RUTH Ruths Hospitality Group Inc

PROXY STATEMENT

The Board of Directors of Ruth’s Hospitality Group, Inc. (the “Company” or “Ruth’s”) is soliciting proxies from its shareholders to be used at the annual meeting of shareholders to be held on Tuesday, June 16, 2020, beginning at 1:00 P.M., at Ruth’s Chris Steak House, 610 North Orlando Avenue, Highway 17-92, Winter Park, Florida 32789, and at any postponements or adjournments thereof. This proxy statement contains information related to the annual meeting. This proxy statement, accompanying form of proxy and the Company’s annual report are first being sent to shareholders on or about April 24, 2020.

PROXY SUMMARY

This summary highlights information collected elsewhere in this proxy statement or in our corporate governance documents published on our website: www.rhgi.com. This summary does not contain all of the information you should consider. We encourage you to read this proxy statement in its entirety before voting.

Company Overview

Ruth’s Hospitality Group, Inc., headquartered in Winter Park, Florida, is the largest fine dining steakhouse company in the U.S. as measured by the total number of Company-owned and franchisee-owned restaurants, with over 150 Ruth’s Chris Steak House locations worldwide specializing in USDA Prime grade steaks served in Ruth’s Chris’ signature fashion – “sizzling.”

At the time we are filing this proxy statement, the Company is in the midst of navigating the unprecedented impact of the novel coronavirus (“COVID-19”). The health and safety of our team members and guests remains our first priority. We have been following the guidance of the Centers for Disease Control and Prevention and our local health departments and will continue to do so through this evolving situation. Our Company has a 55-year history of rising to the occasion during challenging times. Our management team and Board of Directors have taken significant measures to enhance our financial flexibility and begin planning for recovery. We will continue to manage through the impacts of this pandemic on our business, financial results, employees, and shareholders.

Director Nominees

Our Board of Directors (the “Board”) recommends that you vote “for” all of the director nominees listed below. Set forth below is summary information about each director nominee, with more detailed information about the qualifications and experience of each director nominee contained under Proposal 1 – Election of Directors beginning on page 7 of this proxy statement.

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						Committee Membership
Nominee and Principal Occupation		Age		Director Since		A		C		NG
Michael P. O’Donnell Executive Chairman of Ruth’s Hospitality Group, Inc.		64		2008
Robin P. Selati Senior Advisor of Madison Dearborn Partners, LLC		54		1999						○
Giannella Alvarez Former Chief Executive Officer of Beanitos, Inc.		60		2016		○				○
Mary L. Baglivo Chief Executive Officer of The Baglivo Group		62		2017				○		○
Carla R. Cooper Former President & Chief Executive Officer of Daymon Worldwide		68		2003				○
Cheryl J. Henry President & Chief Executive Officer of Ruth’s Hospitality Group, Inc.		46		2018
Stephen M. King Former Chief Executive Officer of Dave & Buster’s Entertainment, Inc.		62		2018
Marie L. Perry Former Chief Financial Officer, EVP & CAO of Jamba, Inc.		54		2018		○

A Audit         C Compensation         NG Nominating & Corporate Governance          Chair          ○ Member

Our Business and Strategy

We develop and operate fine dining restaurants under the trade name Ruth’s Chris Steak House. As of December 29, 2019, there were 159 Ruth’s Chris Steak House restaurants, making us one of the largest upscale steakhouse companies in the world. The Ruth’s Chris brand reflects our 55-year commitment to the core values instilled by our founder, Ruth Fertel, of caring for guests by delivering the highest quality food, beverages and genuine hospitality in a warm and inviting atmosphere.

The restaurant industry in which we compete is a mature segment, and we have a long operating history in upscale fine dining. The restaurant business is highly cyclical and results can be affected by consumer spending, commodity prices and real estate costs. Our approach is to maintain a strategy focused on multi-year, long-term results.

Our strategy is to deliver a total return to stockholders by maintaining a healthy core business, growing with a disciplined investment approach, and returning excess capital to stockholders. We strive to maintain a healthy core business by growing sales through traffic, managing operating margins and leveraging infrastructure. We are committed to disciplined growth in markets with attractive sales attributes and solid financial returns. We believe that our franchisee program is a point of competitive differentiation and we looks to grow our franchisee-owned restaurant locations as well. We also will consider acquiring franchisee-owned restaurants at terms that we believe are beneficial to both the Company and the franchisee.

