UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.)

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

 

 

 

 

 

 

 

 

 

 

2020

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT

 

 

G-III APPAREL GROUP, LTD.

512 SEVENTH AVENUE

NEW YORK, NEW YORK 10018

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of G-III Apparel Group, Ltd. to be held on Thursday, June 11, 2020 at 10:00 a.m., New York time, at the offices of Norton Rose Fulbright US LLP, 1301 Avenue of the Americas, 30th Floor, New York, New York 10019.

As part of our concern regarding the health and safety of our stockholders, directors, officers, employees, meeting attendees and the general public in light of the current COVID-19 outbreak, we are planning for the possibility that the Annual Meeting may be held solely or in part by means of a “virtual” meeting instead of a physical meeting. There is also the possibility that we may delay, postpone or adjourn the Annual Meeting, including changing the time, location or date of the Annual Meeting.  If we take any of these steps, we will provide you reasonable advance notice via a press release and an SEC filing, as well as a posting on our website.

If we determine that it is necessary or appropriate to hold a virtual Annual Meeting, stockholders or their proxy holders would need to log into the virtual meeting website at https://web.lumiagm.com/273796646 in order to attend the virtual Annual Meeting.  Further information about attending the virtual Annual Meeting, including how to demonstrate your ownership of our common stock as of the record date for the Annual Meeting, would be announced and instructions provided in advance of the meeting. Please note that you will only be able to access this website if we decide to hold a virtual Annual Meeting. The formal Notice of Meeting and the accompanying Proxy Statement set forth proposals for your consideration this year. You are being asked:

 

 

At the meeting, we will also report on the affairs of G-III, and a discussion period will be provided for questions and comments of general interest to stockholders.

We look forward to greeting personally those of you who are able to be present at the meeting. However, whether or not you are able to be with us at the meeting, it is important that your shares be represented. Accordingly, you are requested to sign, date and mail, at your earliest convenience, the enclosed proxy in the envelope provided for your use, or vote your shares by calling the telephone number or visiting the website specified on your proxy card or voting instruction form.

Thank you for your cooperation.

 

May 7, 2020

 

G-III APPAREL GROUP, LTD.

512 SEVENTH AVENUE

NEW YORK, NEW YORK 10018

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of G-III Apparel Group, Ltd. will be held on:

 

For the following purposes:

 

 Only stockholders of record at the close of business on April 20, 2020 will be entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.

 

As part of our concern regarding the health and safety of our stockholders, directors, officers, employees, meeting attendees and the general public in light of the current COVID-19 outbreak, we are planning for the possibility that the Annual Meeting may be held solely or in part by means of a “virtual” meeting instead of a physical meeting. There is also the possibility that we may delay, postpone or adjourn the Annual Meeting, including changing the time, location or date of the Annual Meeting.  If we take any of these steps, we will provide you reasonable advance notice via a press release and an SEC filing, as well as a posting on our website.

If we determine that it is necessary or appropriate to hold a virtual Annual Meeting, stockholders or their proxy holders would need to log into the virtual meeting website at https://web.lumiagm.com/273796646 in order to attend the virtual Annual Meeting. Further information about attending the virtual Annual Meeting, including how to demonstrate your ownership of our common stock as of the record date for the Annual Meeting, would be announced and instructions provided in advance of the meeting. Please note that you will only be able to access this website if we decide to hold a virtual Annual Meeting.

All stockholders are cordially invited to attend the Annual Meeting in person. However, whether or not you plan to attend the Annual Meeting in person, each stockholder is urged to complete, date and sign the enclosed form of proxy and return it promptly in the envelope provided, or vote your shares by calling the telephone number or visiting the website specified on your proxy card or voting instruction form.  No postage is required if the proxy is mailed in the United States. If you vote by telephone or internet, you do not need to mail back your proxy. Stockholders who attend the Annual Meeting may revoke their proxies and vote their shares in person.

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

G-III APPAREL GROUP, LTD.

512 SEVENTH AVENUE

NEW YORK, NEW YORK 10018

PROXY STATEMENT

General Information

This Proxy Statement (first mailed to stockholders on or about May 7, 2020) is furnished to the holders of common stock, par value $0.01 per share (“Common Stock”), of G-III Apparel Group, Ltd. (“G-III”) in connection with the solicitation by our Board of Directors of proxies for use at the Annual Meeting of Stockholders (the “Annual Meeting”), or at any adjournment thereof, pursuant to the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held on:

 

As part of our concern regarding the health and safety of our stockholders, directors, officers, employees, meeting attendees and the general public in light of the current COVID-19 outbreak, we are planning for the possibility that the Annual Meeting may be held solely or in part by means of a “virtual” meeting instead of a physical meeting. There is also the possibility that we may delay, postpone or adjourn the Annual Meeting, including changing the time, location or date of the Annual Meeting.  If we take any of these steps, we will provide you reasonable advance notice via a press release and an SEC filing, as well as a posting on our website.

If we determine that it is necessary or appropriate to hold a virtual Annual Meeting, stockholders or their proxy holders would need to log into the virtual meeting website at https://web.lumiagm.com/273796646 in order to attend the virtual Annual Meeting. Further information about attending the virtual Annual Meeting, including how to demonstrate your ownership of our common stock as of the record date for the Annual Meeting, would be announced and instructions provided in advance of the meeting. Please note that you will only be able to access this website if we decide to hold a virtual Annual Meeting.

It is proposed that, at the Annual Meeting, we:

 

Management currently is not aware of any other matters that will come before the Annual Meeting. If any other matters properly come before the Annual Meeting, the persons designated as proxies intend to vote in accordance with their best judgment on such matters. Proxies for use at the Annual Meeting are being solicited by our Board of Directors. Proxies will be solicited chiefly by mail; however, certain of our officers, directors, employees and agents, none of whom will receive additional compensation therefor, may solicit proxies by telephone or other personal contact. We will bear the cost of the

solicitation of the proxies, including postage, printing and handling, and will reimburse the reasonable expenses of brokerage firms and others for forwarding material to beneficial owners of shares of Common Stock.

