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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
[X]
Filed
by a party
other than the
Registrant [ ]
Check
the appropriate box:
[ ] |
Preliminary Proxy
Statement |
[ ] |
Confidential, for
Use of the
Commission Only (as
permitted by Rule
14a-6(e)(2)) |
[X] |
Definitive Proxy
Statement |
[ ] |
Definitive Additional
Materials |
[ ] |
Soliciting Material
under §240.14a-12 |
The CATO Corporation
(Name
of Registrant as Specified
In Its Charter)
(Name of
Person(s) Filing Proxy
Statement, if other
than the Registrant)
Payment
of Filing Fee
(Check all boxes
that apply):
[X] |
No fee
required |
[ ] |
Fee paid previously
with preliminary materials |
[ ] |
Fee computed
on table in
exhibit required by
Item 25(b) per
Exchange Act Rules
14a-6(i)(1) and 0-11 |
|
|
The CATO Corporation
April 17, 2023
Dear Shareholder:
We
cordially invite you to attend the Annual Meeting of Shareholders to be held at the Corporate Office of the Company, 8100 Denmark
Road, Charlotte, North Carolina 28273 on Thursday, May 18, 2023 at 11:30 A.M., Eastern Time.
The
Notice of the Annual Meeting of Shareholders and Proxy Statement are attached. The matters to be acted upon by our shareholders
are set forth in the Notice of Annual Meeting of Shareholders and discussed in the Proxy Statement.
Whether
or not you expect to attend our shareholders meeting, we urge you to vote your shares. You may vote by phone, via the Internet,
or by signing, dating and returning the enclosed proxy card at your earliest convenience.
INTERNET – Access www.voteproxy.com and follow the on screen instructions or scan the QR code with your smartphone.
Have your proxy card available when you access the web page.
TELEPHONE – Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign
countries from any touchtone telephone and follow the instructions. Have your proxy card available when you call.
Vote
online/phone until 11:59 PM EST the day before the meeting.
MAIL – Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON –
You may vote your shares in person by attending the Annual Meeting.
Sincerely
yours,
JOHN P. D.
CATO
Chairman, President and
Chief Executive Officer
8100 Denmark Road
P. O. Box 34216
Charlotte, NC 28234
(704) 554-8510
The Cato Corporation
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 2023
TO THE SHAREHOLDERS
OF
THE CATO CORPORATION
Notice
is hereby given that the Annual Meeting of Shareholders of The Cato Corporation (the “Company”) will be held on Thursday,
May 18, 2023 at 11:30 A.M., Eastern Time, at the Corporate Office of the Company, 8100 Denmark Road, Charlotte, North Carolina
28273, for the following purposes:
|
1. |
To elect as Directors of
the Board Dr. Pamela L. Davies, Thomas B. Henson, and Bryan F. Kennedy, each for a term expiring in 2026 and until their successors
are elected and qualified; |
|
2. |
To approve, on an advisory basis, the Company’s
executive compensation; |
|
3. |
To hold an advisory vote on how often a shareholder
“say-on-pay” vote is held: every one, two or three years; |
|
4. |
To ratify the selection of PricewaterhouseCoopers
LLP as the Company’s independent registered public accounting firm for the fiscal year ending February 3, 2024; |
|
5. |
To consider and act upon such other business
as may properly come before the Annual Meeting or any adjournment thereof. |
The
Board of Directors has fixed the close of business on March 20, 2023 as the record date for determination of shareholders entitled
to notice of, and to vote, at the meeting or any adjournments thereof.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 18, 2023:
This
Proxy Statement, the accompanying proxy card and The Cato Corporation Annual Report on
Form 10-K for the 2022 fiscal year is available at:
www.catofashions.com/info/investor-relations
|
By
Order of the Board of Directors
Lowell
E. Pugh II
Secretary |
Dated: April
17, 2023
SHAREHOLDERS
ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE OR VOTE ONLINE OR TELEPHONICALLY TO ENSURE
A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY
TO ADDITIONAL EXPENSE.
The Cato Corporation
8100 Denmark Road
Charlotte, North Carolina 28273
PROXY
STATEMENT
This
Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”)
of The Cato Corporation (the “Company”) for use at the Annual Meeting of Shareholders of the Company (the “meeting”)
to be held on May 18, 2023, and at any adjournment or adjournments thereof. This Proxy Statement and the accompanying proxy card
are first being mailed to shareholders on or about April 17, 2023.
Only
shareholders of record at the close of business on March 20, 2023 are entitled to notice of and to vote at the meeting. As of
March 20, 2023, the Company had outstanding and entitled to vote 18,652,871 shares of Class A Common Stock (“Class A Stock”)
and 1,763,652 shares of Class B Common Stock (“Class B Stock”). Holders of Class A Stock are entitled to one vote
per share and holders of Class B Stock are entitled to ten votes per share. Holders of Class A Stock and holders of Class B Stock
vote as a single class.
All
proxies properly executed and received prior to the meeting will be voted at the meeting. If a shareholder specifies how the proxy
is to be voted on any of the business to come before the meeting, the proxy will be voted in accordance with such specification.
If no specification is made, the proxy will be voted FOR the election of nominees Dr. Pamela L. Davies, Thomas B. Henson,
and Bryan F. Kennedy, FOR the resolution approving the Company’s executive compensation program, FOR the proposal
setting the frequency of a non-binding advisory “say-on-pay” vote every three years and FOR the ratification
of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending February
3, 2024. A proxy may be revoked at any time prior to its exercise by written notice to the Secretary of the Company at the Corporate
Office of the Company, by executing and delivering a proxy with a later date, or by voting in person at the meeting.
If
you plan to attend and vote at the meeting and your shares are held in the name of a broker or other nominee, please bring with
you a proxy or letter from the broker or nominee to confirm your ownership of shares.
In
accordance with applicable Delaware law and the Company’s Bylaws, the holders of a majority of the combined voting power
of Class A Stock and Class B Stock present in person or represented by proxy at the meeting will constitute a quorum. Abstentions
and broker non-votes are counted for purposes of determining the presence or absence of a quorum. Broker non-votes arise when
beneficial shareholders do not give their banks, brokers or other nominees instructions for voting their shares and the banks,
brokers or other nominees do not have authority to vote the shares on a matter because the matter is not considered routine. The
only such routine item on the ballot for which uninstructed banks or other nominees may vote is the ratification of the selection
of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.
With
regard to the election of directors, votes may either be cast in favor of or withheld and, assuming the presence of a quorum,
directors will be elected by a plurality of the votes cast. Votes that are withheld will be excluded entirely from the vote and
will have no effect on the outcome of the election. Abstentions and broker non-votes are not counted for purposes of election
of directors. The affirmative vote of a majority of the combined voting power of the Class A Stock and Class B Stock present in
person or represented by proxy at the meeting and entitled to vote is required to approve the non-binding advisory vote on the
Company’s executive compensation. With regard to the non-binding advisory proposal on how often to hold the advisory vote
on executive compensation, the frequency option (every year, every two years or every three years) that receives the most votes
cast will be considered the frequency selected by the shareholders. The ratification of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm requires the affirmative vote of a majority of the combined voting power of the
Class A Stock and Class B Stock present in person or represented by proxy at the meeting and entitled to vote. On any proposal
other than the election of directors, abstentions and broker non-votes will have the same effect as a vote against the proposal.
The
Company will bear the cost of this solicitation, including the expense of preparing, printing, and mailing these proxy materials
to shareholders. The Company will reimburse brokers, dealers, banks, and other custodians, nominees, and fiduciaries for their
reasonable expenses in forwarding proxy solicitation materials to beneficial owners of the Company’s Class A Stock and Class
B Stock and securing their voting instructions.
The
independent election inspector(s) appointed for the Annual Meeting will determine whether or not a quorum is present and will
tabulate votes cast by proxy or in person at the Annual Meeting.
These
proxy materials are available in PDF and HTML format at www.catofashions.com/info/investor-relations and will remain
posted until the conclusion of the meeting. Information on the Company’s website, however, does not form a part of this
Proxy Statement.
2
SECURITY
OWNERSHIP OF CERTAIN
OWNERS AND MANAGEMENT
The
following table sets forth, as of March 20, 2023, certain information regarding the ownership of the outstanding shares of Class
A Stock and Class B Stock by (i) each director and nominee, (ii) each person who is known by the Company to own more than 5% of
such stock, (iii) each executive officer listed in the Summary Compensation Table, and (iv) all directors and executive officers
as a group. Unless otherwise indicated in the footnotes below, each shareholder named has sole voting and investment power with
respect to such shareholder’s shares. Unless otherwise indicated, the address of each shareholder listed below is 8100 Denmark
Road, Charlotte, North Carolina 28273.
|
|
Shares
Beneficially Owned (1) |
|
|
|
|
Class
A Stock |
|
Class
B Stock |
|
Percent of |
|
|
|
|
Percent |
|
|
|
Percent
|
|
Total
Voting |
Name of Beneficial Owner |
|
Number |
|
of Class |
|
Number |
|
of Class |
|
Power |
John P. D. Cato (2) |
|
1,116,180 |
|
6.0 |
|
1,763,652 |
|
100.0 |
|
51.7 (2) |
Charles D. Knight |
|
14,076 |
|
* |
|
— |
|
— |
|
* |
Gordon D. Smith |
|
118,133 |
|
* |
|
— |
|
— |
|
* |
Thomas B. Henson |
|
32,358 |
|
* |
|
— |
|
— |
|
* |
Bryan F. Kennedy, III |
|
28,566 |
|
* |
|
— |
|
— |
|
* |
Thomas E. Meckley |
|
30,370 |
|
* |
|
— |
|
— |
|
* |
Bailey W. Patrick |
|
34,370 |
|
* |
|
— |
|
— |
|
* |
D. Harding Stowe |
|
34,704 |
|
* |
|
— |
|
— |
|
* |
Pamela L. Davies |
|
17,702 |
|
* |
|
— |
|
— |
|
* |
Theresa J. Drew |
|
14,073 |
|
* |
|
— |
|
— |
|
* |
All directors, nominees and executive officers as a group (10 persons) |
|
1,440,532 |
|
7.7 |
|
1,763,652 |
|
100.0 |
|
52.6 |
BlackRock, Inc. (3) |
|
1,336,178 |
|
7.2 |
|
— |
|
— |
|
3.7 |
The Vanguard Group (4) |
|
926,795 |
|
5.0 |
|
— |
|
— |
|
2.6 |
Dimensional Fund Advisors LP (5) |
|
1,346,347 |
|
7.2 |
|
— |
|
— |
|
3.7 |
|
|
(1) |
Includes the vested interest of executive officers in the Company’s Employee
Stock Ownership Plan and Employee Stock Purchase Plan. The aggregate vested amount credited to their accounts as of March
20, 2023 was 86,005 shares of Class A Stock. |
|
|
(2) |
The amount shown for Class A Stock and Class B Stock includes 21,654 shares and 3,000 shares,
respectively, held by Mr. Cato’s wife. Mr. Cato disclaims beneficial ownership of shares held directly or indirectly
by his wife. See the Company’s Form 8-K filed March 31, 2022 for information regarding Mr. Cato becoming the beneficial
owner of more than 50% of the outstanding voting power of the Company’s common stock. |
|
|
(3) |
Based on an amended Schedule 13G filed by this shareholder with the Securities and Exchange
Commission on or about January 5, 2023. The address of this shareholder is 55 East 52nd Street, New York, NY 10055.
This shareholder reports sole voting power over 1,312,652 of the reported shares. |
|
|
(4) |
Based on an amended Schedule 13G filed by this shareholder with the Securities and Exchange
Commission on or about February 9, 2023. The address of this shareholder is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
This shareholder reports sole voting power over none of the reported shares, shared voting power over 9,177 of the reported
shares, sole dispositive power over 911,130 of the reported shares and shared dispositive power over 15,665 of the reported
shares. |
|
|
(5) |
Based on an amended Schedule 13G filed by this shareholder with the Securities and Exchange
Commission on or about February 14, 2023. The address of this shareholder is Building One 6300 Bee Cave Road, Austin, TX 78746.
The shareholder reports sole voting power over 1,317,885 of the reported shares. |
3
PROPOSAL
1 – ELECTION OF DIRECTORS
The
Board of Directors, currently consisting of eight members, is divided into three classes with terms expiring alternately over
a three-year period. The terms of three incumbent directors, Dr. Pamela L. Davies, Thomas B. Henson, and Bryan F. Kennedy expire
at this year’s Annual Meeting. The directors have been recommended by the Corporate Governance and Nominating Committee
and nominated by the Board for re-election and to serve until the 2026 Annual Meeting and until their successors are elected and
qualified. The Corporate Governance and Nominating Committee reviews and recommends, and the Board nominates, director candidates
in accordance with the Company’s Bylaws and the policies described below under “Corporate Governance Matters –
Director Nomination Criteria and Process.” It is the intention of the persons named in the proxy to vote for Dr. Pamela
L. Davies, Thomas B. Henson, and Bryan F. Kennedy to serve until the 2026 Annual Meeting and until their successors are elected
and qualified, except to the extent authority to so vote is withheld with respect to one or more nominees. Should any nominee
be unable to serve, which is not anticipated, the proxy will be voted for the election of a substitute nominee selected by the
Board of Directors. The three nominees shall be elected by a plurality of the votes of Class A Stock and Class B Stock voting
as a single class.
The
directors recommend that shareholders vote FOR the election of Dr. Davies, Mr. Henson and Mr. Kennedy as members of the
Board of Directors.
As
discussed below under “Corporate Goverance Matters – Director Nomination Criteria and Process,” the Board believes
its directors possess a diverse and extensive background of knowledge and both professional and life experience that can support
growth, evaluate risk and provide sufficient oversight to the Company. The members of the Board were selected based on their professional
achievements, broad experience, wisdom, character, integrity, ability to make independent, analytical inquiries and intelligent
decisions, sound and mature business judgment, ability to understand the business environment and ability to collaborate in an
effective manner at the Board level. In addition, individual directors were selected based on many factors including, but not
limited to, the following:
|
● |
Experience at the director and executive level with publicly traded as well as private companies; |
|
|
|
|
● |
Knowledge of and experience in the development and leasing of commercial real estate; |
|
|
|
|
● |
Financial expertise, including experience in public accounting; and |
|
|
|
|
● |
Knowledge of the retail industry. |
In
particular, for each director identified below, the Board believes that the sum of the experience, qualifications, attributes
and skills described below in such director’s biographical information qualifies that director for service on the Board
of Directors.