Corporate Governance Highlights

We have a diverse and refreshed Board of Directors.

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Our Compensation Program

The objective of our executive compensation program is to maintain a close link between pay and performance, both long-term and short-term. We believe that the compensation of our executives should be closely tied to the performance and growth of the Company, so their interests are aligned with the long-term interests of our shareholders.

Executive Compensation Highlights

2019 marked the end to another year of strong results at Ruth’s Chris Steak House despite double digit beef inflation. We grew our same stores sales, our total revenues and our EPS, marking our 10th consecutive year of sales and earnings growth. Notwithstanding these results, we did not achieve the target EBITDA level established under our Bonus Plan or the target EBITDA and EPS levels established for our performance-based equity awards, and therefore the compensation paid to our Named Executive Officers for 2019 performance decreased substantially as a result.

In addition, at the time we are filing this proxy statement, we (along with all of the hospitality industry) are navigating a dynamic and uncertain environment resulting from the novel coronavirus (COVID-19) pandemic. The health and safety of our guests and team members is our first priority and we have taken measures to keep our restaurants safe and to continue to provide health insurance for our team members. The Named Executive Officers have elected to reduce their 2020 base salaries effective March 30, 2020. Non-employee directors of the Company have also elected to suspend payment of the annual cash retainer fees for service on the board. As described below in Compensation Discussion and analysis, compensation decisions related to 2019 were made prior to the rapidly unfolding developments of COVID-19.

Shareholder Engagement

At the 2019 annual meeting, 59% of the votes cast supported the advisory proposal on executive compensation. This level of support for our executive compensation program was disappointing. Accordingly, at the direction of the Compensation Committee, we conducted a formal stockholder outreach initiative to better understand

 

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shareholders’ key concerns with our executive compensation program. The goal was to better understand the concerns of our shareholders with respect to executive compensation and corporate governance. We discussed how our executive compensation programs directly tie into the history of the Company, our succession planning process and our current business strategy. We solicited stockholder views on the compensation philosophy and program design.

Additional information about our shareholder engagement efforts and how we have used the insight gained from discussions with our shareholders can be found on page 22 of this proxy statement. The Company and the Board of Directors are committed to engaging with our shareholders and will continue to seek opportunities for dialogue with our shareholders on executive compensation and corporate governance matters.

Executive Compensation Best Practices

Our key executive compensation practices are summarized below. We believe these practices promote alignment with the interests of our shareholders and are consistent with market best practices.

 

WHAT WE DO:   ✓  Review and consider stockholder feedback in structuring executive compensation.   ✓  Grant annual restricted stock award based on equal parts performance (considering prior year actual performance) and retention/tenure.   ✓  Apply multi-year vesting requirements to all equity awards to facilitate retention and ensure performance alignment, generally these are 2-6 years post-grant.   ✓  Retain an independent compensation consultant to advise the Compensation Committee.   ✓  Review external market data when making compensation decisions.   ✓  Prohibit hedging.   ✓  Prudently exercise discretion to be responsive to the cyclical nature of our business and advance our goal of creating value for our shareholders.   ✓  Generally set our total compensation target opportunities at the median level for our market.   ✓  Maintain stock ownership guidelines for all Named Executive Officers and Directors. Ensure guidelines are achieved.   ✓  Annual “Say on Pay” vote.		WHAT WE DON’T DO:   û   No automatic, annual increase in executive salaries.   û   No exchange of underwater options for cash.   û   No option repricing without shareholder approval.   û   No gross-ups.   û   No short-selling, trading in derivatives or engaging in hedging transactions by executives or directors.   û   No excessive perquisites.   û   No high percentage of fixed compensation.   û   No guaranteed minimum payouts or uncapped award opportunities.   û   No compensation or incentives that encourage unnecessary or excessive risk taking.