REVOCABILITY AND VOTING OF PROXY

A form of proxy for use at the Annual Meeting and a return envelope for the proxy are enclosed, or you may vote your shares by calling the telephone number or visiting the website specified on your proxy card or voting instruction form. If you vote by telephone or internet, you do not need to mail back your proxy. Stockholders may revoke the authority granted by their execution of a proxy at any time prior to the effective exercise of the powers conferred by that proxy, by filing with the Secretary of G-III a written notice of revocation or a duly executed proxy bearing a later date, or by voting in person at the Annual Meeting. Beneficial owners of our Common Stock should contact their bank, brokerage firm or other custodian, nominee, or fiduciary if they wish to revoke their proxy.

Shares of Common Stock represented by executed and unrevoked proxies will be voted in accordance with the instructions specified in such proxies. If no instructions are given, the proxies intend to vote the shares represented thereby:

RECORD DATE AND VOTING RIGHTS

On  April 20, 2020, there were 48,051,248 shares of Common Stock outstanding (excluding shares held in treasury). Each of these shares is entitled to one vote upon each of the matters to be presented at the Annual Meeting. Only stockholders of record at the close of business on April 20, 2020 are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.

The quorum requirement for holding the Annual Meeting and transacting business is a majority of the outstanding shares entitled to be voted at the Annual Meeting. The shares may be present in person or represented by proxy at the Annual Meeting. Abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum.

A “broker non-vote” occurs when shares held by a broker, bank, or other nominee in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker, bank, or other nominee (1) has not received voting instructions from the beneficial owner and (2) lacks discretionary voting power to vote those shares with respect to that particular proposal. Under current New York Stock Exchange rules, brokers have discretionary voting power with respect to the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2021, but will not be authorized to vote with respect to the (i) election of our eleven nominees for director or (ii) advisory vote on the compensation of our Named Executive Officers, unless you provide voting instructions to your broker.

The affirmative vote of the holders of a plurality of the shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required for the election of directors. The eleven nominees receiving the highest number of affirmative votes of the shares present in person or represented by proxy and entitled to vote for them shall be elected as directors; provided, however, that pursuant to our Director Selection and Qualification Standards and Resignation Policy, any nominee for director in this uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election must tender a written resignation to the Board. The Nominating and Corporate Governance Committee and the Board of Directors will consider the resignation and determine whether or not to accept the resignation.

See “Corporate Governance—Additional Corporate Governance Policies—Director Selection and Qualification Standards and Resignation Policy” for a more complete description of the application of this Policy.

The affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required to decide the other matters to be voted on at the Annual Meeting.

You may vote “FOR” or “VOTE WITHHELD” with respect to each or all of the director nominees. If you elect not to vote on the election of directors, this will not have any effect on the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “VOTE WITHHELD” votes are counted.

You may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to the proposal to approve, on an advisory basis, the compensation of our Named Executive Officers and the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm. If you elect to abstain from voting on any of these proposals, the abstention will have the same effect as an “AGAINST” vote with respect to such proposal.

If you sign and return your accompanying proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board and in accordance with the discretion of the persons named on the accompanying proxy card with respect to any other matters to be voted upon at the Annual Meeting. If you are a beneficial holder and do not return a voting instruction form, your broker may not vote on any of the matters to be presented at the Annual Meeting.

 

 

PROXY SUMMARY

This summary highlights information on the proposals that require your vote at the Annual Meeting, as well as information on our business, our Board of Directors and our corporate governance structure. This summary does not contain all of the information that you should consider before voting and we ask that you read the entire Proxy Statement carefully. As used in the Proxy Statement, “G-III,” “our company” and “we” refer to G-III Apparel Group, Ltd. and its subsidiaries.

Our Business Performance in Fiscal 2020

 

Our performance in fiscal 2020 reflects continued growth across our portfolio of brands.

 

Diluted earnings per share includes (i) non-cash imputed interest expense of $5.4 million in fiscal 2020 and $5.0 million in fiscal 2019 related to the note issued to seller (the "Seller Note") as part of the consideration for the acquisition of Donna Karan International, (ii) asset impairments primarily related to leasehold improvements and furniture and fixtures at certain of our retail stores, net of gain on lease terminations, of $19.4 million in fiscal 2020 and $2.8 million in fiscal 2019 and (iii) a non-cash income tax gain of $6.7 million in fiscal 2020 primarily from foreign tax rate changes. The aggregate net effect of these exclusions was equal to $0.25 per diluted share in fiscal 2020 and $0.11 per diluted share in fiscal 2019.

 

Strategic Initiatives

We are focused on the following strategic initiatives, which we believe are critical to our long-term success:

‒We can realize significantly higher operating margins because we are not required to pay licensing fees on sales by us of our proprietary products and can also generate licensing revenues (which have no related cost of goods sold) for classes of products not manufactured by us.

‒There are no channel restrictions, permitting us to market our products internationally, and to utilize a variety of different distribution channels, including online and off-price channels.

‒We are able to license our proprietary brands in new categories and geographies to best in class licensees.

‒We are able to build equity in these brands to benefit the long-term interests of our stockholders.

Leadership Priorities in Fiscal 2020

USING OUR COMPETITIVE ADVANTAGES TO DRIVE BUSINESS PERFORMANCE

In fiscal 2020, G-III continued its efforts to drive growth. We are harnessing our competitive strengths to drive our strategic initiatives described above.

 

DONNA KARAN INTERNATIONAL

The ongoing development of the Donna Karan International (“DKI”) businesses serves as a pillar of our strategic efforts. The acquisition of DKI added two proprietary power brands to our growing portfolio and the ability to expand our footprint globally, while enabling us to compete more effectively in omni-channel retail. The acquisition of DKI fit squarely into our strategy to diversify and expand our business and to increase our ownership of brands. We believe that DKNY and Donna Karan are two of the most iconic and recognizable power brands and that we are well positioned to unlock their potential, resulting in a much bigger opportunity than their previous management had realized. We are focusing on the expansion of the DKNY brand, while continuing to re-establish Donna Karan and other associated brands. We are leveraging our demonstrated ability to drive organic growth and develop talent throughout our company to maximize the potential of the DKNY and Donna Karan brands.

