Gary Friedman
RHAbout Gary Friedman
- Age 67; Chairman and Chief Executive Officer of RH; Director since July 2013; CEO/Chairman since January 2014. Joined RH in April 2001 when the business was near bankruptcy and led its transformation to a luxury interiors brand with >$3B revenues. Prior roles include 14 years at Williams‑Sonoma (President/COO; led Pottery Barn to >$1B) and 11 years at Gap (store to regional manager) .
- Board leadership: CEO and Chairman roles are combined; independent Lead Director (Mark Demilio) presides over executive sessions. Board deems structure appropriate with flexibility to separate roles in succession planning .
- Performance context (FY2024): Net revenues $3.181B (+5% y/y); GAAP operating margin 10.1% (down 200 bps); adjusted operating margin 11.3% (down 170 bps); GAAP net income $72M; adjusted net income $107M; free cash flow used $(214)M; net debt $2.594B; cash $30M .
- Stock performance: Value of $100 invested at 1/31/2020 was $200.77 at 1/31/2025; one share value $419.11 at 1/31/2025. Cumulative TSR over five years slightly above peer index used for SEC disclosure (S&P Retail Select) .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| RH (Restoration Hardware) | Chairman & CEO; joined RH in 2001, CEO/Chairman since 2014 | Since 2001 (CEO since 2014) | Transformed a $350M mall retailer near bankruptcy into a leading luxury interior design brand; developed flagship Galleries, RH Guesthouses, RH England; global expansion . |
| Williams‑Sonoma, Inc. | President & COO; President of Williams‑Sonoma, Pottery Barn, West Elm | 14 years | Transformed Pottery Barn from $50M tabletop/accessories to >$1B lifestyle brand; developed WS Grande Cuisine stores; conceptualized West Elm . |
| Gap | Store/District/Regional Manager | 11 years | Progressed to Regional Manager overseeing 63 stores in Southern California . |
External Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Not disclosed | — | — | No other current public company directorships disclosed in the proxy . |
Fixed Compensation
| Item | FY2022 | FY2023 | FY2024 |
|---|---|---|---|
| Base salary ($) | 1,250,000 | 1,250,000 | 1,250,000 (unchanged; base salary last increased in June 2013, per CD&A) |
| Target annual bonus (% of eligible base) | 125% | 125% | 125% |
| Actual annual bonus ($) | 1,562,500 (FY22 LIP) | 0 (FY23 LIP) | 0 (FY24 LIP) |
| Other compensation ($) | 12,000 car allowance | 12,000 car allowance | 12,000 car allowance |
Notes:
- LIP metric is Adjusted Income (company-wide), not individual goals. FY2024 payout set at 0% as targets were not achieved .
- CEO pay ratio FY2024: $1.262M CEO vs $52,615 median (24x) .
Performance Compensation
Annual Cash (LIP)
| Metric | Weighting | Target (100% Achievement) | Actual FY2024 | Payout | Vesting |
|---|---|---|---|---|---|
| Adjusted Income | 100% corporate | CEO target = 125% of eligible base | Below threshold | 0% | N/A (cash) |
Long‑Term Equity – CEO Option Awards
| Grant | Shares | Exercise Price | Structure | Performance Hurdles | Status/Restrictions |
|---|---|---|---|---|---|
| 2017 Stock Option Award | 1,000,000 | $50.00 | Multi‑year; time + stock price selling restrictions | $100 / $125 / $150 stock price | All selling restrictions have lapsed; board viewed as successful alignment . |
| 2020 Stock Option Award (granted Oct 2020) | 700,000 | $385.30 | Fully vested on grant; selling restrictions lapse only upon both time‑based service and stock price targets over a four‑year initial period | $500 / $650 / $800 stock price; premiums vs grant price of 29.8%, 68.7%, 107.6% respectively | 58,333 shares met $500 and 58,333 met $650 targets in year one (May 2021–May 2022); as of Feb 1, 2025, 583,334 shares remained subject to selling restrictions . |
Additional:
- If terminated without cause/for good reason/death/disability, shares eligible to lapse in the 12 months post‑termination may lapse based solely on stock price achievement during that period (option agreement terms) .