Nominees
Information
with respect to each nominee, including biographical data for at least the last five years, is set forth below.
Dr.
Pamela L. Davies, 66, has been a director of the Company since April 2018. Dr. Davies was the President of Queens University
of Charlotte, Charlotte, North Carolina, from 2002 to 2019. Prior to that, she was Dean of the McColl School of Business at Queens
University of Charlotte from 2000 to 2002. She is currently Immediate Past Chair of the board of the YMCA of the USA and a member
of the board of directors of Sonoco Products, Inc., Advocate Health (formerly Atrium Health) and the center for Creative Leadership.
Dr. Davies is also a trustee of the Duke Endowment. She was previously a director of Charming Shoppes from 1998 to 2009, C&D
Technologies, Inc. from 1998 to 2010, and Family Dollar Stores, Inc. from 2009 to 2015. The Board concluded that Dr. Davies is
qualified to serve as a Board member based on her background in business education and Board experience with other retailers and
public companies, among other skills and attributes.
4
Thomas
B. Henson, 68, has been a director of the Company since May 2011. Mr. Henson is a licensed attorney and is a founder and has
served as CEO of American Spirit Media, LLC, which owns network-affiliated television stations in the south and mid-west. Mr.
Henson practiced law at the firm of Robinson, Bradshaw & Hinson in Charlotte, North Carolina, from 1980 to 1999. Mr. Henson
is an investor in several privately owned real estate, hospitality and leisure related businesses. Mr. Henson served on the boards
of Portrait Innovations from 2002 to 2017, and Park Sterling Bank from 2006 to 2017. The Board concluded Mr. Henson is qualified
to serve as a Board member based on his experience in electronic and print media and legal experience with retail companies, among
other skills and attributes.
Bryan
F. Kennedy, III, 65, has been a director of the Company since August 2009. Mr. Kennedy has served as the President-Northern
Banking Group (formally South State Bank) since June 2020, when South State Bank merged with CenterState Bank. Prior to that Mr.
Kennedy served as the North Carolina/Virginia Division President for South State Bank since the sale of Park Sterling Corporation
(holding company for Park Sterling Bank) to South State Corporation on November 30, 2017. Prior to that, Mr. Kennedy served as
President of Park Sterling Bank from 2006 until November 2017 and was a member of its board from 2006 until 2010. Mr. Kennedy
also served as the President of Park Sterling Corporation from January 2011 until 2017, and carried the additional title of Chief
Executive Officer of Park Sterling Bank from January 2006 until August 2010. Mr. Kennedy was the North Carolina Market President
of Regions Bank, located in Charlotte, North Carolina, from January 2004 to January 2006. The Board concluded that Mr. Kennedy
is qualified to serve as a Board member based on his experience in banking and finance, among other skills and attributes.
Continuing
Directors
Information
with respect to the five continuing members of the Board of Directors, including biographical data for at least the last five
years, is set forth below.
John
P. D. Cato, 72, has been employed as an officer of the Company since 1981 and has been a director of the Company since 1986.
Since January 2004, he has served as Chairman, President and Chief Executive Officer. From May 1999 to January 2004, he served
as President, Vice Chairman of the Board and Chief Executive Officer. From June 1997 to May 1999, he served as President, Vice
Chairman of the Board and Chief Operating Officer. From August 1996 to June 1997, he served as Vice Chairman of the Board and
Chief Operating Officer. From 1989 to 1996, he managed the Company’s off-price concept, serving as Executive Vice President
and as President and General Manager of the It’s Fashion! concept from 1993 to August 1996. Mr. Cato previously served as
a director of Harris Teeter Supermarkets, Inc., formerly Ruddick Corporation. The Board nominated Mr. Cato based on his knowledge
of all aspects of the Company’s business and his substantial experience on and contributions to the Company’s Board,
among other skills and attributes.
Thomas
E. Meckley, 78, has been a director of the Company since May 2009. Mr. Meckley formerly served as a consultant to Agility
Recovery Solutions, an onsite mobile business continuity solutions company, from 2005 through May 2015. He was employed by the
public accounting firm of Ernst & Young LLP from 1967 to 2005 and served as a Managing Partner of the Charlotte, North Carolina,
office from 1985 to 1995. Mr. Meckley previously served on the board of trustees of Elizabethtown College, a liberal arts college
in Pennsylvania. The Board nominated Mr. Meckley based on his experience in public accounting, among other skills and attributes.
Bailey
W. Patrick, 61, has been a director of the Company since May 2009. Since October 2010, Mr. Patrick has been a Managing Partner
of MPV Properties LLC, formerly Merrifield Patrick Vermillion, LLC, a privately held company specializing in real estate brokerage
and development services. Mr. Patrick served as a Managing Partner of Merrifield Patrick from February to October 2010 and President
of Bissell-Patrick, LLC from 1999 to 2010, both predecessor firms to Merrifield Patrick Vermillion, LLC, holding various other
positions with Bissell-Patrick since 1984. He also serves on the board of directors for the Carolina Thread Trail in Charlotte,
North Carolina, a trustee for the YMCA of Greater Charlotte and trustee of Queens University of Charlotte. He previously served
on the board of directors of Harris Teeter Supermarkets, Inc., formerly Ruddick Corporation. The Board nominated Mr. Patrick based
on his experience in commercial real estate leasing and development and experience gained in service on other boards, among other
skills and attributes.
5
Theresa
J. Drew, 65, has been a director of the Company since May 2019. Ms. Drew was the Managing Partner for the Carolinas practice
of Deloitte LLP from 2011 to 2019. Previously, she served as the Managing Partner in San Diego, California, from 2001 to 2011,
and as the Partner in Charge of the Audit practice in Phoenix, Arizona, from 1998 to 2001. Ms. Drew started her career with Deloitte
in 1979, and primarily served clients in the retail, manufacturing and hospitality industries. She is a licensed Certified Public
Accountant. Ms. Drew has served on the board of directors of Sonoco Products Company since 2018 and is a member of its Financial
Policy Committee and Chair of its Audit Committee. Ms. Drew is the immediate past Chair of the board of directors of the YMCA
of Greater Charlotte and a member of the board of directors of the Carolinas Chapter of NACD. The Board nominated Ms. Drew based
on her experience in public accounting and board service on another public company, among other skills and attributes.
D.
Harding Stowe, 67, has been a director of the Company since February 2005. Mr. Stowe was the President and Chief Executive
Officer of R.L. Stowe Mills, Inc. from 1994 to 2009. Mr. Stowe also has been the Chairman and Chief Executive Officer of New South
Pizza (Brixx Wood Fired Pizza) since 1997. Additionally, he serves as the Secretary and Treasurer of The Stowe Foundation, Inc.,
as the President of the Daniel J. Stowe Botanical Garden, and as the Vice President of Seven Oaks Farm Foundation. The Board concluded
that Mr. Stowe is qualified to serve as a Board member based on his experience in senior management and leadership positions with
several companies and boards, among other skills and attributes.
The
five continuing members of the Board of Directors are divided into two classes with current terms expiring in 2024 and 2025. On
the expiration of each director’s term, his or her successor in office will be elected for a three-year term. The terms
of Messrs. Cato, Meckley and Patrick expire in 2024. The terms of Ms. Drew and Mr. Stowe expire in 2025.
PROPOSAL
2 – A NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
The
Board is committed to corporate governance best practices and recognizes the significant interest of shareholders in executive
compensation matters. As part of its commitment to a “pay for performance and retention” based compensation philosophy,
and pursuant to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Board will
hold a non-binding advisory vote to approve the compensation of our named executive officers. Although this vote is advisory and
is not binding on the Board, the Compensation Committee of the Board will take into account the outcome of the vote when considering
future executive compensation decisions.
As
discussed in the Compensation Discussion and Analysis included in this proxy statement, the Board believes that the current executive
compensation program directly links executive compensation to performance and aligns the interests of executive officers with
those of shareholders. For example:
|
● |
In 2022, 42% of the CEO’s
total compensation potential was performance-based and 29% to 35% of the other NEOs’ total compensation potential was
performance-based. |
|
|
|
|
● |
NEOs have an annual incentive opportunity to
earn a percentage of their base salaries based on the achievement of pre-established performance goals. The CEO’s annual
incentive opportunity is up to 150% of his base salary and all other NEOs have an annual incentive opportunity up to a range
of 60% to 75% of their base salary. Unlike many in our peer group, payouts cannot exceed the maximum annual incentive opportunity,
so that achievement of Company performance substantially above pre-established performance goals does not result in payouts
in excess of the maximum annual incentive opportunity. |
|
|
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|
● |
We encourage long-term stock ownership by executive
officers with restricted stock award features such as a five-year vesting schedule that does not commence until the third
anniversary of the grant and meaningful ownership requirements before any vested restricted stock may be sold. |
|
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|
● |
We do not have any agreements with executive
officers that provide for cash severance payments upon termination of employment or in connection with a change in control
(e.g., golden parachutes). |
|
|
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|
● |
Executive officers do not earn any additional
retirement income under any supplemental executive retirement plan or other employer funded pension. |
6
|
● |
Executive
officers are not provided compensation or perquisites such as company funded deferred compensation, housing allowances, reimbursed
or employer provided personal air travel, automobile allowances or company funded financial planning services. |
|
|
|
|
● |
Executive officers
receive 401(k) matching contributions, profit sharing contributions and group term life insurance similar to all other eligible
employees (sometimes referred to herein as “associates”) of the Company. |
For these
reasons, the Board recommends that shareholders vote in favor of the following resolution:
“Resolved,
that the shareholders approve, on a non-binding advisory basis, the compensation of the named executive officers of The Cato Corporation,
as disclosed pursuant to the compensation disclosure rules of the SEC (which disclosure shall include the Compensation Discussion
and Analysis, the compensation tables, and any related material).”
The above
referenced disclosures appear at pages 17 to 36 of this Proxy Statement.
For
the reasons stated above, the Board believes the compensation of our named executive officers is appropriate and recommends a
vote FOR approval of this resolution.
PROPOSAL
3 – A NON-BINDING ADVISORY VOTE ON THE FREQUENCY OF THE
SHAREHOLDER ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant
to Section 14A of the Exchange Act, the Board holds a non-binding vote at least every six years to determine whether shareholders
want the advisory “say-on-pay” vote on the Company’s executive compensation program to occur every year, every
two years or every three years. This frequency vote is advisory and is not binding on the Board, and the Board may decide that
it is in the best interests of our shareholders and the Company to hold the “say-on-pay” vote more or less frequently
than the option approved by our shareholders.
After
careful consideration, the Board has determined that a three-year advisory vote on executive compensation is the best approach
for Cato based on several considerations:
|
● |
A three-year
cycle will provide investors sufficient time to evaluate the effectiveness of short-term and long-term compensation programs
and related financial performance of the Company; |
|
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|
● |
A three-year vote
cycle allows the Board and Compensation Committee sufficient time to respond to shareholder sentiments and to effectively
implement any necessary changes to executive compensation programs; |
|
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|
● |
Rules of the New
York Stock Exchange require the Company to seek shareholder approval for new employee equity plans and material revisions
thereto. This requirement provides shareholders a feedback opportunity on executive compensation in years when “say-on-pay”
votes do not occur but action on equity plans is taken. |
Based
on these reasons, the Board believes the frequency of a non-binding advisory vote on the compensation of our named executive officers
should be every three years and recommends a vote FOR a three-year cycle. Please note that although the Board has recommended
a vote for a three-year cycle, shareholders are not voting to approve the board’s recommendation but whether the “say-on-pay”
vote should occur every year, every two years or every three years, and shareholders have the option to abstain from this vote.
MEETINGS
AND COMMITTEES
During
the fiscal year ended January 28, 2023, the Company’s Board of Directors held four meetings. The Board typically schedules
a meeting in conjunction with the Company’s Annual Meeting of Shareholders and expects that all directors will attend the
Annual Meeting absent a schedule conflict or other valid reason. All directors attended the Company’s 2022 Annual Meeting.
7
The
Board of Directors, pursuant to authority granted in the Company’s Bylaws, has established a standing Audit Committee, Compensation
Committee and Corporate Governance and Nominating Committee. During the fiscal year ended January 28, 2023, the Audit Committee
held seven meetings; the Compensation Committee held three meetings and the Corporate Governance and Nominating Committee held
three meetings.
All
directors attended 100% of the scheduled Board of Directors meetings and applicable Committee meetings during fiscal 2022.
Audit
Committee
The
Board of Directors established the Audit Committee in accordance with Section 3(a) (58) (A) of the Exchange Act. The Audit Committee
assists the Board of Directors in fulfilling its oversight responsibilities regarding the integrity of the Company’s financial
statements, the Company’s compliance with legal and regulatory requirements, the safeguarding of the Company’s assets,
the independence, qualifications, and performance of the independent auditors, the performance of the Company’s internal
audit function, the Company’s internal control over financial reporting and such other matters as the Committee deems appropriate
or as delegated to the Committee by the Board of Directors from time to time. See “Corporate Governance Matters - Board
of Directors Risk Management Oversight” below for the Committee’s role in that process. During the fiscal year ended
January 28, 2023, the Audit Committee held seven meetings.
Messrs.
Thomas E. Meckley (Chair), Thomas B. Henson, Bryan F. Kennedy, III, and Ms. Theresa J. Drew are the members of the Audit Committee.
The Board of Directors has determined that each member of the Audit Committee is an independent director in accordance with the
independence requirements of the New York Stock Exchange (“NYSE”). In addition, the Board has determined that each
member of the Audit Committee meets the heightened standards of independence for audit committee members under the Exchange Act
and that each is “financially literate” in accordance with the requirements of the NYSE. No member of the Audit Committee
simultaneously serves on the audit committee of more than one other public company. The Board of Directors has determined that
Messrs. Meckley, Henson, Kennedy and Ms. Drew qualify as audit committee financial experts within the meaning of SEC rules. The
Audit Committee operates under a Board-approved charter, a copy of which is available on the Company’s website at www.catofashions.com/info/investor-relations.
Additional information concerning the Audit Committee is set forth below under “Proposal 4 – Ratification of Independent
Registered Public Accounting Firm.”
Compensation
Committee
The
Compensation Committee assesses the Company’s overall compensation programs and philosophies. The Committee reviews and
approves, on an annual basis, the Company’s goals and objectives for compensation of the Chief Executive Officer and evaluates
the Chief Executive Officer’s performance in light of those goals and objectives at least annually. Based on this evaluation,
the Compensation Committee determines and reports to the Board the Chief Executive Officer’s compensation, including salary,
incentive bonus and performance-based equity compensation.