In fiscal 2018 and fiscal 2019, we restructured and repositioned the DKNY and Donna Karan brands.  We re-launched the DKNY apparel line and also re-launched Donna Karan as an aspirational luxury brand that is priced above DKNY and targeted to fine department stores globally. These steps began paying off in the second half of fiscal 2018 and through fiscal 2020. Our strategy is for DKNY and Donna Karan to be more accessible brands, both designed and priced to reach a wider range of customers. We believe there is untapped global licensing and distribution potential for these brands and intend to grow royalty streams in the DKNY and Donna Karan businesses through expansion of additional categories with existing licensees, as well as new categories with new licensees. We are committed to making DKNY the premier fashion and lifestyle brand. We expect to launch our DKNY Jeans denim collection during fiscal 2021.

CALVIN KLEIN

We have continually expanded our relationship with Calvin Klein, our most important license relationship representing over $1 billion of our sales in fiscal 2020. Initially, we had licenses for Calvin Klein men’s and women’s outerwear. We subsequently added licenses for women’s suits, dresses, women’s performance wear, women’s better sportswear, men’s and women’s swimwear, women’s handbags and small leather goods and luggage. In June 2019, we expanded our relationship with Calvin Klein by entering into a license agreement with an initial term of five years for the design, production

and wholesale distribution of Calvin Klein Jeans women’s jeanswear in the United States and Canada. Shipments of our first Calvin Klein Jeans women’s jeanswear line began during our third quarter of fiscal 2020.

TOMMY HILFIGER AND KARL LAGERFELD PARIS

We also have a significant relationship with Tommy Hilfiger, with whom we have a multi-category womenswear license in the United States and Canada. This license for women’s sportswear, dresses, suit separates, performance and denim is in addition to our Tommy Hilfiger men’s and women’s outerwear license and Tommy Hilfiger luggage license, both also in the United States and Canada. We expect to launch our Tommy Hilfiger Jeans denim collection in fiscal 2021.

We own a 49% interest in a joint venture that owns the trademarks for the Karl Lagerfeld brand in North America. As part of that relationship, we have a long-term license agreement with the joint venture for the Karl Lagerfeld Paris brand in North America, pursuant to which we produce and distribute women’s apparel, women’s footwear, women’s handbags, men’s apparel, men’s footwear and luggage under the Karl Lagerfeld Paris brand.

OUR ABILITY TO PARTNER

We believe that retailers today are seeking resources with the size and power to partner effectively on all aspects of the supply chain, from design, sourcing and quality control to logistics and warehousing. We believe that G-III is a partner of choice in these endeavors, and that we are able to capitalize on our competitive strengths to expand our position as an all-season diversified apparel company.

Our Director Nominees

 

Our director nominees are listed below.

 

 

Governance Highlights

G-III has established strong policies that follow best practices for corporate governance:

 

Stockholder Outreach

G-III values the opinions of its stockholders and its Board and management communicates with stockholders regularly through multiple channels. These include quarterly earnings calls, our SEC filings, investor conferences and our website at http://www.giii.com.

During fiscal 2020, we reached out to 35 stockholders who owned an aggregate of 83.1% of our shares and met with 22 stockholders who owned an aggregate of 64.8% of our shares and the major proxy advisory services. The outreach was led by our Lead Independent Director, who is also Chairman of our Compensation Committee. Our Chief Operating Officer, our Vice President, Investor Relations, and the Compensation Committee’s independent compensation consultant also participated in meetings with investors. During each meeting, we presented an update on our business, our preliminary thinking on changes to our compensation program for fiscal 2020 that we expected to make and our environmental, social and governance initiatives, which we refer to as Corporate Social Responsibility. We actively solicited feedback from our stockholders and received valuable input on each of these topics.

In developing our long-term incentive program for fiscal 2020, the Compensation Committee factored stockholder input into its redesign of our long-term incentive program.

 

From February to April 2020, we continued to engage with our stockholders, building on the progress made during the prior year. We reached out to 38 stockholders who owned an aggregate of 90.9% of our shares and met with 19 stockholders who owned an aggregate of 59.1% of our shares. We updated our stockholders on the impact the COVID-19 pandemic was having on our wholesale business given that our retail partners largely closed their stores in the spring and our own retail stores closed in March. We also continued to provide updates on our executive compensation program, our progress on board refreshment and diversity and our Corporate Social Responsibility initiatives.

 More information on our stockholder outreach is provided on page 32.

Corporate Social Responsibility

Our business has been built on family values and the belief that with hard work, conviction and a commitment to the greater good, we could redefine what is possible. By maintaining a commitment to our principles of Engage our People, Protect our Environment and Invest in Our Communities, over the past year we have taken meaningful steps to ensure that our business continues to drive value for all of our stakeholders, while also making a positive impact on our communities and the world around us.

Engage Our People - Our greatest asset is our talented employee base who come to work every day around the globe with incredible dedication, drive, compassion and care. Our focus remains on further enhancing the working environment for our employees and taking steps to ensure that G-III remains a great company to work for. We recognize that insights and ideas from a diverse range of backgrounds will better position us for the future and a significant portion of the top 34 management positions are currently occupied by women. We continue to benchmark our programs and practices to our peer group and provide recommendations where appropriate. Finally, our commitment to Board diversity has not waivered, and we are actively exploring opportunities for new perspectives that can enhance our already strong Director group.

As our sourcing and licensing footprints continue to expand, we have taken steps to foster sustainability throughout the organization. As we expand our supplier relationships beyond China, we are committed to scaling our social and factory compliance programs accordingly. We are also working to formalize and enhance our initiatives and laying the foundation for future programs. We lead multi-brand sustainability training sessions and pilot shared audit programs with our key business partners that are designed to allow us to reach more stakeholders with greater efficiency. We initiated a program to develop additional resources in the field by mentoring interns on sustainability matters.  

We are committed to embedding these principles into our business and better engaging our employees and those who work in our contracted factories, protecting our environment and supporting our communities while accepting our responsibility to be a good corporate citizen.

Executive Compensation Highlights

More than 90% of our Chairman and CEO’s compensation and more than 80% of the average compensation of our other Named Executive Officers (“NEOs”) in fiscal 2020 consisted of at-risk annual and long-term incentive compensation. The annual cash incentives earned by our Chairman and CEO and our Vice Chairman and President are contractually guaranteed and reflect our record-breaking results in fiscal 2020. Achieving excellent results in the short-term enhances stockholder value over the long-term. While equity incentives were weighted less heavily in fiscal 2020,  our meaningful

grants of performance-based equity in fiscal 2020 help us to retain our executives and align their interests with those of our stockholders.