Equity Ownership & Alignment
| Item | Detail |
|---|---|
| Beneficial ownership | 5,005,063 shares (24.5% of outstanding as of May 16, 2025) . |
| Options included | 1,700,000 options exercisable within 60 days; 583,334 of these options subject to selling restrictions as of May 16, 2025 (portion of 2020 award) . |
| Outstanding option profile | 1,000,000 @ $50 (exp. 5/1/2027); 700,000 @ $385.30 (exp. 10/17/2030; fully vested but selling restrictions remain on 583,334 shares) . |
| Vested vs. unvested | 2020 award fully vested but with selling restrictions; no unvested RSUs for NEOs at FY2024 year‑end . |
| 10b5‑1 and pre‑clearance | 10b5‑1 plans permitted and disclosed on Form 4; pre‑clearance required for officers/directors; trading blackouts apply . |
| Hedging/pledging | Company prohibits hedging, short sales, and pledging of RH securities by directors/officers/employees . |
| Ownership guidelines | CEO must hold ≥6x salary; all executives/directors in compliance. CEO’s holdings valued at ~1,009.7x base salary based on FY2024 average price . |
| Insider selling activity (FY2024) | CEO reported no option exercises in FY2024 (0 shares exercised) . |
Employment Terms
| Provision | Key terms |
|---|---|
| Agreement | Employment agreement with RH; annual base salary at least $1.25M . |
| Severance (without cause / for good reason) | $20M cash paid over 24 months; accrued salary/vacation; earned but unpaid prior bonus; pro‑rata target bonus for year of termination; COBRA for 24 months at active‑rate contribution; equity selling restrictions/vesting continue for up to two years per award terms (repurchase at FMV for any remaining restrictions after two years) . |
| Change‑in‑control | Company policy avoids single‑trigger benefits; CEO agreement includes “best‑net” cutback (no excise tax gross‑up) if 280G applies . |
| Non‑compete / Non‑solicit | Non‑compete during employment and while receiving severance; 2‑year non‑solicit of employees and material customers/suppliers; mutual non‑disparagement . |
| Potential payout illustration (as of 2/1/2025) | Termination without cause/for good reason: total $39.76M, including $20.0M severance, $19.72M intrinsic value of equity assuming $419.11 price and applicable lapses, ~$38k health coverage; no FY2024 bonus . |
| Clawback | NYSE 10D‑1 compliant policy adopted Oct 2, 2023; recovery of erroneously awarded incentive compensation upon restatement (3‑year lookback) . |
Board Governance
- Role/tenure: Chairman & CEO; Director since 2013; Class III director with term expiring at 2027 annual meeting. Not a member of board committees .
- Committees/independence: All committees are fully independent; Audit (Chair: Demilio), Compensation (Chair: Schlesinger), Nominating & Governance (Chair: Demilio). CEO is not independent; six directors deemed independent .
- Board leadership: Combined CEO/Chair model mitigated by Lead Independent Director role and executive sessions; current Lead Independent Director: Mark Demilio .
- Attendance: All directors attended at least 75% of eligible meetings in FY2024; board held four meetings; committees met as disclosed .
- Director pay: Officers (including CEO) receive no compensation for board service .
Compensation Structure Analysis
- Mix and at‑risk pay: CEO cash comp deliberately modest (salary unchanged since 2013; LIP zero in FY2023–FY2024); long‑term incentives concentrated in multi‑year stock options with demanding price hurdles and selling restrictions to align with shareholder outcomes .
- Annual incentive rigor: Single corporate metric (Adjusted Income) with threshold/target/max calibration; FY2024 LIP paid 0%, demonstrating downside risk and linkage to profitability .