The
Compensation Committee also reviews and approves, on an annual basis, the evaluation process and compensation structure of the
Company’s other executive officers and evaluates those other officers’ performance at least annually. Based on this
evaluation, the Compensation Committee determines and reports to the Board the other executive officers’ compensation, including
salary, incentive bonus and equity compensation. The Compensation Committee also reviews on an annual basis and recommends to
the Board the form and amount of director compensation. In addition, the Compensation Committee grants restricted stock and other
awards to associates of the Company and its subsidiaries pursuant to the Company’s benefit and incentive compensation plans
and reports such actions to the Board of Directors. See “Corporate Governance Matters - Board of Directors Risk Management
Oversight” below for the Committee’s role in that process.
The
Compensation Committee has the power to delegate its authority to subcommittees. The chair of any such subcommittee must report
regularly to the full Compensation Committee.
8
Messrs.
D. Harding Stowe (Chair) and Bailey W. Patrick and Dr. Pamela Davies are the members of the Compensation Committee. The Board
of Directors has determined that each member of the Compensation Committee is an independent director in accordance with the independence
requirements of the NYSE. Under such rules, the Board has reviewed the source of compensation of each committee member and whether
each member is affiliated with the Company, any subsidiary of the Company or an affiliate of a subsidiary of the Company.
The
Compensation Committee held three meetings during the fiscal year ended January 28, 2023. The Compensation Committee operates
under a Board-approved charter, a copy of which is available on the Company’s website at www.catofashions.com/info/investor-relations.
Corporate
Governance and Nominating Committee
The
Corporate Governance and Nominating Committee reviews, evaluates and recommends nominees for the Board of Directors. In addition,
the Corporate Governance and Nominating Committee monitors and evaluates the performance of the directors on a periodic basis,
individually and collectively. The Committee also periodically reviews the Company’s Governance Guidelines, Code of Business
Conduct and Ethics and Code of Ethics and recommends changes to the Board of Directors.
Messrs.
Bryan F. Kennedy, III (Chair), Thomas B. Henson, Bailey W. Patrick, D. Harding Stowe, Ms. Theresa J. Drew and Dr. Pamela L. Davies
are the members of the Corporate Governance and Nominating Committee. The Board of Directors has determined that each member of
the Corporate Governance and Nominating Committee is an independent director in accordance with the independence requirements
of the NYSE. The Corporate Governance and Nominating Committee held three meetings during the fiscal year ended January 28, 2023.
The Corporate Governance and Nominating Committee operates under a Board-approved charter, a copy of which is available on the
Company’s website at www.catofashions.com/info/investor-relations.
CORPORATE
GOVERNANCE MATTERS
Corporate
Governance Guidelines
In
furtherance of its longstanding goal of providing effective governance of the Company’s business and affairs for the benefit
of shareholders, the Board of Directors has approved Corporate Governance Guidelines for the Company. The Guidelines are available
on the Company’s website at www.catofashions.com/info/ investor-relations.
Director
Independence
We
qualify for exemption as a “controlled company” from compliance with certain New York Stock Exchange corporate governance
rules because more than 50% of the combined voting power of our common stock is beneficially owned by Mr. John P. D. Cato. See
“Security Ownership of Certain Owners and Management.” As such, although we are exempt from the requirements to have
a majority of independent directors on our Board, an independent compensation committee and an independent corporate governance
and nominating committee, our current Board and committee composition meets these standards. The Board of Directors made a determination
as to the independence of each of its members. The Board of Directors determined that each of the following Board members is independent:
Dr. Pamela L. Davies, Ms. Theresa J. Drew, Mr. Thomas B. Henson, Mr. Bryan F. Kennedy, III, Mr. Thomas E. Meckley, Mr. Bailey
W. Patrick and Mr. D. Harding Stowe. The Board determined that Mr. John P. D. Cato, an employee of the Company, is not independent.
The Board made these determinations based upon the definition of an “independent director” set forth in the NYSE listing
standards (the “NYSE Independence Tests”). A director will be independent only if the director has no material relationship
with the Company. For purposes of such determination, the Board must affirmatively determine whether a material relationship exists
between the director and the Company. In connection with this determination, financial relationships are reviewed regarding a
director’s business and charitable affiliations, immediate family members and employers, and any transactions or arrangements
between the Company and such persons or entities. This determination is in addition to the analysis under the NYSE Independence
Tests and SEC Exchange Act Rules 10A-3 (for Audit Committee members) and 10C-1 (for Compensation Committee members) and must be
based on the overall facts and circumstances specific to that director.
9
In
order to assist the Board in making determinations of independence, and consistent with NYSE Independence Tests, a director will
not be deemed independent if:
|
(1) |
The director is, or has been within the last three years, an employee of the Company,
or an immediate family member is, or has been within the last three years, an executive officer of the Company. |
|
|
|
|
(2) |
The director has received, or an immediate family member has received, during any twelve-month
period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee
fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in
any way on continued service). |
|
|
|
|
(3) |
The director or an immediate family member is a current partner of a firm that is the Company’s
internal or external auditor; the director is a current employee of such a firm; the director has an immediate family member
who is a current employee of such a firm and personally works on the Company’s audit; or the director or an immediate
family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked
on the Company’s audit within that time. |
|
|
|
|
(4) |
The director or an immediate family member is, or has been within the last three years, employed
as an executive officer of another company where any of the Company’s present executive officers at the same time serves
or served on that company’s compensation committee. |
|
|
|
|
(5) |
The director is a current employee, or an immediate family member is a current executive officer,
of a company that has made payments to, or received payments from, the Company for property or services in an amount which,
in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated
gross revenues. |
Additionally,
the Board of Directors determines annually and at such time that a director is appointed to the Compensation Committee that the
members of the Compensation Committee qualify as “Non-Employee Directors” under Rule 16b-3 of the Exchange Act.
Board
Leadership Structure
Mr.
John P. D. Cato has served in the combined role of Chairman of the Board of Directors and Chief Executive Officer (“CEO”)
since 2004. The Board annually considers his effectiveness in both capacities. The Board believes that its current governance
structure provides independent Board leadership while deriving benefit from having the CEO serve as the Board chair. This structure
provides an opportunity for the individual with primary responsibility for managing the Company’s day-to-day operations
in a historically volatile industry segment to chair meetings of the Board as it discusses key business and strategic issues.
The Board also believes having the positions combined facilitates the implementation and execution of both the Company’s
short- and long-term strategies with a single vision.
As
Lead Independent Director, Mr. Bryan Kennedy, III assists the Board in providing independent oversight of the Company’s
operations, short-term and long-term strategic plans and the Chairman and CEO’s performance and compensation, among other
duties. The Lead Independent Director, through his role as chair of the Corporate Governance and Nominating Committee, also manages
the process of annual director self-assessment and evaluation of the Board as a whole.
Executive
Sessions of Non-Management Directors
Non-management
Board members meet without management at regularly scheduled executive sessions. In addition, to the extent that the group of
non-management directors includes directors that are not independent, at least once a year there will be scheduled an executive
session including only independent directors. The Lead Independent Director presides over meetings of the non-management or independent
directors.
Board
of Directors Risk Management Oversight
As
the Company’s principal governing body, the Board of Directors has the ultimate responsibility for overseeing the Company’s
risk management practices. As part of its oversight function, the Board reviews and monitors financial, strategic and operational
risk through annual and periodic reviews with management.
10
Pursuant
to its charter, the Audit Committee has primary responsibility for monitoring financial reporting risk. As part of its responsibilities,
the Committee reviews with management and the independent auditors the Company’s policies in regard to risk assessment and
management, including cybersecurity, and assesses the steps management has taken to minimize risks to the Company. The Committee
regularly meets with the independent auditor and management, as appropriate, to review significant financial reporting issues
and judgments made in connection with the preparation of the Company’s financial statements. The Audit Committee also reviews
the effectiveness and integrity of the Company’s financial reporting processes and the Company’s internal control
structure (including both disclosure controls and procedures and internal control over financial reporting).
As
part of its oversight responsibilities, the Board of Directors relies upon the Compensation Committee to monitor and assess the
Company’s compensation policies and practices as they relate to risk management and risk-taking incentives. On an annual
basis, the Committee reviews the Company’s compensation policies and practices to determine how it compensates and incentivizes
its associates and whether these policies and practices create risks that are reasonably likely to have a material adverse effect
on the Company.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee consists of Messrs. D. Harding Stowe and Bailey W. Patrick and Dr. Pamela L. Davies. Since the beginning
of the Company’s last fiscal year, no member of the Compensation Committee is or has been an officer or employee of the
Company and no executive officer of the Company served on the compensation committee or board of any company that employed any
member of the Company’s Compensation Committee or the Board.
Code
of Ethics and Code of Business Conduct and Ethics
The
Company has adopted a written Code of Ethics (the “Code of Ethics”) that applies to the Company’s Chief Executive
Officer (principal executive officer), Chief Financial Officer (principal financial officer), and Controller (principal accounting
officer). The Company has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all
directors, officers, and associates of the Company. The Code of Ethics and Code of Conduct are available on the Company’s
website at www.catofashions.com/info/investor-relations, under the “Corporate Governance” caption. Any amendments
to the Code of Ethics or Code of Conduct with respect to directors or executive officers will be disclosed on the Company’s
website promptly following the date of such amendment. In addition, any waivers of the Code of Ethics, or waivers of the Code
of Conduct with respect to directors or executive officers, will be made only by the Board or a designated committee thereof,
and will be disclosed within four business days.
Insider
Trading and Hedging Policies
The
Company has established policies prohibiting directors, officers and associates from purchasing or selling the Company’s
securities while in possession of material, nonpublic information. The Company also has established policies that acknowledge
Company associates may become aware of material nonpublic information of other companies in the course of their association with
the Company. All directors, officers and associates are prohibited from purchasing or selling securities of other companies while
they are in possession of, or aware of, such information and from passing such information on to other persons or entities who
might purchase or sell the securities of such other companies.
In
addition, no director, officer or associate of the Company may engage in any transaction in which they may profit from short-term
speculative swings in the value of the Company’s securities. This prohibition includes “short sales” (selling
borrowed securities to profit if the market price of the Company’s stock decreases), “put” or “call”
options (publicly available rights to sell or buy securities within a certain period of time at a specified price) and hedging
or any other type of derivative instrument designed to minimize the risk inherent in owning the Company’s stock.
11
Communications
with Directors
The
Company provides various means for shareholders and other interested parties to communicate directly with any member or committee
of the Board of Directors, or any group of directors. Such persons may write to: Chair of the Corporate Governance and Nominating
Committee, c/o Office of the Corporate Secretary, The Cato Corporation, 8100 Denmark Road, Charlotte, North Carolina 28273. Depending
on the subject matter, the Chair of the Corporate Governance and Nominating Committee, with the assistance of the Company’s
Vice President, General Counsel will determine whether to forward it to the director or directors to whom it is addressed, attempt
to handle the inquiry directly (for example, where it is a request for information about the Company or it is a stock-related
matter), or not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant
topic.
Shareholders
and other interested parties may also communicate and report matters regarding improper activities by the Company or its associates
via telephone or email under the Company’s Whistleblower Policy. Instructions and contact information for reporting matters
under the Whistleblower Policy are contained in the Whistleblower Policy, a copy of which is available on the Company’s
website under the “Whistleblower Policy” link, which is accessed through the “Corporate Governance” link
at https://www.catofashions.com/info/investor-relations. All such complaints submitted via the Whistleblower Policy
are reported to the Audit Committee, which generally determines the action to be taken regarding such complaints, subject to the
procedures and exceptions outlined in the Whistleblower Policy. The Company’s Vice President, General Counsel maintains
a log of all such complaints, tracking their receipt, investigation, and resolution and prepares periodic summaries for the Board
of Directors, and the Audit Committee, as appropriate.
Director
Nomination Criteria and Process
Directors
may be nominated by the Board of Directors in accordance with the Company’s Bylaws or by shareholders in accordance with
the procedures specified in Article II, Section 3 of the Company’s Bylaws. The Company’s Corporate Governance and
Nominating Committee will consider all nominees, including any submitted by shareholders, for the Board of Directors. The assessment
of a nominee’s qualifications will include a review of Board of Director qualifications as described in the Company’s
Corporate Governance Guidelines.
As
specified in Article II, Section 3 of the Company’s Bylaws, notice of a shareholder nomination for a director nominee to
be considered at an Annual Meeting must be in writing and received by the Secretary of the Company at the Company’s principal
executive offices, 8100 Denmark Road, Charlotte, North Carolina 28273-5975, no later than 90 days prior to the anniversary of
the preceding year’s Annual Meeting (no later than February 18, 2024 in the case of the Company’s 2024 Annual Meeting).
The shareholder’s notice must also set forth, with respect to any director nominee, his or her name, age, business and residential
addresses, principal occupation, the class and number of shares of the Company owned by the nominee, the nominee’s consent
to being named in the proxy statement and serving if elected, and any other information required by the proxy rules of the Securities
and Exchange Commission pursuant to Regulation 14A of the Exchange Act. The notice must also include the name and address of the
nominating shareholder as it appears on the Company’s stock transfer records and the class and number of shares of the Company
beneficially owned by the nominating shareholder. In addition to satisfying the foregoing requirements, any shareholders who intend
to solicit proxies in support of director nominees other than the Company’s nominees must also comply with all applicable
requirements of Rule 14a-19 under the Exchange Act, though the advance notice requirement under Rule 14a-19 does not override
or supersede the longer advance notice requirement under the Company’s Bylaws as described above.
The
Corporate Governance and Nominating Committee will select qualified candidates and review its recommendations for nominees with
the full Board of Directors. Depending on the timing of consideration of a candidate and such other factors as it deems appropriate,
the Board of Directors will decide whether to invite the candidate to join the Board or to stand for election as a nominee at
an Annual Meeting of the Company. The Board believes that greater diversity leads to better corporate governance and that potential
nominees should possess a diverse and extensive background of knowledge and both professional and life experience that can support
growth, evaluate risk and provide sufficient oversight to the Company. Nominees for director will be selected on the basis of
the diversity they bring to the Board, outstanding achievement in their professional careers, broad experience, wisdom, character,
integrity, ability to make independent, analytical inquiries and intelligent decisions, sound
12
mature
business judgment, understanding of the business environment, willingness to devote adequate time to Board duties and ability
to collaborate effectively at the Board level. The Board further believes that each director should have a basic understanding
of (i) the principal operational and financial objectives and plans and strategies of the Company, (ii) the results of operations
and financial condition of the Company and of any significant subsidiaries or business segments, and (iii) the relative standing
of the Company and its business segments in relation to its competitors.
