M. Farooq Kathwari
About M. Farooq Kathwari
M. Farooq Kathwari is Chairman, President, and Chief Executive Officer of Ethan Allen Interiors Inc. (ETD), serving as President since 1985 and Chairman/CEO since 1988; he has been a director since 1985 and is age 81 . He holds a B.A. in English Literature and Political Science (Kashmir University) and an MBA in International Marketing (New York University), with multiple honorary doctorates and notable recognition including the Ellis Island Medal of Honor, American Furniture Hall of Fame induction, and the National Retail Federation Gold Medal . Company performance in FY2025 featured consolidated net sales of $614.6M (-4.9% YoY), adjusted operating margin of 10.2%, operating cash flow of $61.7M, and $50.1M returned via dividends, reflecting disciplined cost management amid demand headwinds . Over FY2021–FY2025, Ethan Allen’s cumulative TSR rose to $235 per $100 initial investment, significantly outpacing its peer group at $133, and long-term incentives include TSR as a key metric, indicating alignment of pay and performance .
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Ethan Allen Interiors Inc. | President | Since 1985 | Extensive experience in retailing, marketing, manufacturing, finance, and strategic planning; deep company and industry knowledge |
| Ethan Allen Interiors Inc. | Chairman & CEO | Since 1988 | Long-tenured leadership guiding vertical integration and brand strategy; oversight across operating, finance, and strategic planning |
| Ethan Allen Interiors Inc. | Director | Since 1985 | Board-level governance; institutional knowledge contributing to strategy and risk oversight |
External Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| New York Stock Exchange | Advisory Member | Not disclosed | Market/finance insight contributing to governance perspective |
| National Retail Federation | Director; Former Chairman | Not disclosed | Retail leadership and industry advocacy |
| American Home Furnishings Alliance | Director Emeritus; Former Chairman & President | Not disclosed | Sector expertise and policy influence |
| International Rescue Committee | Board of Advisors Member | Not disclosed | ESG perspective and global governance experience |
| Refugees International | Chairman Emeritus | Not disclosed | Humanitarian leadership; stakeholder engagement |
| U.S. Institute of Peace | International Advisory Council Member | Not disclosed | Geopolitical risk and governance insights |
| Council on Foreign Relations | Member | Not disclosed | Policy network; global strategic perspective |
| Hebrew Home | Honorary Trustee | Not disclosed | Community governance |
| Georgetown University – Institute for the Study of Diplomacy | Director | Not disclosed | Academic policy insight |
| Center for Strategic and International Studies | Advisory Board Member | Not disclosed | Strategic policy and risk oversight |
Fixed Compensation
| Metric | FY 2023 | FY 2024 | FY 2025 |
|---|---|---|---|
| Base Salary ($) | $1,150,050 | $1,150,050 | $1,150,050 |
| All Other Compensation ($) | $103,971 | $127,409 | $127,996 |
| Perquisites – Company car (incl. driver/insurance/etc.) ($) | Not disclosed | Not disclosed | $109,588 |
| Perquisites – Life insurance premiums reimbursed ($) | Not disclosed | Not disclosed | $15,744 |
Notes:
- No changes to NEO base salaries in FY2025; Mr. Kathwari’s is contract-based .
- Section 162(m) deductibility: CEO compensation historically exceeds $1M and is generally not deductible; Committee prioritizes flexibility over tax deductibility .
Performance Compensation
Annual Incentive Program (FY2025 structure and outcome)
| Metric | Weighting | Target | Actual | Individual Metric Payout | Overall Payout vs Target |
|---|---|---|---|---|---|
| Net Sales ($M) | 60% | $635.0 | $614.6 | 87% | 90.2% |
| Adjusted Operating Income ($M) | 40% | $64.7 | $62.9 | 95% | 90.2% |
| Executive | Target Bonus ($) | Target (% of Salary) | Payout (% of Target) | Actual Bonus Paid ($) |
|---|---|---|---|---|
| M. Farooq Kathwari | $1,150,050 | 100% | 90.2% | $1,037,300 |
Program design:
- Threshold 60% and Maximum 140% of target; metrics exclusively Company-level net sales and adjusted operating income .
Long-Term Incentive Program (PSUs and RSUs)
Design and weights:
- PSUs: 3-year cliff vest; metrics Sales Growth (40%), Return on Equity (40%), 3-year TSR relative to peers (20%); year-level weighting 50% FY2025 (Sales 20%, ROE 20%), 30% FY2026 (Sales 12%, ROE 12%), 20% FY2027 (TSR 20%) .
- RSUs: service-based; 3-year ratable vesting; annual grants .
FY2025 Grants (granted 8/7/2024):
| Award Type | Units / Value | Vesting | Grant Date Fair Value ($) |
|---|---|---|---|
| PSUs | Target 52,369; Threshold 32,419; Max 72,320 | 3-year cliff (performance FY2025–FY2027) | $1,517,988 |
| RSUs | 12,916 units; $310,501 value | 3-year ratable (start 8/7/2025) | $310,501 |
Results of previously granted awards:
- FY2023 PSU grant (2023–2025): 71% of target earned; Kathwari vested 45,569 PSUs out of 64,394 target, with relative TSR at 67th percentile yielding 117% payout on market-based awards .