 

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Our Audit Committee has appointed KPMG LLP as our independent registered public accounting firm for fiscal year 2020 and has further directed that our Board submit the selection of KPMG LLP for ratification by the shareholders at the annual meeting. During fiscal year 2019, KPMG LLP served as our independent registered public accounting firm and also provided certain audit-related and tax services as described on page 45. The stockholder vote is not binding on our Audit Committee. If the appointment of KPMG LLP is not ratified, our Audit Committee will evaluate the basis for the shareholders’ vote when determining whether to continue the firm’s engagement, but may ultimately determine to continue the engagement of the firm or another audit firm without re-submitting the matter to the shareholders. Even if the appointment of KPMG LLP is ratified, our Audit Committee may, in its sole discretion, terminate the engagement of the firm and direct the appointment of another independent auditor at any time during the year if it determines that such an appointment would be in the best interests of the Company and our shareholders.

Representatives of KPMG LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement.

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CORPORATE GOVERNANCE MATTERS

PROPOSAL 1 ELECTION OF DIRECTORS
✓ Your Board of Directors recommends a vote FOR election of each of the eight Director nominees

Our Board currently is composed of eight directors, with each director serving until the next annual meeting or until his or her successor is elected. The eight candidates nominated by our Board for election as directors at the 2020 annual meeting of shareholders are also identified below.

All of the nominees have indicated to the Company that they will be available to serve as directors. If any nominee named herein for election as a director should, for any reason, become unavailable to serve prior to the annual meeting, our Board may, prior to the annual meeting, (i) reduce the size of our Board to eliminate the position for which that person was nominated, (ii) nominate a new candidate in place of such person or (iii) leave the position vacant to be filled at a later time. The information presented below for the nominees has been furnished to the Company by the nominees.

Board of Directors

Board Composition and Refreshment

Our Board is responsible for the oversight and continued success of our company, which was founded in 1965 by a single working mother, Ruth Fertel, and which is now led for the first time since Ruth Fertel by a female President and Chief Executive Officer. Our core values reflect our roots in the legacy of Ruth Fertel and include a commitment to attracting a broad range of skills and experiences to our Board, our executive team and our team members across the Company, all rooted in a commitment to providing the best steak house experience to our guests.

As a group, our director nominees have broad skills and experience. A majority of our directors have served as the chief executive officer of a public or private company. Over sixty percent of our directors are female. Our directors range in age from 46 to 69, with the average being 59 years of age. As a group, they possess a range of important skills including hospitality industry experience, corporate strategy, accounting and finance leadership, international operations and real estate experience.

Our Board has been meaningfully refreshed, with four of our six independent directors joining the board since 2016. We believe this reflects a good mix of new directors, who bring fresh perspectives, and tenured directors, who have contributed to developing our strategy over time and who possess an in-depth knowledge of our history and operations. A majority of non-management directors ensures robust debate and objectivity in the boardroom, while diversity of gender, age and ethnicity contributes to a diverse range of views.

Selection of Directors

Our Board seeks a diverse group of candidates who possess the background, skills, and expertise to make a significant contribution to our Board, the Company, and its shareholders. Desired qualities to be considered include:

 

•

high-level leadership experience in business or administrative activities and significant accomplishments

 

•

breadth of knowledge about issues affecting the Company

 

•

proven ability and willingness to contribute special competencies to Board activities

 

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Our Nominating and Corporate Governance Committee considers all nominees for election as directors of the Company, including all nominees recommended by shareholders, in accordance with the mandate contained in its charter. The Company has used a third-party search firm in the past to help identify, evaluate and conduct due diligence on potential director candidates. In evaluating candidates, the Committee reviews all candidates in the same manner, regardless of the source of the recommendation. The policy of our Nominating and Corporate Governance Committee is to consider individuals recommended by shareholders for nomination as a director in accordance with the procedures described below.

Director Biographies

The following summarizes information about each of the nominees and the continuing director as of the date of this proxy statement, including their business experience, public company director positions held currently or at any time during the last five years, involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that qualify our nominees and the continuing director to serve as directors of the Company. The nominees were evaluated and recommended by the Nominating and Corporate Governance Committee in accordance with their process for nominating directors.