The
Company’s Corporate Governance Guidelines provide that the Board will have a majority of directors who meet the criteria
for independence required by the NYSE. The Corporate Governance and Nominating Committee is responsible for reviewing with the
Board, on an annual basis, the requisite skills and characteristics that the Board seeks in Board members as well as the composition
of the Board as a whole. The Board will also evaluate on an annual basis whether members qualify as independent under applicable
standards. During the course of a year, directors are expected to inform the Board of any material changes in their circumstances
or relationships that may impact their designation by the Board as independent.
ENVIRONMENTAL,
SOCIAL AND GOVERNANCE INITIATIVES
We
recognize the importance of environmental, social, and governance (“ESG”) issues and promote business practices that
benefit our shareholders, associates, customers and communities in which we serve. We aim to promote diversity, provide opportunities
for advancement, and treat all of our associates with dignity and respect. We strive to reduce our carbon footprint through initiatives
for energy efficiency, sourcing more sustainable products and waste reduction.
Our
Board of Directors
Our
Board believes that greater diversity leads to better corporate governance and that potential nominees should possess a diverse
and extensive background of knowledge and both professional and life experience that can support growth, evaluate risk and provide
sufficient oversight to the Company. Nominees for director will be selected on the basis of the diversity they bring to the Board,
outstanding achievement in their professional careers, broad experience, wisdom, character, integrity, ability to make independent,
analytical inquiries and intelligent decisions, sound mature business judgment, understanding of the business environment, willingness
to devote adequate time to Board duties and ability to collaborate effectively at the Board level.
Our
Board is made up of 25% female and 75% male Directors. We believe the background, knowledge and experience that these individuals
bring to the table broaden the Board’s perspective and strengthens the quality of its decision-making.
Our
Associates
We
have approximately 7,600 associates and endeavor to have a diverse and inclusive workplace environment. Over 96% of our
associates are female and over 49% of our workforce are ethnically diverse.
|
Racial
Diversity |
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|
|
Source: Latest EEO-1 report. (September 2022) |
13
We
encourage a healthy workplace by offering a supportive and safe work environment and culture. We offer confidential professional
services to help our associates improve their quality of life, including counseling and referrals in a variety of areas such as
work-related, mental health, family, financial and legal concerns. In our retail stores and distribution facility, we regularly
conduct safety audits and training.
We
work to maintain an environment and culture in which our associates are treated with fairness and respect and strive to develop
our associates and aim to promote from within.
Policies
and procedures in place to promote a supportive and safe environment and culture include, but are not limited to:
|
● |
Our Code of Conduct includes policies on, among other topics, conflict of interest, acceptance of gifts,
confidential and proprietary information and protection against retaliation for reporting suspected violations of the Code
of Conduct. All associates must review and attest to their acknowledgement of the Code of Conduct. |
|
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|
● |
Our corporate management and supervisors are provided training regarding diversity, discrimination and harassment. |
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|
● |
A Whistleblower Policy that gives guidance to report any improper activities by the Company or any associate. The policy
prohibits retaliation against associates who report suspected violations. |
Despite
generally high rates of employee turnover in the retail industry, we believe that our Company culture helps to retain our associates.
We have several associates with more than 40 years of service. The Average Years of Service By Position graph is for active associates
as of December 31, 2022.
Average
Years of Service By Position
Social
Responsibility
We
have policies that require our vendors to conduct business in a socially responsible manner. The Company’s Vendor Code of
Conduct includes the vendor and also extends to its employees, agents, contractors, factories, and any third party acting on its
behalf and requires all vendors to attest to compliance with the following:
|
● |
Must
not use child labor in the manufacturing of the merchandise we purchase and all factories must be in compliance with the laws
of the country where our merchandise is produced. |
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|
● |
Must pay factory
wages that meet or exceed the minimum requirements. |
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|
● |
Must maintain reasonable work hours in accordance with local laws. |
|
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|
● |
Must not use forced
labor. |
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|
● |
Must provide all
employees with safe and healthy work conditions. |
|
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|
● |
Must promote an
environment of dignity and respect, free from abuse or harassment of workers. |
|
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|
● |
Must recognize and
respect lawful rights of freedom of association and the right of employees to seek or not to seek representation from outside
third parties for the purposes of collective bargaining under local law. |
14
Our Customers
and Community
The Company
has a long history of charitable giving in the communities in which it serves.
The Company
has made cash donations of more than $17 million to charities over the past 20 years. Many of these donations are health and education
focused scholarships, as well as other endowments. More specifically:
|
● |
Our
Grassroots program allows stores to directly sponsor local charities in the communities in which they serve. |
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● |
We recognize the
need for quality healthcare for all and have sponsored scholarships to those seeking their nursing and other allied health
professional degrees, as well as the advancement of continuing education and training of current health care professionals. |
|
|
|
|
● |
The Cato Education
Center at the YMCA of Greater Charlotte supports expanded youth education programs and provides scholarships to enable participation. |
|
|
|
|
● |
The Cato Scholarship
for Education sponsors scholarships for students seeking to become educators. We understand that to have great education for
our children, we must have great teachers. |
|
|
|
|
● |
The Cato Opportunity
Scholarship Fund benefits low-income students from minority populations traditionally underrepresented in higher education
and from high schools with high poverty enrollments. |
|
|
|
|
● |
The Cato Award for
Faculty Excellence retains high quality faculty in the education field, rewarding excellence in teaching, research and community
engagement. |
|
|
|
|
● |
The Cato Adult Career
Enhancement Scholarship Fund supports adult students who are at least five years past high school graduation and have a significant
need. |
We contribute
merchandise to local charities in the communities we serve, as well as national charities that provide new clothes to those in
need, from school clothes for children to professional clothing for job seekers. Since 2011, we have donated clothing valued at
over $160 million.
Our Environment
We are pursuing
a number of initiatives to lower our environmental impact throughout our supply chain, by lowering energy consumption, sourcing
more sustainable products, and increasing our recycling program. Our environmental initiatives include, but are not limited to:
|
● |
Sustainable
Product Offerings - We are collaborating with our vendors to offer sustainable merchandise in our stores. Approximately 20%
of our denim products include recycled materials. |
|
|
|
|
● |
LED Lighting Initiative
- We continue installing LED lighting in our stores, signs and home office to reduce energy usage. Over 57% of our stores
have LED lighting as of the end of 2022. |
|
|
|
|
● |
Energy Management
Systems - Our corporate office and larger stores have energy management systems to efficiently manage energy needs and reduce
energy usage. |
|
|
|
|
● |
Packaging Reduction
- We are investing in technology and infrastructure to reduce packaging and transportation in an effort to decrease our carbon
footprint. |
15
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information regarding the shares of the Company’s Class A Stock issuable under all of the Company’s
equity compensation plans as of January 28, 2023:
Plan
Category |
|
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights |
|
(b)
Weighted-average exercise
price of outstanding options, warrants and rights |
|
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) |
|
|
|
|
|
|
|
Equity compensation plans approved by security holders (1) |
|
— |
|
— |
|
3,673,917 |
Equity compensation plans not approved by security holders |
|
— |
|
— |
|
— |
Total |
|
— |
|
— |
|
3,673,917 |
|
|
(1) |
This category includes 3,461,061 shares of Class A Stock available for future
issuance under The Cato Corporation 2018 Incentive Compensation Plan and 212,856 shares of Class A Stock available for future
issuance under The Cato Corporation 2021 Employee Stock Purchase Plan. |
16
2022
EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Overview
of Compensation Program for Named Executive Officers
Pay
for performance and retention, both at the corporate and individual levels, is the overriding philosophy behind the design of
the compensation program for Named Executive Officers (“NEOs” – see “Summary Compensation Table”)
at The Cato Corporation. The Compensation Committee has established this philosophy to motivate superior individual and team performance
among the executives. The elements of the compensation program are designed to reward higher levels of performance, which the
Compensation Committee believes will attract and retain qualified and high-performing executives and, in turn, result in increased
productivity and more effective execution of strategic decisions, leading ultimately to maintaining a competitive edge within
the retail industry.
NEOs
receive a base salary that recognizes the value of executive talent within the retail marketplace, and these salaries generally
increase annually based upon individual and Company performance. The Company also provides NEOs with an annual cash incentive
opportunity designed to reward achievement of annual business objectives, which the Compensation Committee believes will translate
into long-term shareholder value.
The
Company grants annual equity incentive awards that allow NEOs the opportunity to accumulate long-term capital in the form of Company
stock, in order to align NEOs with shareholder interests and to encourage retention through five-year vesting schedules, with
vesting not beginning until year three. The Compensation Committee’s intent is to continue including annual equity incentive
awards as an element of NEO compensation. The Compensation Committee also imposes strong stock ownership requirements under which
all long-term incentive (“LTI”) eligible associates, including NEOs, must continue to maintain a multiple of their
base salaries in Company stock after giving effect to any sale of vested restricted stock.
The
Company maintains a nonqualified deferred compensation plan as a competitive measure that the Company believes will assist in
attracting and retaining qualified and high-performing associates and to allow associates whose ability to contribute to the Company’s
401(k) plan are limited under discrimination testing to defer current compensation. The plan is generally open to associates in
management, including NEOs and all members of the Board of Directors. The Company does not make contributions to the plan.
The
Company provides its NEOs with the same core benefits that are offered to all full-time salaried associates. NEOs do not have
employment or change of control agreements (see “Executive Agreements and Potential Payments on Termination or Change
of Control”).
Say-on-Pay
Results and Say-on-Frequency Vote
The
Compensation Committee reviewed the results of the non-binding “say-on-pay” proposal in the fiscal 2021 proxy statement,
which was the most recent advisory “say-on-pay” vote by the shareholders. The Company also has conversations from
time to time with its shareholders, including its larger outside shareholders, about its compensation practices. The Compensation
Committee considers this shareholder feedback in assessing the Company’s compensation programs, but did not implement changes
for fiscal 2022 as a direct result of the vote. The Compensation Committee will review the results of the vote at the 2023 Annual
Meeting and other shareholder feedback and will determine if any changes should be made to the compensation program, as a result
of the vote or otherwise.
As
discussed in Proposal 3 of this Proxy Statement, this year the Company is holding an advisory vote on the frequency with which
future non-binding shareholder “say-on-pay” votes will be held—every year, every two years or every three years.
After careful consideration and for the reasons discussed in Proposal 3, the Board has recommended that future “say-on-pay”
votes be held every three years. Though not bound by the results of this vote, the Board and the Compensation Committee will consider
the results of this vote in determining the frequency of future “say-on-pay” votes.
17
External
Benchmarking for Named Executive Officers
In
reviewing the NEOs’ compensation structure, the Compensation Committee relies on multiple external benchmarking sources,
including (1) a customized peer group of competitors and other retail companies within a reasonable revenue range, geography,
or store size and (2) web-based data to stay abreast of current compensation practices and to determine geographic cost of living
differences.
Peer Group
In 2022,
the Compensation Committee utilized the following peer group:
Boot
Barn Holdings, Inc. |
|
Destination
XL Group, Inc. |
|
Shoe
Carnival Inc. |
Buckle Inc. |
|
Express, Inc. |
|
Tilly’s,
Inc. |
Chicos Fas Inc. |
|
Genesco Inc. |
|
Zumiez, Inc. |
Children’s
Place Inc. |
|
Hibbet Sports,
Inc. |
|
|
Citi Trends,
Inc. |
|
J.Jill, Inc. |
|
|
For 2023,
the Compensation Committee assessed and decided to to remove five companies from the peer group for 2022: Destination XL Group,
Inc., Genesco Inc., Hibbet Sports, Inc., Tilly’s, Inc., and Zumiez, Inc. The Compensation Committee reduced the number of
companies in the peer group to provide better comparability to the Company:
Boot Barn Holdings, Inc. |
Citi Trends, Inc. |
Buckle Inc. |
Express, Inc. |
Chicos Fas Inc. |
J.Jill, Inc. |
Children’s Place Inc. |
Shoe Carnival Inc. |
Competitive
Positioning of Named Executive Officers
The
CEO is compared to the industry peer group based on compatible title match, while the other NEOs are compared to retail survey
matches based upon job content. The Compensation Committee believes annual equity awards allow it to employ a leveraged pay strategy
for NEOs. The CEO’s base salary in 2022 comprised approximately 26% of his target total direct compensation, while the other
NEOs’ base salaries ranged from 44% to 46% of their target total direct compensation. The CEO’s base salary in 2023
will comprise approximately 26% of his target total direct compensation, while the other NEOs’ base salaries will comprise
approximately 44% to 46% of their target total direct compensation.
Target
total direct compensation is defined as base salary plus target annual cash incentive opportunity plus target annual equity opportunity.
For 2022, total direct compensation of NEOs was between the 25th and 75th percentiles of the appropriate
market. In 2023, the Compensation Committee also established target total direct compensation of NEOs between the 25th and
75th percentiles of the appropriate market.
Total
direct compensation for any particular NEO may fall above or below the percentiles discussed above, depending upon the Company’s
financial performance and the NEO’s individual performance, experience in the function and/or tenure with the Company.
Components
of Compensation
Our
compensation program is designed around attracting and retaining talented leadership and to rewarding them for achieving key strategic
and financial metrics. The compensation program provides a base salary, a cash incentive bonus linked to pre-tax, pre-bonus income
targets, and a long-term equity program designed to align executives’ interests with shareholder interests and the long-term
performance of the Company. The following table provides a summary of compensation components, objectives and details with respect
to each component for fiscal 2022.
18
|
|
Compensation
Component |
|
Objectives
and Key Features |
|
Highlights
for Fiscal 2022 |
FIXED |
|
Base Salary |
|
* Provides appropriate fixed cash compensation necessary to attract and retain executives.
* Reflects position’s relative value in the marketplace, the executive’s scope and breadth of responsibility and individual contribution. |
|
* In fiscal 2022, increase
related to the annual merit increases. |
AT RISK |
|
Annual Cash Incentive |
|
* Provides
incentive for short-term performance across multiple metrics.