Annual cash incentives for fiscal 2020 reflect our company’s record-breaking financial results. The annual cash incentive formulas for Mr. Goldfarb and Mr. Aaron are contractual and have previously been modified twice as a result of discussions between the Compensation Committee and Mr. Goldfarb to reduce awards as a result of Compensation Committee analysis, advice of the Compensation Committee’s compensation consultant and a desire to address concerns raised by stockholders. Mr. Goldfarb and Mr. Aaron voluntarily accepted these modifications even though they were under no obligation to do so. Annual cash incentives to Mr. Goldfarb and Mr. Aaron for fiscal 2020 paid out at 80% of target because our pre-tax income was lower than forecast by 19%.

 

Annual cash incentives to the remaining NEOs decreased by 10% compared to the prior year. The cash incentive programs are designed to recognize and reward short-term performance in the volatile fashion industry, with payouts directly aligned to annual profitability.

More information is provided in the “Compensation Discussion and Analysis” beginning on page 27 and the “Executive Compensation Tables” beginning on page 45.

The following table depicts how the Chairman and CEO’s  annual cash incentive has tracked G‑III’s annual pre-tax income.

 

 

After obtaining extensive stockholder feedback during the outreach process, PSU grants replaced the prior program of PRSUs beginning with the grants made in April 2019 for fiscal 2020. The features of the fiscal 2020 PSU grants were intended to provide a powerful incentive to our NEOs to create sustained long-term stockholder value. We believe that the design of the PSUs directly reflects critical features identified as important by our stockholders during our fiscal 2020 outreach: use of a longer, three-year performance period, an additional two-year post-vesting holding period, new performance metrics and rigorous financial targets with no re-testing features. Highlights of these grants are provided below:

Our Performance Metrics For Fiscal 2020 and Why We Used Them

 

Impact of COVID-19 On Our Compensation Program For Fiscal 2021

The determination of executive compensation for fiscal 2020 was based on our record-breaking results for fiscal 2019 and 2020. The impact of the COVID-19 pandemic is expected to have a material adverse effect on our business and results of operations in fiscal 2021. The Compensation Committee will continue to consider the impact of this pandemic on our business, results of operations and financial condition in evaluating fiscal 2021 compensation decisions. The effects of the pandemic have already impacted the compensation of our executive officers, employees and directors.

 

 

 

 More information is provided in the “Compensation Discussion and Analysis” beginning on page 27 and the “Executive Compensation Tables” beginning on page 45.

 

BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN STOCKHOLDERS AND MANAGEMENT

The following table sets forth information as of March 23, 2020 (except as otherwise noted in the footnotes) regarding the beneficial ownership of our Common Stock of: (i) each director; (ii) each person known by us to own beneficially more than five percent of our outstanding Common Stock; (iii) each executive officer named in the Fiscal 2020 Summary Compensation Table; and (iv) all directors and executive officers as a group. Except as otherwise specified, the named beneficial owner has the sole voting and investment power over the shares listed. The percentage of ownership is based on 48,009,346 shares of Common Stock outstanding (excluding treasury shares) as of March 23, 2020 (except as otherwise noted in the footnotes). Unless otherwise indicated in the table below, each beneficial owner has an address in care of our principal executive offices at 512 Seventh Avenue, New York, New York 10018.

 

*     Less than one percent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our officers and directors, as well as any person or entity who owns more than 10% of our Common Stock, to file with the Securities and Exchange Commission (the “SEC”) certain reports of ownership and changes in ownership of our securities. Officers, directors and stockholders who hold more than 10% of our outstanding Common Stock are required by the SEC to furnish us with copies of all required forms filed under Section 16(a). We typically prepare Section 16(a) forms on behalf of our officers and directors based on the information provided by them or available to us.

To our knowledge, our directors, officers and beneficial owners of more than ten percent of our Common Stock were in compliance with the reporting requirements of Section 16(a) under the Exchange Act during fiscal 2020, except that we inadvertently failed to timely file a Form 4 on behalf of Morris Goldfarb relating to stock purchased on June 13, 2019, and a Form 4 on behalf of Thomas Brosig, Alan Feller, Victor Herrero, Laura Pomerantz, Willem van Bokhorst, Cheryl Vitali and Richard White relating to their annual Board stock grant on June 13, 2019, due to a clerical issue with filing codes. G-III filed the Form 4’s on June 18, 2019.

 

CORPORATE GOVERNANCE

Board of Directors

The Board of Directors has determined that Thomas Brosig, Alan Feller, Victor Herrero, Laura Pomerantz, Willem van Bokhorst, Cheryl Vitali and Richard White are independent directors.  The independent directors constitute a majority of the Board of Directors. In making its determination regarding the independence of the directors, the Board relied upon information provided by each of the directors and noted that each independent director meets the standards for independence set out in Nasdaq Listing Rule 5605(a)(2) and under the applicable rules and regulations of the SEC, and that there is no material business relationship between G-III and any independent director, including any business entity with which any independent director is affiliated.

The Board of Directors held four meetings during the fiscal year ended January 31, 2020. During the fiscal year ended January 31, 2020, each director attended all meetings of the Board of Directors (other than two directors who attended at least 75% of the meetings of the Board), and each director attended all meetings of committees of the Board on which he or she served. We do not have a formal policy regarding attendance by members of the Board of Directors at annual stockholders’ meetings. All of our directors attended the 2019 Annual Meeting of Stockholders.

Our Board of Directors has an Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each member of our Audit, Compensation and Nominating and Corporate Governance Committees has been determined by the Board of Directors to be “independent” within the meaning of Nasdaq Listing Rule 5605(a)(2). Each member of the Audit Committee is “independent” within the meaning of Nasdaq Listing Rule 5605(c)(2)(A) and under the applicable rules and regulations of the SEC regarding the independence of audit committee members. Each member of the Compensation Committee is “independent” within the meaning of Nasdaq Listing Rule 5605(d)(2)(A).