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Communication with the Board of Directors

Our Board and management team value the opinions and feedback of our shareholders, and we engage with shareholders throughout the year on a variety of issues, including our corporate governance practices. Shareholders may send communications to the Company’s directors as a group or individually by writing to those individuals or the group: c/o the Corporate Secretary, 1030 W. Canton Avenue, Suite 100, Winter Park, Florida 32789. The Corporate Secretary will review all correspondence received and will forward all correspondence that is relevant to the duties and responsibilities of our Board or the business of the Company to the intended director(s). Examples of inappropriate communications include business solicitations, advertising and communications that are frivolous in nature, communications that relate to routine business matters (such as product inquiries, complaints or suggestions) or communications that raise grievances which are personal to the person submitting them. Upon request, any director may review any communication that is not forwarded to the directors pursuant to this policy.

Shareholder Nominations

Shareholders may recommend director candidates for our 2021 annual meeting for consideration by our Nominating and Corporate Governance Committee. Any such recommendations should include the nominee’s name, qualifications for Board membership, confirmation of the person’s willingness to serve and the information that would be required to be furnished if the stockholder was directly nominating such person for election to the Board (described below under “Procedure for Stockholder Nominations for Director”) and should be directed to the Corporate Secretary at the address of our principal executive offices set forth herein. The Nominating and Corporate Governance Committee recommends, and the Board selects, director candidates using the criteria and priorities established from time to time. The composition, skills and needs of the Board change over time and will be considered in establishing the desirable profile of candidates for any specific opening on the Board.

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A stockholder wishing to nominate their own candidate for election to our Board at our 2021 annual meeting must deliver timely notice of such stockholder’s intent to make such nomination in writing to the Corporate Secretary at our principal executive offices. To be timely, a stockholder’s notice must be delivered to or mailed and received at our principal executive offices no less than 90 nor more than 120 days prior to the date of the first anniversary of the previous year’s annual meeting. In the event the annual meeting is scheduled to be held on a date more than 30 days prior to or delayed by more than 60 days after such anniversary date, notice must be so received no later than the close of business on the 10^th day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting was made.

To be in proper form, a stockholder’s notice must set forth:

The Company may require any proposed nominee to furnish such other information as listed in the Bylaws of the Company or as may be reasonably required to determine the eligibility of such proposed nominee to serve as a director or to determine independence. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director, if elected.

The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Stockholder Nomination for Director.” In accordance with our bylaws, stockholder nominations which do not comply with the submission deadline are not required to be recognized by the presiding officer at the annual meeting. Timely nominations will be brought before the meeting but will not be part of the slate nominated by our Board of Directors and will not be included in our proxy materials.

Board Tenure Policy

As an alternative to term limits, the Nominating and Corporate Governance Committee reviews the performance of each director in determining whether to nominate directors for re-election. The Board does not believe it is appropriate to establish term limits for its members because such limits may deprive the Company and the Board of the contribution of directors who have been able to develop, over time, valuable experience and insights into the Company.

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Pursuant to the Company’s Corporate Governance Guidelines, adopted in October 2019, an individual who would be age 75 at the time of election shall not be nominated for initial election to the Board. However, the Nominating and Corporate Governance Committee may recommend and the Board may approve the nomination for re-election of a director who would be age 75 at the time of election, if, in light of all the circumstances, the Board determines, on the recommendation of the Nominating and Corporate Governance Committee, that it is in the best interests of the Company and its shareholders.

The Board’s Role and Responsibilities

Overview

The Company’s business is operated by its employees, managers and officers, under the direction of the Chief Executive Officer and the oversight of the Board. The Board is elected annually by the shareholders to oversee management and to assure that the long-term interests of the shareholders are being served. The Board selects the Chief Executive Officer, acts as an advisor and counselor to senior management and ultimately monitors the Company’s performance. Both the Board and management recognize that the long-term interests of the Company and its shareholders are advanced by the quality of the relationships we have with Our People – Guests, Team Members, Franchise Owners, Vendor Partners, Community and Investors.

Role in Risk Management

Our Board is actively involved in the oversight of risks that could affect the Company. Day to day risk management is the responsibility of management, which has implemented an Enterprise Risk Management process to identify, assess, manage and monitor risks that our Company faces.

Our Board receives regular reports directly from officers responsible for oversight of particular risks within the Company. With respect to cybersecurity, the Board receives regular updates regarding the Company’s efforts to prevent information security incidents, detect unusual activity, and to be prepared to respond appropriately should an incident occur.