* Focuses
executives on achieving specific annual financial and operating results aligned with our business strategies. |
|
*
There were no annual incentive awards earned for Fiscal 2022, as awards are tied to pre-established
goals, which were not met for:
* Pre-Tax, Pre-Bonus
Income metric utilized to determine bonus payout.
* Bonus
payout never exceeds the maximum annual incentive opportunities. To the extent that the Company exceeds pre-established goals,
any excess is shared ratably through our ESOP program for all qualified associates (over age 21, worked 1,000 hours & employed
on last day of plan year).
|
|
|
|
|
|
|
|
|
|
|
|
* Maximum
annual incentive opportunities range from 60% to 150% of base salary, based on Company performance against the pre-established goals. |
|
Bonus pay out percentage by year: |
|
|
|
|
|
CEO |
Other
NEOs |
|
|
|
|
|
|
|
2022 |
|
0% |
0% |
|
|
|
|
|
* Uses Performance measures we believe
are key drivers of shareholder value. |
|
2021 |
|
150% |
75% |
|
|
|
|
|
|
|
2020* |
|
0% |
0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
150% |
75% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
135% |
67% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* In fiscal 2020, the Board approved a discretionary bonus for all eligible associates of 20% of bonus potential, due to the unforeseen impacts of the pandemic. |
19
|
Compensation
Component |
|
Objectives
and Key Features |
|
Highlights
for Fiscal 2022 |
AT RISK |
Long-Term
Equity Incentives |
|
* Provides incentive for long-term performance. |
|
* In fiscal 2022, annual equity awards to the NEOs consisted of time-based
restricted stock. |
|
|
|
* Links compensation to the creation of long-term shareholder value. |
|
* Restricted stock vests over five years, with three near equal annual
installments, beginning year three. |
|
|
|
* Aligns interests of management with those of shareholders. |
|
|
|
|
|
|
|
|
|
|
|
* Supports retention of key talent. |
|
* Restricted stock award is subject to
continued employment. |
Annual
Base Salary
The
Compensation Committee believes that annual base salaries should be competitive within the retail industry for jobs of similar
size and scope in order to attract and retain talented NEOs. Base salaries serve as the foundation for annual cash incentives
(discussed below), which express incentive opportunity as a percentage of annual base salary. NEO base salary levels and potential
increases are linked to individual performance. Furthermore, Company financial performance is a consideration when determining
salary budgets, which determine annual salary increases for the NEOs and other members of management.
The
Compensation Committee uses a formal job evaluation methodology to evaluate both the internal and external equity of the NEOs’
base salary levels. Internal equity is considered in order to ensure that NEOs are compensated at an appropriate level relative
to other members of executive management, while external equity is a measure of how NEO compensation compares to compensation
for comparable jobs at similar companies. The Compensation Committee, with the assistance of an outside consultant, intends to
periodically review the Company’s NEO positions to assess the relative size of each position, specifically evaluating scope
of responsibilities, complexity of the role, and its impact on the success of the business. Once the jobs are valued independently,
the next step is to compare them to determine relative relationships. The final step then relates the job evaluation data to market-based
pay opportunities.
Base
salary represented 47% of the CEO’s total compensation for 2022 (as reported in the Summary Compensation Table), and 67%
for the other NEOs.
Annual
Benefit / Bonus Programs
The
Compensation Committee establishes a consolidated pre-tax, pre-bonus income target as the performance metric for the benefit /
bonus pool. Pre-tax, pre-bonus income is calculated by adding back income tax expense and incentive bonus and benefit expense
to net income. The targeted benefit / bonus pool varies each year based primarily on the targeted cash incentive bonus payout
percentage, which ranges from a 20% to 100% payout of each participant’s annual cash incentive opportunity. From this benefit
/ bonus pool the Company funds its charitable contributions, 401(k) match, profit sharing contributions, and its annual cash incentive
bonus. The Compensation Committee also sets percentages that determine any amounts that will be added to the benefit / bonus pool
based on achievement of consolidated pre-tax, pre-bonus income in excess of the targeted amounts or subtracted from the pool based
on the failure to achieve the targeted amounts. For 2022, percentages were set so that any pre-tax, pre-bonus income in excess
of the targeted amounts would result in 50% of such excess being added to the pool and any shortfall would result in 60% of such
shortfall being subtracted from the pool.
Once
the actual benefit / bonus pool is established based on actual performance, the amounts for the Company’s charitable, 401(k)
match and profit sharing contributions are calculated. Once the contributions are established, the annual cash incentive bonus
is calculated based on the amount remaining in the benefit / bonus pool up to the maximum of 100% of the annual cash incentive
target. Any remaining amounts in excess of the annual cash incentive bonus and contribution in the benefit / bonus pool are contributed
to the Company’s Employee Stock Ownership Plan (“ESOP”).
20
Annual
Cash Incentive Program
Pursuant
to the Company’s 2018 Incentive Compensation Plan (the “Plan”), which allows for a variety of cash and equity-based
incentive awards, the Company provides NEOs with annual cash incentive opportunities conditioned upon achievement of consolidated
pre-tax, pre-bonus income relative to a pre-established target, provided the Company is profitable. NEOs’ annual cash incentives
are determined based upon two factors: (1) the degree to which the overall Company’s pre-tax, pre-bonus income performance
target is achieved, and (2) the NEO’s individual performance. The Compensation Committee believes establishing annual consolidated
pre-tax, pre-bonus income targets focuses NEOs on achieving profitability through top-line revenue growth and margin improvement
coupled with expense management.
NEOs
have the opportunity to earn an annual incentive that is a percentage of their base salary. The CEO’s 2022 maximum annual
incentive opportunity was set at 150% of base salary and other NEOs’ was set at 60% to 75% based on pre-defined performance
goals. Unlike many of our peer group, we do not allow payouts to exceed the maximum annual incentive opportunity, so that achievement
of Company performance goal over target (maximum) does not result in payouts in excess of the maximum bonus potential. Unlike
many in our peer group, we cap NEO annual incentive payout at the top end of these ranges. However, NEOs may receive less than
their maximum potential (as would normally be calculated solely based upon Company financial performance) if their individual
performance does not meet objective goals and expectations during the fiscal year. The Compensation Committee believes these maximum
bonus opportunities provide sufficient motivation for the NEOs to strive to increase consolidated net income.
For
fiscal 2022, the performance goals established by Compensation Committee were $35.7 million pre-tax, pre-bonus income as the target
level of performance (50% of bonus potential), positive net income including the bonus as the threshold for the payment of a 20%
bonus (the minimum), and $45.5 million for a incentive bonus payment of 100% (the maximum).
For
fiscal 2023, the Compensation Committee again established consolidated pre-tax, pre-bonus income goals for determining target,
minimum and maximum bonus payouts.
Employee
Stock Ownership Program / Profit Sharing
The
Compensation Committee believes that associates should share in the profits and ownership of the Company and has an ESOP/Profit
Sharing plan. All associates are automatically enrolled if they are over 21, worked at least 1,000 hours, and are employed on
the last day of the plan year. Each year the Company contributes 1% of pre-tax, pre-bonus income to the plan, which is contributed
to every associate’s individual ESOP account. The plan has a 5-year vesting with 20% vesting each year.
As
discussed above with regard to the bonus / benefit pool and the annual incentive program, the Company caps the NEO annual incentive
payout at the top end of the incentive bonus ranges, so that achievement of Company performance goals in excess of target results
in broader sharing through additional Company payments under its ESOP/Profit Sharing program for the benefit of all qualified
associates rather than enhancement of NEO incentive payouts. When the Company’s bonus / benefit pool performs above the
maximum target for any given year, any additional amount above the maximum target is contributed to the ESOP/Profit Sharing plan
for distribution to all associates’ accounts.
Long-Term
Equity Incentives and Ownership Requirements
The
Compensation Committee believes that LTI equity awards offer balance among the following goals of the Company’s LTI strategy:
|
● |
Incent creation of long-term shareholder value; |
|
|
|
|
● |
Promote retention through the five-year vesting schedule and full-value nature of the equity award; |
|
|
|
|
● |
Promote ownership and long-term capital accumulation with full-value stock awards; and |
|
|
|
|
● |
Facilitate improved market-competitive total direct compensation by adding an equity component to the NEO target total
cash compensation. |
21
The
Compensation Committee currently grants restricted stock to NEOs other than the CEO with a five-year time-based vesting requirement,
with 33%, 33% and 34% of the grant vesting on the third, fourth and fifth anniversaries of the grant date, respectively, to link
NEO compensation with creation of long-term shareholder value, align management focus with shareholder interests and increase
retention of key employees. The Compensation Committee believes that relying on meaningful stock ownership requirements with a
range of 300% to 600% of base salary (details discussed below), along with time-based vesting (when coupled with the annual cash
incentive) that does not begin until the third year, incentivizes performance to increase stock appreciation through higher net
income, promotes ownership and long-term capital accumulation and enhances the long-term retention of key associates by increasing
the value of shares subject to the time-based vesting requirements. If a NEO terminates employment for any reason, the LTI award
is forfeited to the extent it is not vested. Discretionary exceptions to forfeiture may be approved by the Compensation Committee
(e.g., upon normal retirement).
To
encourage management ownership of Company stock and thus further align their interests with shareholders, the Compensation Committee
has established stock ownership requirements for LTI awards (i.e., a recipient cannot sell vested stock unless his/her ownership
requirement is achieved and maintained, except for the payment of tax exception noted below). NEOs (as well as other LTI eligible
associates) can satisfy these requirements through ownership of stock acquired with personal funds (including the exercise of
stock options and stock held in the Employee Stock Purchase Plan) or by retaining vested restricted stock.
The
Company’s current restricted stock ownership requirements vary depending upon position. The CEO cannot sell vested stock
unless he continues to own Company stock with a fair market value equal to at least 600% of his then base salary, and the other
NEOs cannot sell vested stock unless they continue to own Company stock with a fair market value equal to at least 300% of their
then base salary. The single exception to this ownership requirement is that up to 45% of vesting restricted stock may be sold
to meet tax liabilities associated with that vesting. In setting these ownership requirements, the Compensation Committee relied
upon prevalent market data from its outside compensation consultant. While the Compensation Committee chose to set the CEO’s
ownership requirement higher than what was most prevalent for the general market, the other NEOs’ ownership requirements
were established based upon the most prevalent multiples in the survey. The CEO has achieved the ownership requirements.
LTI
award targets are expressed as a percent of base salary – 140% for the CEO, and range from 50% to 60% for the remaining
NEOs. Under the Plan, the number of restricted shares granted to NEOs and other eligible associates are determined using the rolling
average 90-day price set within the 30 days prior to the Compensation Committee meeting where the broad-based annual LTI award
is approved. This methodology generally mitigates the impact of short-term fluctuations in stock price that could otherwise significantly
impact the share calculation.
At
its March 2022 meeting, the Compensation Committee granted LTI awards based on the LTI award targets to NEOs and non-NEOs that
are subject to five-year time-based vesting, with vesting not beginning until year three and previously described ownership requirements.
At
its March 2023 meeting, the Compensation Committee granted LTI awards based on 75% LTI award targets (105% of CEO base annual
salary and a range of 38% to 45% of based salary for the remaining NEOs) to NEOs and non-NEOs that are subject to five-year time-based
vesting, with vesting not beginning until year three and previously described ownership requirements. The Compensation Committee
set a $35.7 million pre-tax pre-bonus target for fiscal 2022. The Company missed this target by 90%, which contributed to the
decline in the Company’s share price. The Compensation Committee determined that a 75% LTI award was appropriate based on
the Company’s financial performance and the impact of the dilutive effect of issuing restricted shares on existing shareholders,
while balancing the Compensation Committee’s LTI strategy objectives to retain key associates, promote associate ownership
and create long-term shareholder value.
The
grant date for all broad-based LTI awards occurs on a pre-established future date set by the Compensation Committee. However,
within guidelines established by the Compensation Committee, the CEO may make LTI awards in the case of new hires and promotions
not involving NEOs, and the Compensation Committee will ratify such awards provided they are consistent with established guidelines.
22
Nonqualified
Deferred Compensation
The
Company offers certain associates, generally management level and above, including NEOs and all members of the Board of Directors,
the opportunity to participate in a nonqualified deferred compensation plan, which is an unsecured nonqualified defined contribution
plan. The Deferred Compensation Plan allows participants to defer a maximum of 50% of their base salary and 100% of any bonuses
paid, or in regard to Directors, 100% of the fees earned for board and committee services. Elections to participate in the Deferred
Compensation Plan and the percentage of compensation to defer are made by participants on an annual basis, prior to the beginning
of the year in which the compensation is earned. The Company does not currently make any contributions to the Deferred Compensation
Plan.
The
aggregate balance of each participant’s account consists of amounts that have been deferred by the participant plus earnings
(or minus losses). In accordance with tax requirements, the assets of the Deferred Compensation Plan are subject to claims of
our creditors. Account balances are deemed invested in accordance with investment elections designated by the participant. Investment
option transfers may be made daily. The plan offers investment options similar to those available to participants in the Company’s
401(k) plan, including fixed income funds, domestic and international equity funds, blended funds and pre-allocated lifestyle
fund investments. Earnings and gains or losses on each deemed investment are credited or debited to each participant’s account
on a monthly basis based on the actual performance of the funds in which the participant is deemed invested. The participants
are 100% vested in their contributions and all earnings on those contributions.
A
“Rabbi Trust” was established to provide a funding vehicle for the nonqualified obligations to the participants, and
this trust holds life insurance policies on some of the plan participants. The Company contributes cash to these life insurance
policies in amounts equal to the compensation deferred by plan participants. The cash value of the life insurance policies is
allocated among funds that are similar to the funds offered to participants as investments under the plan. Distributions from
the plan may be made from the cash surrender value investments or from Company funds.
Deferred
account balances are distributed to the plan participants in accordance with elections made by the participant at the time the
deferral is made, subject to Section 409A of the Internal Revenue Code (the “Code”). A participant may elect to receive
distributions, either in a lump sum or in installments, upon his or her termination of employment with the Company, disability,
death, an unforeseeable emergency or a change of control, each of the last two events as defined in Section 409A of the Code.
A participant may also elect to receive distributions while still employed by the Company if he or she elects to have in-service
or education distributions, made at a date specified by the participant.
