiscal 2020” below). Mr. Alberini’s SERP benefit was accrued with respect to his prior service to the Company between 2006 and 2010. He is not accruing any additional SERP benefits with respect to his current service as Chief Executive Officer. Despite the fact that Mr. Alberini is not accruing any additional SERP benefits with respect to his current service as Chief Executive Officer, the actuarial present value of Mr. Alberini’s SERP benefit for fiscal 2020 increased due to (1) a reduction in the discount rate used in determining the present value from 3.75% in fiscal 2019 to 2.5% in fiscal 2020 and (2) Mr. Alberini being one year closer to the commencement of his benefit eligibility. Without these changes to the actuarial present value calculations, the reported increase in SERP benefit value reported for fiscal 2020 for Mr. Alberini would |
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achieved was $1,154,993.
retirement age for Mr. Alberini of 65. The |
No amounts are included in Column (h) for earnings on deferred compensation under the Company’sNon-Qualified Deferred Compensation Plan because the Named Executive Officers do not receive above-market or preferential earnings on compensation that is deferred under this plan. The earnings that the Named Executive Officers received during fiscal 2020 on compensation deferred under theNon-Qualified Deferred Compensation Plan are reported in the“Non-Qualified Deferred Compensation Plan Table—Fiscal 2020” below.
(5) | Amounts shown in Column
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