- Equity design and dilution guardrails: Predominant use of options; seven‑year back‑loaded vesting used broadly; no option repricing without shareholder approval; no single‑trigger CIC; no tax gross‑ups; active buybacks to offset dilution; FY2024 burn rate 3.0%, overhang 24.0% (18.3% pro forma) .
- Consultant/benchmarking: Compensation committee uses Mercer; independence considered; no formal benchmarking peer group given RH’s unique model; S&P Retail Select used only for required TSR disclosure .
- Shareholder support: Say‑on‑pay approval ~96% at 2024 annual meeting; ongoing investor outreach cited .
Related Party Transactions (Governance red flags to monitor)
- Personal aircraft usage: CEO reimbursed $694,667 for personal use in FY2024 under Time Sharing Agreement; additional $176,699 billed in FY2025 for FY2023 travel reclassified as personal after audit review .
- Personal use of RH assets: RH3 yacht charters ($311,000) and RH Guesthouse use (additional $133,314 reimbursement; aggregate $184,062 including prior payments) .
- Merchandise purchases: Approximately $195,880 after employee discount in FY2024 .
Performance & Track Record
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Value of $100 investment (TSR proxy) | 100.00 | 227.72 | 187.75 | 148.81 | 200.77 |
| One share value ($) | 208.75 | 475.36 | 391.92 | 310.65 | 419.11 |
| FY | Net revenues ($000) | Operating margin | Adjusted operating margin |
|---|---|---|---|
| 2023 | 3,029,126 | 12.1% | 13.0% |
| 2024 | 3,180,753 | 10.1% | 11.3% |
- Commentary: Despite a challenged housing market, RH invested in product/platform expansion and global Galleries (e.g., RH Madrid, RH Montecito). Short‑term profitability compressed; management underscores long‑term positioning .
Equity Ownership & Alignment (detail)
| Item | Amount/Status |
|---|---|
| Shares beneficially owned | 5,005,063 (24.5% of 18,732,450 outstanding) . |
| Options exercisable within 60 days | 1,700,000; 583,334 subject to selling restrictions (portion of 2020 award) . |
| Ownership guideline compliance | CEO far exceeds 6x salary requirement; all executives/directors in compliance . |
| Hedging/pledging | Prohibited by policy; pre‑clearance required; 10b5‑1 allowed . |
Say‑on‑Pay & Shareholder Feedback
- Say‑on‑pay support ~96% at June 27, 2024 annual meeting; RH conducts regular shareholder outreach and has enhanced proxy disclosure and performance discussion in response to investor feedback .
Compensation Committee & Peer Group
- Members: Leonard Schlesinger (Chair), Mark Demilio; fully independent; uses independent consultant (Mercer); no formal market‑cap/industry benchmarking peer group given RH’s unique positioning; uses market checks across growth/tech/retail as references .
Director Service, Independence, and Dual‑Role Implications
- Board service history: Director since 2013; Class III, term through 2027; no committee assignments .
- Dual role: Combined CEO/Chair elevates influence; mitigations include a robust Lead Independent Director role, independent committees, regular executive sessions, and strong stock ownership alignment (24.5% ownership) .
- Independence: Six directors affirmed independent; committees entirely independent .
Investment Implications
- Alignment and incentives: Extremely high insider ownership (24.5%) and multi‑year option structures with stringent stock price hurdles/selling restrictions tightly align CEO incentives with long‑term TSR; FY2024 LIP paid 0%, evidencing real downside to cash pay when profitability softens .
- Retention and transition risk: Contract provides $20M severance and continued equity performance windows, plus non‑compete/non‑solicit protections; at age 67, succession planning and the combined CEO/Chair construct make the Lead Independent Director’s role material for continuity and oversight .
- Governance watch‑items: Related‑party personal use of aircraft/yacht/guesthouse—while reimbursed under policy—will continue to draw scrutiny; however, RH bans hedging/pledging, has a 10D‑1 clawback, no tax gross‑ups, no single‑trigger CIC, and avoids option repricing without shareholder approval—strong counterbalances for governance risk .