Benefits
and Perquisites
The
Company provides NEOs with core benefits offered to its other full-time associates (e.g., medical, dental, vision care, prescription
drugs, basic life insurance, short-term disability, long-term disability, 401(k), profit sharing, employee stock ownership plan,
and employee stock purchase plan). The Company does not provide any other perquisites including, for example, country club memberships,
airplane usage or car allowances.
The
Committee’s overall benefits philosophy for NEOs focuses on providing basic core benefits, with NEOs using their own cash
compensation to obtain such other services as they individually determine appropriate.
Benefits
and perquisites provided to the NEOs are summarized in the Summary Compensation Table. No NEO received perquisites in 2022 with
a total value equal to or greater than $10,000.
Executive
Agreements and Potential Payments on Termination or Change of Control
The
Company does not have individual employment agreements with NEOs, and the Compensation Committee does not intend to commence this
practice in 2023. No NEO has specific change of control benefits or protection different from any other salaried associate. Change
of control treatment for NEOs will follow standard Company policies as outlined in LTI award agreements and the Plan (see “Potential
Payments Upon Termination or Change in Control” below).
23
Tax
and Accounting Implications
The
Committee, with the assistance of management, has considered other tax and accounting provisions in developing the pay programs
for our NEOs, including the CEO. These include the accounting treatment of various types of equity-based compensation under Financial
Accounting Standards Board Accounting Standards Codification Topic 718, as well as the overall income tax rules applicable to
various forms of compensation. Nevertheless, the focus in the design of the NEO compensation program has been to retain and motivate
NEOs, not to achieve potential tax, accounting or other regulatory advantages. Therefore, while the Compensation Committee considers
the potential deductibility of awards and accounting considerations as a factor in determining executive compensation, the Compensation
Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation
that it determines to be consistent with the goals of the Company’s executive compensation program even if the awards are
not deductible for income tax purposes or provide favorable accounting treatment.
Engagement
and Use of Independent Compensation Consultants
The
Compensation Committee’s charter provides the Compensation Committee with the authority to engage compensation consultants
(and other advisors) as it deems appropriate to assist with the performance of its duties.
The
Compensation Committee has retained Aon Hewitt, an external compensation consultant, to advise them on executive compensation
issues. At the direction of the Compensation Committee, Aon Hewitt advised the Committee with comparative market data based on
analyses of the practices of the peer group as well as advising on the composition of the peer group. Aon Hewitt provided guidance
on industry best practices and advised the Compensation Committee on the structure of the executive compensation program for the
CEO and other senior executive positions. The consultant’s primary contact with management is the Senior Vice President,
Human Resources & Chief Legal Officer, who serves as the liaison with other members of management, as needed. Interaction
with management occurs mainly to provide the consultant with Company data and a better understanding of the Company’s pay
policies and practices, which will assist them with the consulting engagement. The Compensation Committee has assessed the independence
of Aon Hewitt pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Aon Hewitt from independently
advising the Compensation Committee.
Role
of Executives in Establishing Compensation
Members
of management are essential in providing input to the Compensation Committee throughout the year concerning the effectiveness
of the executive compensation program, selection of performance criteria, financial performance of the Company, and performance
of individual executives. The Chief Executive Officer, Chief Financial Officer and Senior Vice President, Human Resources &
Chief Legal Officer are the key members of management who advise the Compensation Committee and supply needed and accurate information.
The Compensation Committee regularly invites them to attend Compensation Committee meetings, participate in the presentation of
materials, and facilitate discussions concerning management’s perceptions of the executive compensation programs and general
views concerning a variety of compensation issues. Additional senior members of management participate in meetings as requested
by the Committee. However, the Compensation Committee makes final decisions concerning all aspects of NEO compensation, including
the design, structure and levels of NEO compensation, including salary increases, performance measures and targets, variable pay
targets as a percent of base salaries, determination of annual incentive bonus payouts based upon individual and Company performance,
and determination of LTI awards.
24
Compensation
Committee Report
The
Compensation Committee of the Board of Directors of the Company has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with the management of the Company and, based on such review and discussion, the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement
and, through incorporation by reference from this Proxy Statement, the Company’s Annual Report on Form 10-K for the year
ended January 28, 2023.
Compensation
Committee Members:
D. Harding Stowe (Chair)
Bailey W. Patrick
Dr. Pamela L. Davies
25
Summary Compensation Table
Name
and Principal
Position | |
Year | |
Salary
($) | |
Bonus
($) (1) | |
Stock
Awards ($) (2), (3) | |
Option
Awards ($) | |
Non-Equity
Incentive Plan Compensation ($) (4) | |
All
Other Compensation ($) (5) | |
Total
($) |
John P. D. Cato | |
| 2022 | |
| 1,373,925 | |
— | |
| 1,508,226 | |
— | |
| — | |
| 307,989 | |
| 3,190,140 |
Chairman, President & Chief Executive Officer | |
| 2021 | |
| 1,330,617 | |
— | |
| 1,883,682 | |
— | |
| 2,008,173 | |
| 244,068 | |
| 5,466,540 |
| |
2020 | |
| 1,111,046 | |
391,839 | |
| 1,167,561 | |
— | |
| — | |
| 144,206 | |
| 2,814,652 |
John R. Howe (7) | |
| 2022 | |
| 209,418 | |
— | |
| — | |
— | |
| — | |
| 17,308 | |
| 226,726 |
Former Executive Vice President & Chief Financial Officer | |
| 2021 | |
| 473,939 | |
— | |
| 287,542 | |
— | |
| 357,635 | |
| 86,735 | |
| 1,205,851 |
|
| 2020 | |
| 430,475 | |
69,783 | |
| 178,227 | |
— | |
| — | |
| 68,627 | |
| 747,112 |
Charles D. Knight (6) | |
| 2022 | |
| 400,000 | |
— | |
| 193,123 | |
— | |
| — | |
| 90,254 | |
| 683,377 |
Executive Vice President & Chief Financial Officer | |
| 2021 | |
| 16,923 | |
— | |
| — | |
— | |
| — | |
| — | |
| 16,923 |
Gordon D. Smith | |
| 2022 | |
| 385,148 | |
— | |
| 151,002 | |
— | |
| — | |
| 39,397 | |
| 575,547 |
Executive Vice President Chief Real Estate & Store Development Officer | |
| 2021 | |
| 373,008 | |
— | |
| 188,585 | |
— | |
| 281,473 | |
| 77,231 | |
| 920,297 |
|
| 2020 | |
| 338,798 | |
54,921 | |
| 116,888 | |
— | |
| — | |
| 64,975 | |
| 575,582 |
M. Tim Greer (8) | |
| 2020 | |
| 155,956 | |
— | |
| 128,576 | |
— | |
| — | |
| 12,728 | |
| 297,260 |
Former Executive Vice President Director of Stores | |
| | |
| | |
| |
| | |
| |
| | |
| | |
| |
(1) |
The amounts shown represent
a discretionary bonus granted by the Compensation Committee in recognition of the efforts of our associates, including our
NEOs, throughout fiscal 2020 and to aid in retention. |
(2) |
The amounts shown in this column
represent the aggregate grant date fair value of current year grants of restricted shares of Cato Class A Stock, as computed
in accordance with FASB ASC Topic 718. Grants were made under the 2018 Incentive Compensation Plan. Grants were not subject
to performance criteria but are subject to a five-year vesting schedule. Plan participants have the right to all dividends
during the restricted period and current year dividends are included under All Other Compensation. |
(3) |
Assumptions related to the valuation
of restricted stock and options are incorporated by reference to the footnotes of the Company’s financial statements
in its Annual Report on Form 10-K. |
(4) |
The amounts shown in this column
in 2021 constitute the cash Annual Incentive opportunity earned by each Named Executive Officer based on established criteria
under the 2018 Incentive Compensation Plan. |
(5) |
The amounts shown in this column
represent amounts of Company matching contributions and profit sharing contributions to the Named Executive Officer’s
401(k) accounts, Company contributions to the Named Executive Officer’s account under the Company’s Employee Stock
Ownership Plan (the “ESOP”), dividends received during the year by the Named Executive Officer on unvested restricted
stock and amounts imputed to the Named Executive Officer for life insurance coverage under the Company’s Group Term
Life Insurance plan. The amount of 401(k) matching contributions were determined according to provisions as outlined in the
Company’s 401(k) Plan documents and as approved by the Compensation Committee. The amount of ESOP contributions were
determined according to provisions as outlined in the ESOP plan documents. The cumulative contributions to the ESOP were determined
pursuant to each annual performance criteria approved by the Compensation Committee under the 2013 Incentive Compensation
Plan and 2018 Incentive Compensation plan. The amounts imputed under the Group Term Life Insurance plan are calculated under
IRS guidelines and are based on life insurance coverage of two times the annual salary of the Named Executive Officer capped
at a coverage limit of $350,000. See table below for quantification of 2022 items reported in this column. |
(6) |
Mr. Knight became Executive Vice
President and Chief Financial Officer effective January 17, 2022. |
(7) |
Mr. Howe assumed the role of Executive
Vice President effective January 17, 2022 and retired May 1, 2022. |
(8) |
Mr. Greer retired from the Company on May 22, 2020. |
26
The amount of each component of All Other Compensation for each Named
Executive Officer is as follows:
Fiscal 2022 All Other Compensation
Name | |
401(k)
Matching Contributions ($) | |
ESOP
Contributions ($) | |
Imputed Group
Term Life Insurance Costs ($) | |
Relocation
($) | |
Restricted Stock Dividends
($) | |
Total All Other Compensation
($) |
John
P. D. Cato | |
| 4,786 |
| |
| — |
| |
| 2,657 |
| |
| |
| |
| 300,546 |
| |
| 307,989 |
|
John
R. Howe | |
| 4,786 |
| |
| |
| |
| 594 |
| |
| |
| |
| 11,928 |
| |
| 17,308 |
|
Charles
D. Knight | |
| — |
| |
| — |
| |
| — |
| |
| 83,075 |
| |
| 7,179 |
| |
| 90,254 |
|
Gordon
D. Smith | |
| 4,786 |
| |
| — |
| |
| 2,705 |
| |
| |
| |
| 31,906 |
| |
| 39,397 |
|
27
Grants of Plan-Based Awards in Fiscal 2022
|
|
|
|
Estimated
Possible Payouts Under
Non-Equity Incentive Plan Awards
(1) |
|
Estimated
Future
Payouts Under Equity
Incentive Plan Awards
(2) |
|
Grant
Date Fair
Value of
Stock and
Option
Awards
($)
(3) |
Name |
|
Grant Date |
|
Threshold
($) |
|
Target
($) |
|
Maximum
($) |
|
Threshold
(#) |
|
Target
(#) |
|
John P. D. Cato |
|
3/23/2022 |
|
415,692 |
|
2,078,459 |
|
2,078,459 |
|
|
|
|
|
|
|
|
5/1/2022 |
|
|
|
|
|
|
|
-0- |
|
109,929 |
|
1,508,226 |
Charles D. Knight |
|
3/23/2022 |
|
48,000 |
|
240,000 |
|
240,000 |
|
|
|
|
|
|
|
|
5/1/2022 |
|
|
|
|
|
|
|
-0- |
|
14,076 |
|
193,123 |
Gordon D. Smith |
|
3/23/2022 |
|
56,295 |
|
291,324 |
|
281,473 |
|
|
|
|
|
|
|
|
5/1/2022 |
|
|
|
|
|
|
|
-0- |
|
11,006 |
|
151,002 |
(1) |
The amounts shown constitute the cash Annual
Incentive Bonus potential for each Named Executive Officer based on established criteria under the 2018 Incentive Compensation
Plan. Because threshold levels were not met, no bonus was paid. |
(2) |
The amounts shown represent Class A restricted stock awards under
the 2018 Incentive Compensation Plan. These awards will vest 33% in 2025, 33% in 2026 and 34% in 2027. |
(3) |
The fair market value of the Company’s stock on the grant
date of May 1, 2022 as traded on the New York Stock Exchange on April 29, 2022, was determined by averaging the high of the
day ($13.95) and the low of the day ($13.49). |
All restricted stock awards made during fiscal year 2022 were of Class
A Stock. All of the awards are subject to a five-year vesting requirement with 33%, 33% and 34% of the grant vesting on the third,
fourth and fifth anniversaries of the grant date, respectively. The unvested awards are subject to forfeiture if the named executive
terminates employment with the Company. Each grantee is required to own a certain multiple of his base salary before being able
to sell the restricted stock. However, each grantee may sell up to 45% of vesting restricted stock to meet associated tax liabilities.
28
Outstanding Equity Awards at 2022 Fiscal Year-End
|
|
Stock Awards |
Name |
|
Number of Shares or Units of Stock That Have Not Vested (#) (1)
|
|
Market Value of Shares or Units of Stock That Have Not Vested ($) (2)
|
John P. D. Cato |
|
450,196 |
|
|
4,555,984 |
|
Charles D. Knight |
|
14,076 |
|
|
142,449 |
|
Gordon D. Smith |
|
47,221 |
|
|
477,877 |
|
(1) |
All stock awards shown are
restricted stock grants and are Class A Stock. The restricted shares vest over five years with 33% of the shares vesting in
years three and four and 34% vesting in year five. The expected restricted shares vesting over the next five years is 20%
in 2023, 26% in 2024, 26% in 2025, 19% in 2026 and 9% in 2027. |
(2) |
The closing market value of the Company’s stock was $10.12
on the last trading day of the fiscal year, January 27, 2023. |
29
Option Exercises and Stock Vested in Fiscal 2022
|
|
Stock Awards |
Name |
|
Number of Shares Acquired on Vesting (#) |
|
Value Realized on Vesting ($) (1) |
John P. D. Cato |
|
77,061 |
|
|
1 ,057,277 |
|
John R. Howe |
|
14,945 |
|
|
205,045 |
|
Charles D. Knight |
|
— |
|
|
— |
|
Gordon D. Smith |
|
9,802 |
|
|
134,483 |
|
(1) |
The fair market value of the Company’s
stock on the vesting date of May 1, 2022, as traded on the New York Stock Exchange on April 29, 2022, was determined by averaging
the high of the day ($13.95) and the low of the day ($13.49). |
30
Nonqualified Deferred Compensation for Fiscal 2022
Name | |
Executive
Contributions in Last FY ($) (1) | |
Company
Contributions in Last FY ($) | |
Aggregate
Earnings in Last FY ($) (2) | |
Aggregate
Withdrawals / Distributions ($) | |
Aggregate
Balance at Last FYE ($) |
John P. D. Cato | |
— | |
— | |
— | |
— | |
— |
Charles D. Knight | |
— | |
— | |
— | |
— | |
— |
Gordon D. Smith | |
— | |
— | |
— | |
— | |
— |
(1) |
There were no NEO deferrals to the Nonqualified
Deferred Compensation Plan for fiscal 2022. When applicable, these amounts are included in the Summary Compensation Table
under “Salary” and “Non-Equity Incentive Compensation” or both, as applicable. |
(2) |
These amounts are not reported in the Summary Compensation Table
as the earnings included in this column are based on the investment options selected by the NEO, and do not constitute above-market
or preferential earnings. |
Please see “Compensation Discussion and Analysis – Nonqualified
Deferred Compensation” for a description of the Company’s Nonqualified Deferred Compensation Plan.