Our Board believes that our compensation policies and practices are reasonable and properly align our employees’ interests and with those of our shareholders. Our Board believes that there are a number of factors that cause our compensation policies and practices to not have a material adverse effect on the Company. The fact that our executive officers and other employees have their incentive compensation tied to earnings, rather than revenues, encourages actions that improve the Company’s profitability over the short and long term. Furthermore, our tenure-based and performance-based restricted stock plan further aligns the interests of our executive officers and other employees with the long-term interests of our shareholders. In addition, our Compensation Committee, and its external advisor, continues to review our compensation policies and practices to ensure that such policies and practices do not encourage our executive officers and other employees to take action that is likely to create a material adverse effect on the Company.

Code of Conduct

The Company’s employees, officers and directors are required to abide by the Company’s Code of Conduct and Business Ethics (the “Code of Ethics”), which is intended to ensure that the Company’s business is conducted in a consistently legal and ethical manner. The Code of Ethics covers all areas of professional conduct, including, among other things, conflicts of interest, competition and fair dealing, corporate opportunities and the protection of

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confidential information, as well as strict compliance with all laws, regulations and rules. Any waiver or changes to the policies or procedures set forth in the Code of Ethics in the case of officers or directors may be granted only by our Board and will be disclosed on our website within four business days. The full text of the Code of Ethics is published on the Investor Relations section of our website at www.rhgi.com.

Management Succession Planning

The Board is responsible for approving and maintaining a succession plan for the Chief Executive Officer and senior executives. To assist the Board, the Chief Executive Officer annually provides an assessment of senior officers and their potential to succeed her. The Chief Executive Officer also provides the Board with an assessment of persons considered potential successors for certain other key senior management positions. The Nominating and Corporate Governance Committee oversees the development and periodic update of appropriate processes to address emergency Chief Executive Officer succession planning in the event of extraordinary circumstances.

Board Structure

Board Leadership Structure

Our Board does not have a policy on whether the same person should serve as both the Chief Executive Officer and Chairman of the Board or, if the roles are separate, whether the Chairman should be selected from the non-employee directors or should be an employee. Our Board believes that it should have the flexibility to periodically determine the leadership structure that it believes is best for the Company.

During 2018, we completed a multi-year succession planning process which culminated in the election of Cheryl J. Henry to the board of directors and to the position of President and Chief Executive Officer. As part of this planned executive transition, the Board elected Michael P. O’Donnell to the position of Executive Chairman of the Company. Robin P. Selati continues to serve as our Lead Independent Director.

Our Board believes that this structure is appropriate given Mr. O’Donnell’s past experience serving as our chief executive officer and as chairman of the board. Mr. O’Donnell has provided guidance to Ms. Henry in the past as her responsibilities have increased, and he will continue to be available as Executive Chairman. Mr. O’Donnell will also continue his leadership role with the Board of Directors as Chairman.

The Executive Chairman and the Chief Executive Officer consult periodically with the Lead Independent Director on Board matters and on issues facing the Company. In addition, the Lead Independent Director serves as the principal liaison between the Executive Chairman, the Chief Executive Officer and the independent directors and presides at executive sessions of non-management directors at regularly scheduled Board meetings. Our Board believes that these executive sessions are beneficial to the Company because it provides a forum where the independent directors can discuss issues without management present.

Director Independence

We believe that a substantial majority of the members of our Board should be independent non-employee directors. Six of our eight directors, namely Ms. Alavarez, Ms. Baglivo, Ms. Cooper, Mr. King, Ms. Perry, and Mr. Selati, qualify as “independent directors” in accordance with NASDAQ’s independence requirement. All of the members of our committees are independent in accordance with the applicable independence requirements for the committees on which they serve. All of the members of our Audit Committee have been determined to be financially literate and both Mr. King and Ms. Perry have been determined to be “Audit Committee Financial Experts.”

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Executive Sessions

At the conclusion of each regularly scheduled Board meeting, the Board will meet in executive session without management present other than Mr. O’Donnell and Ms.  Henry. In addition, the six independent members of the Board meet in executive session alone.