 

 

 

 

 

NOMINATIONS PROCESS

It is the policy of the Nominating and Corporate Governance Committee to consider candidates for Board membership suggested by Nominating and Corporate Governance Committee members and other Board members, management, our stockholders, third-party search firms and any other appropriate sources. As a stockholder, you may recommend any person for consideration as a nominee for director by writing to the Secretary of G-III, c/o G-III Apparel Group, Ltd., 512 Seventh Avenue, New York, New York 10018. Recommendations must be received by March 13, 2021 to be considered for the 2021 Annual Meeting of Stockholders. Recommendations must include the name and address of the stockholder making the recommendation, a representation setting forth the number of shares of our Common Stock beneficially owned by the recommending stockholder, a statement that the recommended nominee has expressed his or her intent to serve on the Board if elected, biographical information about the recommended nominee, any other information the stockholder believes would be helpful to the Nominating and Corporate Governance Committee in evaluating the individual recommended nominee and a description of all arrangements or understandings between the recommending stockholder and each nominee and any other person concerning the nomination.

Under the Director Selection and Qualification Standards and Resignation Policy (the “Director Policy”), the Nominating and Corporate Governance Committee is responsible for (i) assisting the Board in evaluating the independence of directors, (ii) developing and revising, as appropriate, for approval by the Board, selection criteria and qualification standards for Board nominees, (iii) identifying individuals believed to be qualified to become Board members consistent with criteria approved by the Board and applicable law and regulations, (iv) recommending candidates or nominees to the Board and (v) recommending to the Board whether or not to accept the resignation of a nominee for Director in an uncontested election who receives more votes “withheld” from his or her election than votes “for” such election.

In evaluating candidates, the Nominating and Corporate Governance Committee considers the following criteria:

 

In any particular situation, the Nominating and Corporate Governance Committee may focus on persons possessing a particular background, experience or qualifications that the Committee believes would be important to enhance the effectiveness of the Board.

The Nominating and Corporate Governance Committee does not have a formal policy with respect to considering diversity in identifying director nominees. The Board and the Nominating and Corporate Governance Committee believe it is important that the Board members represent diverse viewpoints and a variety of skills so that, as a group, the Board will possess the appropriate talent, skills and expertise to oversee our business. The evaluation process for stockholder recommendations is the same as for candidates recommended from any other source. The needs of the Board and the factors that the Nominating and Corporate Governance Committee consider in evaluating candidates are reassessed on an annual basis, when the Committee’s charter is reviewed.

 

Stockholder Communications

The Board of Directors has provided a process for stockholders to send communications to the Board. Stockholders who wish to send communications to the Board of Directors, or any particular director, should address such communications to the Board or such director c/o G-III Apparel Group, Ltd., 512 Seventh Avenue, New York, New York 10018, Attn: Secretary. All such communications should include a representation from the submitting stockholder setting forth the stockholder’s address and the number of shares of our Common Stock beneficially owned by the stockholder. The Board will give appropriate attention to written communications on issues that are submitted by stockholders and will respond as appropriate. Absent unusual circumstances, the Secretary of G-III will (i) be primarily responsible for monitoring communications from stockholders and (ii) provide copies or summaries of such communications to the Board, the Lead Independent Director (who serves as a non-management resource for stockholders seeking to communicate with our Board) or the director to whom such communication is addressed, as the Secretary considers appropriate. Each stockholder communication will be forwarded to all directors, the Lead Independent Director or the director to whom it is addressed, if it relates to a substantive matter and includes suggestions or comments that the Secretary considers to be important for the directors, or director, to know. In general, stockholder communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than stockholder communications relating to personal grievances and matters as to which we may receive repetitive or duplicative communications.

Additionally, G-III’s by-laws set forth “advance notice” requirements for stockholders’ meetings consistent with the purpose of establishing an orderly process for stockholders seeking to nominate directors or propose business at stockholder meetings. The advance notice provisions in the by-laws require stockholders to deliver notice to G-III of their intention to make director nominations or bring other business before the meeting not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, in advance of the anniversary of the previous year’s annual meeting if the meeting is to be held on a day which is not more than 30 days in advance of the anniversary of the previous year’s  

annual meeting or not later than 70 days after the anniversary of the previous year’s annual meeting. The advance notice provisions of the by-laws prescribe information that the stockholder’s notice must contain, both as to itself and its proposed director nominee, if the stockholder wishes to nominate a candidate for the annual meeting director election, prescribe information that the stockholder’s notice must contain if the stockholder wishes to bring business other than a director nomination before the annual meeting, and set forth rules and procedures relating to special meetings of stockholders.

Risk Oversight

The risk oversight function of our Board of Directors is carried out by both the Board and the Audit Committee. A fundamental part of risk oversight is not only understanding the material risks a company faces and the steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. While the full Board has overall responsibility for risk oversight, the Board has delegated oversight related to certain risks to the Audit Committee. The Audit Committee is responsible for reviewing and discussing with management our major and emerging risk exposures, including financial, operational, technology, privacy, data security, disaster recovery and ethics and compliance. The Audit Committee meets periodically with management and our internal audit department to discuss our major financial and operating risks and the steps, guidelines and policies management and our internal audit team have taken to monitor and control exposures to risk, including G-III’s risk assessment and risk management policies. The Chair of the Audit Committee regularly reports to the Board the substance of such reviews and discussions. Both the Board and the Audit Committee regularly review cybersecurity risk matters.

Our Compensation Committee incorporates considerations of risk into its deliberations of our executive compensation program. The Compensation Committee believes that G-III’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on G-III. In addition, our internal disclosure committee reviews with management the “risk factors” that appear in our Annual Report on Form 10‑K prior to its filing with the SEC, as well as prior to the filing of our Quarterly Reports on Form 10‑Q.

The Board encourages management to promote a corporate culture that incorporates risk management into our corporate strategy and day-to-day business operations. The Board continually works, with input from our executive officers, to assess and analyze the most likely areas of future risk for us and our business.