31
Potential Payments Upon Termination or Change in Control
Under the terms of our 2018 Incentive Compensation
Plan and 2013 Incentive Compensation Plan, upon any “change in control,” all unvested restricted stock awards would
immediately vest. For this purpose, any of the following events would be a change in control: (1) any person, entity or group
becomes the beneficial owner of more than 50% of the combined voting power of the Company’s then outstanding securities
(subject to certain exceptions, including an exception for shares acquired directly from the Company); (2) a merger, reorganization,
consolidation or sale or other disposition of all or substantially all of the Company’s assets occurs, after which our shareholders
as a group do not retain at least 50% of the voting power of the surviving entity; (3) the complete liquidation or dissolution
of the Company; or (4) a change in the majority of our directors in any two-year period that our directors have not approved.
However, in the event any holder of restricted stock is materially affiliated with the person, entity or group that effects the
transaction that would otherwise constitute a change in control, that holder’s unvested restricted stock awards do not become
immediately vested in connection with that transaction. If any change in control had occurred on January 28, 2023 (and assuming
none of the NEOs was materially affiliated with the person, group or entity effecting the change in control transaction), the
following table shows the number of shares that would have vested and the value of those shares for each NEO based on the closing
market value of the Company’s stock of $10.12 on the last trading day of the fiscal year, January 27, 2023.
Name | |
Shares
That Would Have Vested
Upon a Change
in Control
# | |
Vesting
Value ($) |
John
P. D. Cato | |
| 450,196 |
| |
| 4,555,984 |
|
Charles
D. Knight | |
| 14,076 |
| |
| 142,449 |
|
Gordon
D. Smith | |
| 47,221 |
| |
| 477,877 |
|
Chief Executive Officer Pay Ratio
As required by Section 953(b) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, and Item 402(u) of the Securities and Exchange Commission’s Regulation S-K,
we are providing the following information about the relationship of the annual total compensation of our employees and the annual
total compensation of Mr. John P. D. Cato, our Chief Executive Officer. The pay ratio included below is a reasonable estimate
calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described below.
Because the SEC rules for identifying the median-compensated employee and calculating the pay ratio based on that employee’s
annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable
estimates and assumptions that reflect their compensation practices, the amount of compensation of the median-compensated employee
and the pay ratio reported by other companies may not be comparable to our estimates reported below, as other companies may have
different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions
in calculating their own pay ratios.
For our fiscal year ended January 28, 2023
(“fiscal 2022”) the total compensation of the Company’s Chief Executive Officer of $3,190,140, as presented
in the Summary Compensation Table, was approximately 203 times the total compensation of the Company’s median employee of
$15,710 calculated in the same manner. The median employee is a part-time employee and was identified by reviewing the total cash
compensation for all employees, excluding the Company’s Chief Executive Officer, who were employed by the Company on December
31, 2022. All of the Company’s employees were included, whether employed on a full-time or part-time basis. Adjustments
were made to annualize the compensation of employees who were not employed by the Company for the entire year. After identifying
the median employee based on total cash compensation, the 2022 annual total compensation was calculated for the median employee
using the same methodology used for the Company’s Chief Executive Officer as presented in the Summary Compensation Table.
As additional information, the total compensation
of the Company’s Chief Executive Officer was approximately 96 times the total compensation of the Company’s median
full-time employee of $33,200 calculated in the same manner as the Chief Executive Officer’s total compensation. The median
full-time employee is a store manager and was identified by reviewing the total cash compensation for all full-time employees,
excluding the Company’s Chief Executive Officer, who were employed on a full-time basis for the entire year.
32
Pay Versus Performance |
|
In accordance with rules
adopted by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we are providing the following
disclosure regarding executive “Compensation Actually Paid” (“CAP”), as calculated under applicable SEC
rules, for our principal executive officer (“PEO”) and our other named executive officers (“non-PEO NEOs”)
and certain financial performance measures for fiscal years 2022, 2021 and 2020. |
|
In determining the CAP
to our PEO and the CAP to our non-PEO NEOs, we are required to make various adjustments to the total compensation amounts that
have been reported in the Summary Compensation Table (“SCT”), as the SEC’s valuation methods for this section
differ from those required in the SCT. Information regarding the methodology for calculating CAP to our PEO and the CAP to our
non-PEO NEOs, including details regarding the amounts that were deducted from, and added to, the SCT totals to arrive at the values
presented for CAP, are provided in the footnotes to the table. Note that for non-PEO NEOs, compensation is reported as an average.
As identified in the footnotes to the table, the determination of CAP includes adjustments to reflect, among other things, period-to-period
changes in the value of unvested equity awards. Accordingly, such amounts do not reflect the value of compensation actually delivered
to, or received by the PEO or the Non-PEO NEOs, in the period reported in the table, as the amount of actual compensation received
by any executive officers depends on whether the executive officer satisfies the conditions for vesting of any such award and
the value of our common stock on the date such awards vest. |
|
The Compensation Discussion & Analysis (“CD&A”) describes the compensation setting process for our named executive officers, which is
done independently from the disclosure requirements shown in this section. Accordingly, the Compensation Committee did not consider
the pay versus performance disclosure below in making its pay decisions for any of the years shown. |
|
Pay Versus Performance Table |
|
| |
| |
| |
| |
| |
Value of Initial Fixed $100 Investment Based on: | |
|
Fiscal Year (1) | |
Summary Compensation Table Total for PEO ($) | |
Compensation Actually Paid to PEO ($) (2) | |
Average Summary Compensation Table Total for Non-PEO NEOs ($) | |
Average Compensation Actually Paid to Non-PEO NEOs ($) (3) | |
Total Shareholder Return ($) | |
Peer Group Total Shareholder Return ($) (4) | |
Net Income (Loss) ($) (in thousands) | |
Pre-tax, Pre-bonus Income (Loss) ($) (in thousands) (5) |
2022 | |
| 3,190,140 | | |
|
| 2,408,943 | | |
| 495,217 | | |
| 418,992 | | |
| 110.71 | | |
| 156.59 | | |
| 29 | | |
| 3,251 | |
2021 | |
| 5,466,540 | | |
|
| 6,360,497 | | |
| 714,357 | | |
| 820,325 | | |
| 172.94 | | |
| 143.36 | | |
| 36,844 | | |
| 80,312 | |
2020 | |
| 2,814,652 | | |
|
| 2,338,868 | | |
| 539,985 | | |
| 482,439 | | |
| 115.74 | | |
| 129.51 | | |
| (47,483 | ) | |
| (72,556 | ) |
|
| | |
| | | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
(1) |
During 2022, our PEO was
John P. D. Cato, and our remaining NEOs were Charles D. Knight, Gordon D. Smith and John R. Howe. Mr. Howe was a NEO until
his retirement on May 1, 2022. |
|
During 2021, our PEO was John P. D.
Cato, and our remaining NEOs were John R. Howe, Gordon D. Smith and Charles D. Knight. Mr. Knight joined the Company on January
17, 2022. |
|
During 2020, our PEO was John P. D.
Cato, and our remaining NEOs were John R. Howe, Gordon D. Smith and M. Tim Greer. Mr. Greer was a NEO until his retirement
on May 20, 2020. |
33
(2) |
The
following table sets forth the adjustments made to arrive at CAP to our PEO during each of the years presented: |
|
|
|
Adjustments
to determine Compensation “Actually Paid” for PEO | |
2022 | |
2021 | |
2020 |
|
Deduction
for Amounts Reported under the “Stock Awards” Column in the SCT | |
| (1,508,226 | ) | |
| (1,883,682 | ) | |
| (1,167,561 | ) |
|
Increase
for Fair Value of Awards Granted during year that Remain Unvested as of Year end | |
| 1,112,481 | | |
| 2,256,785 | | |
| 1,194,885 | |
|
Increase/Deduction
for Change in Fair Value from Prior Year-end to current Year-end of Awards Granted Prior to year that were Outstanding and
Unvested as of Year-end | |
| (662,872 | ) | |
| 667,952 | | |
| (490,775 | ) |
|
Increase/Deduction
for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year | |
| 277,420 | | |
| (147,098 | ) | |
| (12,333 | ) |
|
Total
Adjustments | |
| (781,197 | ) | |
| 893,957 | | |
| (475,784 | ) |
|
| |
| | | |
| | | |
| | |
(3) |
The
following table sets forth the adjustments made to arrive at CAP to our Non-PEO NEOs during each of the years presented: |
|
|
|
Adjustments
to determine Compensation “Actually Paid” for Non-PEO NEOs | |
2022 | |
2021 | |
2020 |
|
Deduction
for Amounts Reported under the “Stock Awards” Column in the SCT | |
| (172,063 | ) | |
| (238,063 | ) | |
| (141,230 | ) |
|
Increase
for Fair Value of Awards Granted during year that Remain Unvested as of Year end | |
| 126,915 | | |
| 285,217 | | |
| 144,535 | |
|
Increase/Deduction
for Change in Fair Value from Prior Year-end to current Year-end of Awards Granted Prior to year that were Outstanding and
Unvested as of Year-end | |
| (75,622 | ) | |
| 84,417 | | |
| (59,365 | ) |
|
Increase/Deduction
for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year | |
| 44,545 | | |
| (25,603 | ) | |
| (1,485 | ) |
|
Total
Adjustments | |
| (76,225 | ) | |
| 105,968 | | |
| (57,545 | ) |
(4) |
Total Shareholder Return
(“TSR”) is determined based on the value of an initial fixed investment of $100. The TSR peer group utilizes the
Dow Jones US, Apparel Index, which we use in the stock performance graph required by Item 201(e) of Regulation S-K included
in the Company’s Form 10-K for the years reflected in the table above. |
(5) |
Pre-tax, Pre-Bonus Income (Loss) is defined as Net income before
accrued incentive bonus, benefits, and income tax expense (benefit). |
Financial Performance Measures Used to Link Performance to Executive
Compensation
The following financial
performance measures are the only financial performance measures the Company used to link CAP (as calculated in accordance with
SEC rules) to Company performance.
|
● |
Pre-Tax, Pre-bonus Income (Loss) |
|
|
|
|
● |
Net Income |
Pre-tax, Pre-bonus Income (Loss) is discussed
in detail in “2022 Executive Compensation—Compensation Discussion and Analysis” in this proxy statement, including
the use of this measure in annual cash incentive compensation awards.
34
Graphical Representations of the Relationship of Executive Compensation
to Certain Performance Measures:
The following charts
present the relationship for the periods presented in the foregoing table between the CAP for the PEO and the average CAP for
the Non-PEO NEOs and each of the Company’s TSR, peer group TSR, net income and Pre-tax, Pre-bonus Income (Loss).
Relationship
Between CAP and TSR of the Company and Peer Group |
|
|
Relationship
Between CAP and Net Income
|
|
|
35
Relationship
between CAP and Pre-tax Pre-bonus Income (Loss)
|
|
|
36
FISCAL YEAR 2022 DIRECTOR COMPENSATION
| |
Fees Earned | |
Stock | |
| | |
| |
| |
or Paid in | |
Awards | |
All Other | |
| |
| |
Cash | |
($) | |
Compensation | |
Total |
Name | |
($) | |
(1),
(2) | |
($) | |
($) |
Dr. Pamela L. Davies | |
| 73,000 | | |
| 45,114 | | |
| — | | |
| 118,114 | |
Theresa J. Drew | |
| 79,000 | | |
| 45,114 | | |
| — | | |
| 124,114 | |
Thomas B. Henson | |
| 79,000 | | |
| 45,114 | | |
| — | | |
| 124,114 | |
Bryan F. Kennedy, III | |
| 84,667 | | |
| 45,114 | | |
| — | | |
| 129,781 | |
Thomas E. Meckley | |
| 88,833 | | |
| 45,114 | | |
| — | | |
| 133,947 | |
Bailey W. Patrick | |
| 73,000 | | |
| 45,114 | | |
| — | | |
| 118,114 | |
D. Harding Stowe | |
| 78,667 | | |
| 45,114 | | |
| — | | |
| 123,781 | |
(1) |
All stock awards shown are stock grants of Class
A Stock. |
(2) |
The amount represents the fair market value of 3,519 shares, as computed
in accordance with FASB ASC Topic 718, of the Company’s stock granted on June 1, 2022, as traded on the New York Stock
Exchange on June 1, 2022, and was determined by averaging the high of the day ($13.08) and the low of the day ($12.56). |
Directors who are not employees of the Company
receive a fee for their services of $66,000 per year. Each non-employee director is paid $1,500 for attending each Board of Directors
meeting and each committee meeting scheduled other than in conjunction with a regularly scheduled Board of Directors meeting.
The Committee Chairs of the Corporate Governance and Nominating Committee and the Compensation Committee receive an additional
$5,000 per year. The Committee Chair of the Audit Committee receives an additional $10,000 per year.
The Compensation Committee approved stock
awards valued at $45,000. The number of shares granted on June 1, 2022 is determined using the rolling average 90-day price set
within the 30 days prior to the Compensation Committee meeting. This methodology generally mitigates the impact of short-term
fluctuations in stock price that could otherwise significantly impact the share calculation. The 90-day average price was $17.05
and was calculated using the stock prices between October 13, 2021 and February 22, 2022. The resulting 3,519 shares per Director
were not subject to vesting requirements or any other restrictions. The Compensation Committee intends to grant similar stock
awards in future years. All subsequent grants will be effective June 1 each year.
Directors are reimbursed for reasonable
expenses incurred in attending director meetings and committee meetings.
37
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review, Approval or Ratification of Related Person Transactions
The Company reviews all relationships and
transactions in which the Company and its directors, executive officers, nominees or beneficial owners of more than 5% of any
class of the Company’s stock or their immediate family members have a direct or indirect material interest. The Company’s
internal controls and related written policy/policies require the Chief Financial Officer to review and approve all such related
person transactions. Thereafter, the Company’s Audit Committee, in accordance with its charter, reviews all related person
transactions required to be disclosed.