Stock vested and value realized in FY2025:
| Executive | Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
|---|---|---|
| M. Farooq Kathwari | 77,184 | $2,418,971 |
Equity Ownership & Alignment
Beneficial Ownership (as of 9/12/2025)
| Holder | Shares Owned Directly/Indirectly (#) | Rights to Acquire within 60 Days (#) | Total Beneficially Owned (#) | % of Outstanding |
|---|---|---|---|---|
| M. Farooq Kathwari | 2,398,944 | — | 2,398,944 | 9.4% |
Breakdown:
- Direct: 1,613,652; Indirect: 106,964; Retirement Plan: 8,552; The Irfan Kathwari Foundation: 543,776 (beneficially owned, no reportable pecuniary interest) .
- 126,000 stock units issued 1997–2002; payment deferred until termination of employment .
Outstanding Equity Awards at FY2025 year-end (market price $27.85 used):
| Award | Units | Market/Payout Value ($) |
|---|---|---|
| Unvested PSUs (various grants, threshold/target basis per SEC rules) | 32,419; 27,103; 7,243; 5,313 | $902,869; $754,819; $201,718; $147,967 |
| Unvested RSUs (2024 grant) | 12,916 | $359,711 |
| Deferred Stock Units (1997–2002) | 126,000 | $3,509,100 |
Alignment policies:
- Stock ownership guidelines: CEO 5x salary; directors 3x annual cash compensation; other executives 2x salary. One-year holding period; pledged shares excluded from compliance .
- Anti-hedging and anti-pledging: short sales, derivatives, margin purchases prohibited; trading requires pre-clearance and is limited to open windows .
Employment Terms
| Term | Detail |
|---|---|
| Agreement term | Amended 7/30/2024 to extend to 6/30/2027 |
| Base salary | $1,150,000 per annum (no guaranteed increases) |
| Annual incentive | Target $1,150,000; Threshold $690,000; Max $1,610,000 |
| Annual PSU grant | Target value $1,207,500; Threshold $747,500; Max $1,667,500; metrics set annually |
| Annual RSU grant | $310,500 grant value; 3-year ratable vesting |
| Clawback | Robust recovery policy for erroneously awarded compensation (cash and equity) |
| Change-in-control | Double-trigger required; no tax gross-ups; payments/benefits reduced to avoid excise taxes |
| CEO termination (severance) | Lump sum equal to lesser of sum of two largest annual bonuses or $2.0M; salary continuation 24 months (12 months on death/disability); continued life/disability payments and health/welfare for specified periods |
| Equity on CoC | RSUs vest immediately; PSUs vest at target; valuations based on $27.85 closing price at 6/30/2025 |
Board Governance
- Independence and structure: ETD combines Chairman and CEO roles; the Board deems this appropriate given Kathwari’s tenure and investment, with strong Lead Independent Director oversight (John J. Dooner, Jr., LID since 2021) .
- Committees: Audit, Compensation, Corporate Governance/Nominations/Sustainability are composed solely of independent, non-employee directors; Kathwari is Chairman of the Board and not a committee member .
- Attendance and executive sessions: Board met 5 times with 100% director attendance; independent directors held 5 executive sessions, chaired by the LID .
- Director compensation: Employee directors receive no separate director compensation; non-employee directors receive retainers and option grants per disclosed schedule .
- Board skills: Kathwari’s matrix includes CEO-level experience, finance, operating, marketing/brand-building, international, and risk management among others .
Compensation Committee Analysis and Peer Benchmarking
- Committee approach: No external consultant engaged in FY2025; metrics include net sales, adjusted operating income, adjusted ROE, and TSR .
- Peer group: FY2025 peer group updated—Green Brick Partners removed; Purple Innovation added; no specific pay percentile targeted; peers include Arhaus, La-Z-Boy, MillerKnoll, Steelcase, Sleep Number, Lovesac, etc. .
- Say-on-Pay: 98.1% approval at 2024 Annual Meeting, indicating strong shareholder support .
Related Party Transactions and Risk Indicators
- Related party transactions: None requiring approval or disclosure since the beginning of FY2025 through the proxy filing .
- Risk controls: Anti-hedging/anti-pledging policies; pre-clearance and window trading; clawback policy; capped bonus payouts; mix of long- and short-term incentives; ownership guidelines .
- Deductibility: CEO compensation historically exceeds $1M (Section 162(m)), with Committee prioritizing performance alignment over tax deductibility .
- Pay ratio: CEO-to-median employee pay ratio 92:1 in FY2025 .
Investment Implications
- Strong alignment via high insider ownership: Kathwari beneficially owns ~9.4% of ETD, indicating significant skin-in-the-game; ownership guidelines and anti-pledging/hedging policies further align interests and moderate sell pressure through holding requirements .
- Pay-for-performance structure: Annual incentives tied to net sales and adjusted operating income delivered 90.2% of target in FY2025; PSUs emphasize multi-year Sales Growth, ROE, and relative TSR—prior cycles vested at 71% amid demand softness, evidencing variable realized pay .
- Governance risk mitigated by LID: Combined Chair/CEO raises independence concerns, but ETD employs a strong Lead Independent Director, independent committees, executive sessions, and robust governance policies to balance oversight .
- Contractual clarity on severance/CoC: Double-trigger CoC, no gross-ups, clawbacks, and defined severance payments cap liability and reduce shareholder-unfriendly features, supporting disciplined compensation risk management .
- Performance context: FY2025 results showed margin resilience and cash generation despite net sales declines; five-year TSR outperformance vs peers underpins compensation metric relevance and investor alignment .