Leadership Structure of the Board

The Board of Directors believes that Morris Goldfarb’s service in the dual roles of Chairman of the Board and Chief Executive Officer is in our best interest, as well as the best interest of our stockholders. Mr. Goldfarb is the director most familiar with our business and industry and possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing us and our business. Thus, he is in the best position to develop agendas and plans that ensure that the Board’s time and attention are focused on the most critical matters. We believe that Mr. Goldfarb is viewed by our customers, suppliers, business partners, investors and other stakeholders as providing strong leadership for our company in the marketplace and in our industry. This approach is often utilized by other public companies in the United States and we believe it has been effective for our company as well.

Although the Board believes that the combination of the Chairman of the Board and Chief Executive Officer roles is appropriate for us in the current circumstances, our Board does not have a specific policy as to whether or not these roles should be combined or separated.

LEAD INDEPENDENT DIRECTOR

In order to promote independent leadership on our Board and help ensure that the Board operates in a cohesive manner, the Board established the position of Lead Independent Director and elected Richard White as the Lead Independent Director. The responsibilities of the Lead Independent Director include:

Additional Corporate Governance Policies

We also maintain the following corporate governance policies:

CODE OF ETHICS AND CONDUCT

All of our employees and employees of our subsidiaries (“Company Personnel”), officers and directors must adhere to our Code of Ethics and Conduct. It codifies those standards that we believe are reasonably designed to deter wrong-doing and to promote, among other things, adherence to the following principles:

A copy of the Code of Ethics and Conduct is available in the “Investors” section of our website at http://www.giii.com.

WHISTLEBLOWER POLICY

The Whistleblower Policy protects all of our Company Personnel, officers and directors if they raise concerns regarding G-III, such as concerns regarding incorrect financial reporting including questionable accounting, internal controls or auditing matters; unlawful activities; activities that are not in line with G-III policies, including the Code of Ethics and Conduct; or activities which otherwise amount to serious improper conduct. A copy of the Whistleblower Policy is available in the “Investors” section of our website at http://www.giii.com.

INSIDER TRADING, HEDGING AND PLEDGING POLICY

The Insider Trading, Hedging and Pledging Policy applies to all of our Company Personnel, directors and officers, and prohibits trading or causing trading of our securities while the applicable person is in possession of material non-public information. The Insider Trading, Hedging and Pledging Policy prohibits directors, executive officers and other Company Personnel specified by us, from time to time, from trading in G-III securities during our established blackout periods, except (i) pursuant to Board-approved written trading plans adopted in accordance with Rule 10b5‑1 under the Exchange Act, at least 30 days prior to any trade, (ii) stock option exercises for cash with no associated open market transaction and (iii) the surrender of shares to us or the retention and withholding of shares by us in satisfaction of tax withholding obligations with respect to stock-settled incentive compensation awards with no associated open market transaction. The Insider Trading, Hedging and Pledging Policy also prohibits Company Personnel from entering into hedging transactions with respect to our securities, pledging our securities as collateral for a loan or holding our securities in a margin account. The Board may, in limited circumstances, permit a share pledge by a director or executive officer after giving consideration to the number of shares to be pledged as a percentage of his or her total shares held and G-III’s total shares outstanding. A copy of the Insider Trading, Hedging and Pledging Policy is available in the “Investors” section of our website at http://www.giii.com.

STOCK OWNERSHIP GUIDELINES

The Stock Ownership Guidelines require:

 

Until these share ownership levels are achieved, our executive officers and directors are required to retain 50% of any net, after-tax, shares received upon exercise or vesting of our equity grants. All of our officers and directors are in compliance with our Stock Ownership Guidelines, except for one director initially elected to the Board last year.  A copy of the Stock Ownership Guidelines is available in the “Investors” section of our website at http://www.giii.com.

EXECUTIVE INCENTIVE COMPENSATION RECOUPMENT POLICY

Pursuant to the Executive Incentive Compensation Recoupment Policy, or “Clawback Policy,” in the event that we are required to restate our financial statements for any financial year, other than as a result of a change in generally accepted accounting principles or their interpretation, the Compensation Committee may, in its discretion, recoup incentive compensation paid to individuals who were executive officers within one year prior to the restatement. The incentive compensation subject to recoupment will consist of performance-based bonuses (including bonuses paid pursuant to employment agreements) and long-term incentive awards or equity grants, to the extent that such bonuses, awards or grants were predicated upon achievement of financial results that are subsequently restated. A copy of the Executive Incentive Compensation Recoupment Policy is available in the “Investors” section of our website at http://www.giii.com.

DIRECTOR SELECTION AND QUALIFICATION STANDARDS AND RESIGNATION POLICY

The Director Policy describes the Board’s criteria for selecting director nominees and the roles of the Board and the Nominating and Corporate Governance Committee in evaluating director independence and qualifications. In addition, the Director Policy provides that any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election must tender a written resignation to the Board. The Nominating and Corporate Governance Committee will consider the resignation and make a recommendation to the Board as to whether to accept or reject the resignation. Thereafter, the Board will deliberate and determine the action to be taken with respect to the tendered resignation. Following the Board’s determination, G-III will publicly disclose the Board’s decision and the reasons for the decision. A copy of the Director Policy is available in the “Investors” section of our website at http://www.giii.com.

CORPORATE SOCIAL RESPONSIBILITY

Our business has been built on family values and the belief that with hard work, conviction and a commitment to the greater good, we could redefine what is possible. By maintaining a commitment to our principles of Engage our People, Protect our Environment and Invest in Our Communities, over the past year we have taken meaningful steps to ensure that our business continues to drive value for all of our stakeholders, while also making a positive impact on our communities and the world around us.

Engage Our People - Our greatest asset is our talented employee base who come to work every day around the globe with incredible dedication, drive, compassion and care. Our focus remains on further enhancing the working environment for our employees and taking steps to ensure that G-III remains a great company to work for. We recognize that insights and ideas from a diverse range of backgrounds will better position us for the future and a significant portion of the top 34 management positions are currently occupied by women. We continue to benchmark our programs and practices to our peer group and provide recommendations where appropriate. Finally, our commitment to Board diversity has not waivered, and we are actively exploring opportunities for new perspectives that can enhance our already strong Director group.

As our sourcing and licensing footprints continue to expand, we have taken steps to foster sustainability throughout the organization. As we expand our supplier relationships beyond China, we are committed to scaling our social and factory compliance programs accordingly. We are also working to formalize and enhance our initiatives and laying the foundation for future programs. We lead multi-brand sustainability training sessions and pilot shared audit programs with our key business partners that are designed to allow us to reach more stakeholders with greater efficiency. We initiated a program to develop additional resources in the field by mentoring interns on sustainability matters.  