Related Person Transactions
During fiscal 2022, there were no transactions
between the Company and any related person that met the requirements for disclosure.
38
DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires
the Company’s directors and executive officers, and persons who beneficially own more than 10% of a registered class of
the Company’s equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of common shares and other equity securities of the Company. Executive officers, directors and greater
than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, during the fiscal year ended January 28, 2023, all Section 16(a) filing requirements applicable
to its executive officers and directors and any greater than 10% beneficial owners were met.
39
PROPOSAL 4 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee has selected PricewaterhouseCoopers
LLP as independent auditor to examine the Company’s financial statements for the fiscal year ending February 3, 2024. This
selection is being presented to the shareholders for their ratification at the Annual Meeting. PricewaterhouseCoopers LLP audited
the Company’s financial statements for the fiscal years ended January 31, 2004 through January 28, 2023. A representative
of PricewaterhouseCoopers LLP is expected to attend the meeting, respond to appropriate questions from shareholders present at
the meeting and, if such representative desires, to make a statement. The affirmative vote of a majority of the votes present
or represented at the Annual Meeting and entitled to vote by the holders of Class A Stock and Class B Stock, voting as a single
class, is required to approve the proposal.
The directors recommend that shareholders
vote FOR the proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent auditor.
Audit Committee Report
Management is responsible for the Company’s
internal controls and the financial reporting process. PricewaterhouseCoopers LLP, the Company’s independent registered
public accounting firm, is responsible for performing an independent audit of the Company’s consolidated financial statements
in accordance with standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing
a report thereon. The Audit Committee, among other things, is responsible for monitoring and overseeing these processes and is
directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered
public accounting firm.
In recommending to the Board of Directors
the reappointment of PricewaterhouseCoopers LLP, the Audit Committee took into consideration a number of factors, including the
length of time PricewaterhouseCoopers LLP has been engaged, the quality of the Audit Committee’s discussions with representatives
of PricewaterhouseCoopers LLP, reports of the PCAOB on PricewaterhouseCoopers LLP, PricewaterhouseCoopers LLP fees and the performance
of the lead audit and consulting partners. Under SEC rules and PricewaterhouseCoopers LLP practice, the lead engagement audit
partner is required to change every five years. A new lead audit partner has been appointed for the fiscal year ending February
3, 2024 after approval by the Audit Committee.
The primary purpose of the Audit Committee
is to assist the Board of Directors in fulfilling its oversight responsibility for safeguarding the Company’s assets and
for the integrity of the accounting and reporting practices of the Company and such other duties as directed by the Board. As
set forth in the Audit Committee Charter, the Audit Committee is not responsible for conducting audits or preparing or determining
whether the Company’s financial statements are accurate or complete or conform to accounting principles generally accepted
in the United States of America. The Company’s independent registered public accounting firm is responsible for expressing
an opinion on the conformity of audited financial statements to accounting principles generally accepted in the United States
of America.
In the performance of its oversight function
and in accordance with its responsibilities under its charter, the Audit Committee has reviewed and discussed the audited financial
statements for the year ended January 28, 2023 with management and the independent registered public accounting firm. The Audit
Committee also discussed with management and the independent registered public accounting firm the adequacy of the Company’s
internal controls, and discussed with management the effectiveness of the Company’s disclosure controls and procedures used
for periodic public reporting. The Audit Committee reviewed with the independent registered public accounting firm their audit
plans, audit scope and identification of audit risks. The Audit Committee has discussed with the independent registered public
accounting firm the communications required by the PCAOB and the Securities and Exchange Commission. In addition, the Audit Committee
has received from the independent registered public accounting firm the written disclosures and letter required by the Ethics
and Independence Rule 3526 titled “Communication with Audit Committees Concerning Independence” and discussed with
the independent registered public accounting firm their independence from the Company and its management. The Audit Committee
also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company
is compatible with the auditor’s independence.
40
Based on the reviews and discussions mentioned
above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended January
28, 2023 be included in the Company’s Annual Report to shareholders and Annual Report on Form 10-K to the Securities and
Exchange Commission.
Audit Committee Members:
Thomas E. Meckley (Chair)
Theresa J. Drew
Thomas B. Henson
Bryan F. Kennedy, III
Audit Fees
PricewaterhouseCoopers LLP audited the Company’s
consolidated financial statements for the fiscal years ended January 28, 2023 and January 29, 2022. The aggregate fees paid to
PricewaterhouseCoopers LLP for all professional services rendered for fiscal years ended January 28, 2023 and January 29, 2022
were:
| |
Fiscal Year Ended | | |
Fiscal Year Ended |
| |
January 28, 2023 | | |
January 29, 2022 |
Audit Fees (1) | |
|
$ | 1,065,000 |
| | |
|
$ | 980,000 | |
Audit-Related Fees (2) | |
|
| 0 |
| | |
|
| 5,000 | |
Tax Fees (3) | |
|
| 72,000 |
| | |
|
| 76,800 | |
All Other Fees (4) | |
|
| 3,000 |
| | |
|
| 2,700 | |
| |
|
$ | 1,140,000 |
| | |
|
$ | 1,064,500 | |
(1) |
“Audit Fees” represent fees
for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements included
in our Annual Reports on Form 10-K, the review of financial statements included in our Quarterly Reports on Form 10-Q and
any services normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings or engagements. |
(2) |
“Audit-Related Fees” represent fees for assurance
and related services rendered by PricewaterhouseCoopers LLP that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under “Audit Fees.” |
(3) |
“Tax Fees” represent fees for professional services
rendered by PricewaterhouseCoopers LLP for tax compliance related to the filing of the Company’s federal income tax
return, assistance with a federal income tax audit, tax advice and tax planning related to foreign, state and local tax. |
(4) |
“All Other Fees” represent fees paid to PricewaterhouseCoopers
LLP for Generally Accepted Accounting Practices software. |
Policy on Audit Committee Pre-Approval
of Audit and Permissible Non-Audit Services by the Independent Registered Public Accounting Firm
The Audit Committee
is responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm.
As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the
independent registered public accounting firm in order to assure that they do not impair the auditor’s independence from
the Company. Accordingly, the Audit Committee has adopted procedures and conditions under which services proposed to be performed
by the independent registered public accounting firm must be pre-approved.
41
Pursuant to this policy, the Audit Committee
will consider annually and approve the terms of the audit engagement. Any proposed engagement relating to permissible non-audit
services must be presented to the Audit Committee and pre-approved on a case-by-case basis. In addition, particular categories
of permissible non-audit services that are recurring may be pre-approved by the Audit Committee subject to pre-set fee limits.
If a category of services is so approved, the Audit Committee will be regularly updated regarding the status of those services
and the fees incurred. The Audit Committee reviews requests for the provision of audit and non-audit services by the Company’s
independent registered public accounting firm and determines if they should be approved. Such requests could be approved either
at a meeting of the Audit Committee or upon approval of the Chair of the Audit Committee, or another member of the Audit Committee
designated by the Chair. If the Chair or his designee approves a permissible non-audit service, that decision is required to be
presented at the next meeting of the Audit Committee. Prior to approving any services, the Audit Committee considers whether the
provision of such services is consistent with the SEC’s rules on auditor independence and is compatible with maintaining
the auditor’s independence. All of the Company’s Audit-Related Fees, Tax Fees and All Other Fees were pre-approved
by the Audit Committee.
42
SHAREHOLDER PROPOSALS
Shareholders who intend to present proposals
for consideration at next year’s Annual Meeting are advised that, pursuant to rules of the Securities and Exchange Commission,
any such proposal must be received by the Secretary of the Company at the Company’s principal executive offices, 8100 Denmark
Road, Charlotte, North Carolina 28273-5975 no later than the close of business on December 18, 2023 if such proposal is to be
considered for inclusion in the proxy statement and proxy appointment form relating to that meeting. Such proposals must also
comply with the proxy rules of the Securities and Exchange Commission applicable to shareholder proposals intended for inclusion
in the Company’s proxy statement. In addition, the Company may direct the persons named in the Company’s Annual Meeting
proxy to exercise discretionary voting authority to vote against any matter, without any disclosure of such matter in the Company’s
proxy statement, unless a shareholder provides notice of the matter pursuant to the procedures specified in Article II, Section
4 of the Company’s Bylaws (no later than February 17, 2024 in the case of the Company’s 2024 Annual Meeting). Such
notice must be received by the Secretary of the Company at the Company’s principal executive offices as described above
in this paragraph not later than ninety days prior to the anniversary date of the immediately preceding Annual Meeting. The shareholder’s
notice must set forth, as to each matter of business proposed for consideration, a brief description of the business desired to
be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, the name and address,
as they appear on the Company’s stock transfer records, of the proposing shareholder, the class and number of shares of
the Company’s stock beneficially owned by the proposing shareholder, and any material interest of the proposing shareholder
in the proposed business.
43
OTHER MATTERS
The Board of Directors of the Company knows
of no matters that will be presented for consideration at the meeting other than those set forth in this Proxy Statement. However,
if any other matters are properly presented for action, it is the intention of the persons named in the proxy to vote on them
in accordance with their best judgment.
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For the Board of Directors |
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THE CATO CORPORATION |
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Lowell E. Pugh II |
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Secretary |
April 17, 2023 |
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44
ANNUAL MEETING OF SHAREHOLDERS OF
THE CATO CORPORATION
May 18, 2023
CLASS A COMMON STOCK
PROXY VOTING INSTRUCTIONS
INTERNET
- Access “www.voteproxy.com” and follow the on-screen instructions or scan the QR code with your smartphone.
Have your proxy card available when you access the web page.
TELEPHONE
- Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from
any touch-tone telephone and follow the instructions. Have your proxy card available when you call.
Vote online/phone until 11:59 PM EST the day before the meeting.
MAIL
- Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON
- You may vote your shares in person by attending the Annual Meeting.
GO GREEN
- e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible
documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access.
COMPANY NUMBER |
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ACCOUNT NUMBER |
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NOTICE OF INTERNET
AVAILABILITY OF PROXY MATERIAL: |
The Notice of Meeting, proxy statement and proxy card
are available at
www.catofashions.com/info/investor-relations |
Please
detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet.
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20330403000000000000 |
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051823 |
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND
“FOR” PROPOSAL 2, “THREE YEARS” ON PROPOSAL 3 AND “FOR” PROPOSAL 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x |
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1. ELECTION OF DIRECTORS: |
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2. |
To approve, on an advisory basis, the Company’s executive compensation; |
FOR |
AGAINST |
ABSTAIN |
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NOMINEES: |
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FOR ALL NOMINEES |
Dr. Pamela L. Davies
Thomas B. Henson
Bryan F. Kennedy |
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3. |
Advisory vote on frequency of shareholder vote on “say on pay”; |
THREE
YEARS |
TWO
YEARS |
ONE
YEAR |
ABSTAIN |
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WITHHOLD AUTHORITY
FOR ALL NOMINEES |
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FOR ALL EXCEPT
(See instructions below) |
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AGAINST |
ABSTAIN |
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4. |
To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending February 3, 2024. |
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To consider and act upon such other business as may properly come before the Annual Meeting or any adjournment thereof. |
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INSTRUCTIONS: To
withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each
nominee you wish to withhold, as shown here: |
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSAL 2, “THREE YEARS” ON PROPOSAL 3, “FOR” PROPOSAL 4 AND “FOR” ELECTION OF ALL NOMINEES FOR DIRECTOR. |
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THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT AND REVOKES ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED. |
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method. |
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Signature of Shareholder |
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Date: |
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Signature of Shareholder |
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Date: |
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Note: |
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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CLASS A COMMON STOCK
THE CATO CORPORATION
THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John P. D. Cato and Lowell E. Pugh II, and each of them, with
full power of substitution, attorneys and proxies to appear and vote, as indicated on the reverse side of
this card, all of the shares of Class A Common Stock of The Cato Corporation that the
undersigned would be entitled to vote at the Annual Meeting of Shareholders of The Cato Corporation
to be held on May 18, 2023 and at any and all adjournments thereof. The Board recommends a
vote FOR the following items:
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY SO AS TO INSURE
A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY
SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL
EXPENSE.
(Continued and to be signed on the reverse side.)
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1.1 |
14475 |
|
ANNUAL MEETING
OF SHAREHOLDERS OF
THE CATO CORPORATION
May 18, 2023
CLASS A COMMON STOCK
GO
GREEN
|
e-Consent makes
it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online,
while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. |
|
NOTICE OF INTERNET AVAILABILITY
OF PROXY MATERIAL:
The Notice of Meeting, proxy statement
and proxy card
are available at www.catofashions.com/info/investor-relations
Please sign, date
and mail
your vote authorization
form in the envelope
provided as soon as
possible.
Please detach along perforated line and mail in the envelope provided.
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20330403000000000000 |
5 |
051823 |
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND
“FOR” PROPOSAL 2, “THREE YEARS” ON PROPOSAL 3 AND “FOR” PROPOSAL 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x |
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1. ELECTION OF DIRECTORS: |
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2. |
To approve, on an advisory basis, the Company’s executive compensation; |
FOR |
AGAINST |
ABSTAIN |
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FOR ALL NOMINEES |
NOMINEES:
Dr. Pamela L. Davies
Thomas B. Henson
Bryan F. Kennedy |
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3. |
Advisory vote on frequency of shareholder vote on “say on pay”; |
THREE
YEARS |
TWO
YEARS |
ONE
YEAR |
ABSTAIN |
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WITHHOLD AUTHORITY
FOR ALL NOMINEES |
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FOR ALL EXCEPT
(See instructions below) |
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FOR |
AGAINST |
ABSTAIN |
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4. |
To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending February 3, 2024. |
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5. |
To consider and act upon such other business as may properly come before the Annual Meeting or any adjournment thereof. |
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INSTRUCTIONS: To
withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each
nominee you wish to withhold, as shown here: |
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” PROPOSAL 2, “THREE YEARS” ON PROPOSAL 3, “FOR” PROPOSAL 4 AND “FOR” ELECTION OF ALL NOMINEES FOR DIRECTOR. |
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THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT AND REVOKES ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED. |
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method. |
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Signature of Shareholder |
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Date: |
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Signature of Shareholder |
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Date: |
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Note: |
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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