 

We are committed to embedding these principles into our business and better engaging our employees and those who work in our contracted factories, protecting our environment and supporting our communities while accepting our responsibility to be a good corporate citizen.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

Our Compensation Discussion and Analysis (CD&A) presents our executive compensation for fiscal 2020, describing how different components of compensation support our business objectives and how we determined the amounts of each component of compensation paid to our Named Executive Officers, or NEOs. In this Proxy Statement, references to a fiscal year refers to the year ended January 31 of that year.

CD&A Table of Contents 

 

Executive Summary

For fiscal 2020, the following individuals were our NEOs:

 

When discussing performance metrics for annual cash incentive awards for our Chairman and CEO and for our Vice Chairman and President, we refer to our pre-tax income. Unless otherwise defined, pre-tax income means the net income of G-III and its subsidiaries as reported in our consolidated financial statements, plus the sum of (i) the income taxes reported in our financial statements and (ii) the amount of the annual cash incentive payable to each NEO; provided however that pre-tax income is determined without regard to items that are both unusual and infrequent, as defined in generally accepted accounting principles (“GAAP”). Pre-tax income is defined in this way in the employment agreements with each of these NEOs and is a non-GAAP measure. Our use of non-GAAP metrics for annual cash incentive awards is not intended to replace GAAP results.

OUR BUSINESS PERFORMANCE IN FISCAL 2020

 

Our performance in fiscal 2020 reflects continued growth across our portfolio of brands.

Diluted earnings per share includes (i) non-cash imputed interest expense of $5.4 million in fiscal 2020 and $5.0 million in fiscal 2019 related to the Seller Note, (ii) asset impairments primarily related to leasehold improvements and furniture and fixtures at certain of our retail stores, net of gain on lease terminations, of $19.4 million in fiscal 2020 and $2.8 million in fiscal 2019 and (iii) a non-cash income tax gain of $6.7 million in fiscal 2020 primarily from foreign tax rate changes. The aggregate net effect of these exclusions was equal to $0.25 per diluted share in fiscal 2020 and $0.11 per diluted share in fiscal 2019.

 

OUR LONG-TERM BUSINESS PERFORMANCE

Under the leadership of Morris Goldfarb, our Chairman and Chief Executive Officer, and our dedicated team of executive officers, G-III has delivered consistently strong financial performance. Our revenue growth and net income growth have consistently out-performed our competitors over the long-term and we achieved two consecutive years of record-breaking results in fiscal 2019 and 2020, demonstrating both our long-term orientation, as well as our commitment to delivering top tier results to our stockholders.

While the long-term performance of our Common Stock, as measured by total stockholder return, has been very strong, our stock price performance over the past three to five years has underperformed the S&P Textiles, Apparel & Luxury Goods Industry Index and the S&P 500 Index during this period. We attribute the lower performance of our stock price to uncertainty connected with the performance of our retail partners and our own retail stores, as well as trade, tariffs and our Company’s exposure to China for its supply chain.  Our management team is taking steps to mitigate these issues and increase the value of our global power brands.

OUR PAY MIX IS HEAVILY WEIGHTED TOWARDS INCENTIVE-BASED COMPENSATION

More than 90% of our Chairman and CEO’s compensation and more than 80% of the average compensation of our other NEOs in fiscal 2020 consisted of at-risk annual and long-term incentive compensation. The annual cash incentives earned by our Chairman and CEO and our Vice Chairman and President are contractually guaranteed and reflect our record-breaking results in fiscal 2020. Achieving excellent results in the short-term enhances stockholder value over the long-term. While equity incentives were weighted less heavily in fiscal 2020,  our meaningful grants of performance-based equity in fiscal 2020 help us to retain our executives and align their interests with those of our stockholders.

 

 

OUR “SAY ON PAY” AND STOCKHOLDER OUTREACH INITIATIVE

G-III values the opinions of its stockholders and has spent considerable time soliciting information regarding their views. The Compensation Committee was pleased to receive 75% support from our stockholders for the “Say on Pay” proposal presented at our 2019 Annual Meeting after receiving less than majority support in 2018. The Compensation Committee

concluded that the expanded stockholder outreach campaign, enhancements to our disclosure and the re-design of our executive pay program were well received.

During fiscal 2020, we reached out to 35 stockholders who owned an aggregate of 83.1% of our shares and met with 22 stockholders who owned an aggregate of 64.8% of our shares and the major proxy advisory firms. The outreach was led by our Lead Independent Director, who is also Chairman of our Compensation Committee. Our Chief Operating Officer, our Vice President, Investor Relations, and the Compensation Committee’s independent compensation consultant also participated in meetings with investors. During each meeting, we presented an update on our business, our preliminary thinking on changes to our compensation program for fiscal 2020 that we expected to make and our Corporate Social Responsibility initiatives. We actively solicited feedback from stockholders and received valuable input from our stockholders on these topics.

From February to April 2020, we continued to engage with our stockholders, building on the progress made during the prior year. We reached out to 38 stockholders who owned an aggregate of 90.9% of our shares and met with 19 stockholders who owned an aggregate of 59.1% of our shares.  We updated our stockholders on the impact the COVID-19 pandemic was having on our wholesale business given that our retail partners largely closed their stores in the spring and our own retail stores closed in March. We also continued to provide updates on our executive compensation program, our progress on board refreshment and diversity and our Corporate Social Responsibility initiatives.

REVIEW OF COMPENSATION OF OUR ChAIRMAN AND CEO AND VICE CHAIRMAN

Some investors have questioned the amount of total compensation to our two highest paid executives, Morris Goldfarb, our Chairman and Chief Executive Officer and Sammy Aaron, our Vice Chairman and President, and the metrics used in determining their annual cash incentive. 

The Compensation Committee engaged with our Chief Executive Officer on the design of the annual cash incentive formulas in effect for him and for our Vice Chairman and President pursuant to their employment agreements. The annual cash incentive is a contractual obligation that cannot be changed unilaterally. The Committee discussed implementing a new annual cash incentive program but determined that this would have required the Board to give notice that the employment agreements with these two executives would not be automatically extended. Even then, the contractual annual cash incentive would remain in place until each employment agreement terminates.  The Committee believes this step would create enormous disruption and uncertainty both internally and externally—among investors, our retail partners, the licensors of our brands and our customers—resulting in substantial erosion of stockholder value. The Committee concluded that if the employment agreements were not so extended, this action would be interpreted internally and externally as a change in senior leadership of our company which would severely disrupt our business. The metric for the annual cash incentive is pre-tax income. This metric is fundamental to our success, and a critical measure of short-term performance. The annual cash incentive is performance-based and aligns directly with profitability, moving both up and down, and there are no redundant metrics.

The Compensation Committee discussed the possibility of terminating the employment agreements with the full Board of Directors. The Board expressed great confidence in the ability of our Chairman and CEO and our Vice Chairman and President to successfully lead G-III and continue their track record of producing excellent financial results and stockholder value creation, as well as leading the company through the disruption caused by COVID-19. For these reasons, the Committee decided that the best approach was to allow the automatic extension of the employment agreements and, in doing so, to keep the current annual cash incentive program for the two of them.

The Compensation Committee factored stockholder input into its decisions relating to the elements of fiscal 2020 compensation that were not contractual, as evidenced by the meaningful changes made to the long-term incentive program:

 

The Compensation Committee also considered that our Chairman and CEO is our fourth largest stockholder, beneficially owning approximately 7.7% of our Common Stock, and concluded that he is heavily invested in our long-term value creation.

RESULTS OF OUR STOCKHOLDER OUTREACH PROCESS

Last year, investors welcomed the opportunity to discuss our proposed responses to the Say on Pay vote, indicating that outreach was extremely helpful to build understanding and bridge differences. We have summarized what we heard from investors about our redesign of our long-term incentive program and a description of the steps taken in response to comments from our stockholders:

 

In response to comments made by investors, we also eliminated an exception that had been made to our anti-pledging policy and committed to increase our Corporate Social Responsibility initiatives.

IMPACT OF COVID-19 ON OUR COMPENSATION PROGRAM FOR FISCAL 2021

The determination of executive compensation for fiscal 2020 was based on our record-breaking results for fiscal 2019 and 2020. The impact of the COVID-19 pandemic is expected to have a material adverse effect on our business and results of operations in fiscal 2021. The Compensation Committee will continue to consider the impact of this pandemic on our business, results of operations and financial condition in evaluating fiscal 2021 compensation decisions. The effects of the pandemic have already impacted the compensation of our executive officers, employees and directors.

 

 

OUR COMPENSATION PROGRAM REFLECTS BEST PRACTICES

Our compensation program incorporates excellent compensation governance practices that benefit our stockholders:

 

Elements of Our Compensation Program—What We Pay and Why

OUR COMPENSATION PHILOSOPHY

Our compensation program is designed to enhance stockholder value in the following ways:

 

BASE SALARY

Base salaries provide a competitive rate of fixed pay and help us to attract and retain executives needed to manage our business for the benefit of our stockholders. The Compensation Committee determines base salaries after considering the breadth and complexity of the role, tenure, individual performance and the competitive market for talent. No adjustments to the base salaries of our NEOs were made in fiscal 2019. Mr. Goldfarb’s base salary has not been increased since fiscal 2009. 

ANNUAL CASH INCENTIVES FOR OUR CHAIRMAN AND CEO AND OUR VICE CHAIRMAN AND PRESIDENT

As detailed under “Executive Summary―Our “Say on Pay” and Stockholder Outreach Initiative” and “Review of Compensation of our Chairman and CEO and Vice Chairman” above, the Committee decided to retain the existing annual cash incentive arrangements for Morris Goldfarb and Sammy Aaron for fiscal 2020 because the Compensation Committee believes that terminating the employment agreements unilaterally would have disrupted our business and reduced shareholder value. In contrast, incentivizing Messrs. Goldfarb and Aaron in the same manner promotes a shared focus in the successful operation of our business.

The use of pre-tax income, the metric used in these annual cash incentive arrangements, is fundamental to our success, is designed to reward annual performance and, we believe, contributes to the long-term stock price performance of G-III. These annual cash incentive awards are structured to recognize the unique roles held by Messrs. Goldfarb and Aaron in the overall management of our business and the design and execution of our corporate strategy.

The Compensation Committee is committed to aligning Chairman and CEO compensation with performance and maintaining its pay-for-performance philosophy. The following tables depict how the Chairman and CEO’s bonus has tracked G‑III’s operating performance.

 

 

The annual cash incentive arrangement for Mr. Goldfarb is codified in his employment agreement with us. This arrangement was initially established in 1989.

The annual cash incentive arrangements were previously modified twice based on discussions between the Compensation Committee and Mr. Goldfarb, effective beginning in fiscal 2014 and again in fiscal 2015, although Mr. Goldfarb was under no obligation to do so, to reduce awards as a of result Committee analysis, advice of the Committee’s compensation consultant and a desire to address concerns that had been raised by our stockholders. Voluntary modifications included reducing the cap on awards to 150% of the amount payable at budget from 200%, adding a penalty that reduced the award when actual pre-tax income fell below budget by more than 15% and including a significantly higher threshold level of pre-tax income below which no award would be paid.

The annual cash incentive arrangement for Mr. Aaron was first established in 2008 and mirrors Mr. Goldfarb’s annual cash incentive. Mr. Aaron also voluntarily agreed to similar modifications to his employment agreement.

The annual reduction in bonus payments for each executive resulting from these voluntary modifications of their annual cash incentive agreements is summarized below:

 

The key provisions of the annual cash incentive arrangements in effect for Mr. Goldfarb and Mr. Aaron are summarized below. The basic award opportunity is expressed as a percentage of pre-tax income (“PTI”) for each executive. Mr. Goldfarb is eligible to receive 6% of pre-tax income in excess of $2 million, subject to a cap equal to 150% of the amount payable for achieving our forecast for the year. Mr. Aaron is eligible to receive 4% of pre-tax income in excess of $2 million, also subject to a cap equal to 150% of the amount payable for achieving our forecast for the year. In addition, there is an accelerator