Board Committees

The Board has three standing committees: an Audit Committee, a Compensation Committee and a Nominating & Corporate Governance Committee. Each of the committees is governed by a written charter, copies of which are available on the Investor Relations section of our website at www.rhgi.com. Each committee member satisfies the applicable independence requirements of the NASDAQ Global Select Market for the committees on which they serve. In addition, each Audit Committee member satisfies the current financial literacy requirements and independence requirements of the SEC, applicable to audit committee members.

Below is a table indicating committee membership and a description of each committee of the Board. Each Committee is responsible for reporting regularly on its activities to the full Board.

		Committee Membership
Members		Audit		Compensation		Nominating & Corporate Governance
Robin P. Selati						○
Giannella Alvarez		○				○
Mary L. Baglivo				○		○
Carla R. Cooper				○
Stephen M. King
Marie L. Perry		○

Chair         ○  Member

 

Audit Committee
Current Members Stephen M. King (Chair) Giannella Alvarez Marie L. Perry   Meetings in 2019 9   Financial Experts Stephen M. King Marie L. Perry		Roles and Responsibilities   •  Monitor integrity of financial statements and financial reporting process, disclosure controls and procedures, internal control over financial reporting, systems of internal accounting and financial controls, independent auditors’ qualifications and independence, performance of the independent auditors and internal audit function, and compliance with legal and regulatory requirements   •  Select and oversee independent auditors; review and evaluate qualifications, performance and independence of independent auditors and lead partner; approve audit and non-audit services, including the overall scope of the audit; discuss annual audited financial and quarterly statements with management and the independent auditor, and other matters required to be communicated to our Audit Committee   •  Discuss earnings press releases, financial information and earnings guidance   •  Monitor complaints through the ethics hotline and other established reporting channels   •  Review related party transactions

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Board Practices, Policies and Processes

Board Meetings and Attendance

Our Board held six meetings during fiscal 2019. Directors are expected to attend Board meetings and committee meetings for which they serve, and to spend the time needed to meet as frequently as necessary to properly discharge their responsibilities. Each director attended at least 75% of the aggregate number of meetings of our Board and our Board committees on which he or she served during the period.

The Company has no policy requiring directors and director nominees to attend its annual meeting of shareholders; however, all directors and director nominees are encouraged to attend. Mr. O’Donnell, our Executive Chairman, represented our Board at the 2019 annual meeting of shareholders.

Board and Committee Performance Evaluation

Our Board expanded our evaluation process in 2018 to ensure it continued to be robust and vigorous. The Nominating and Corporate Governance Committee oversees the evaluation process and selected an external facilitator to assist with the process in both 2018 and 2019. This facilitator spoke privately with each Board member to identify areas where the Board and each Committee are most effective and to identify opportunities for further development or improvement. The results of these conversations were shared and discussed during executive session and changes were considered and implemented, as appropriate.

Directors Orientation and Continuing Education

The Company has an orientation process to acquaint new directors with the strategic plans, business, industry environment, history, current circumstances, key priorities and issues and the top managers of the Company. Periodic briefing sessions are also provided to members of the Board on subjects that would assist them on discharging their duties. Directors are also encouraged to participate in external continuing education programs, as they or the Board determines is desirable or appropriate from time to time.

Corporate Governance Guidelines

In October 2019, the Board adopted our Corporate Governance Guidelines, which are available at www.rhgi.com. These governance standards embody many of our long-standing practices, policies and procedures, which are the foundation of our commitment to best practices and enhancing stockholder value.

Transactions with Related Persons

During fiscal 2019, we were not a party to any transaction or series of similar transactions in which the amount involved exceeded or will exceed $120,000 and in which any current director, executive officer, holder of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing, had or will have a direct or indirect material interest.

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As part of our quarterly internal certification of our financial statements, officers of the Company must either certify that they are not aware of any related party transactions or they must disclose any such transactions.

The Audit Committee is responsible for review, approval or ratification of “related-person transactions” between Ruth’s Hospitality Group, Inc. or its subsidiaries and related persons, in accordance with the terms of our written Related Party Transactions Policy. Under SEC rules, a related person is a director, officer, nominee for director or 5% stockholder of the company since the beginning of the last fiscal year and their immediate family members. In the course of its review and approval or ratification of a related party transaction, the Audit Committee considers:

Any member of the Audit Committee who is a related party with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the committee that considers the transaction.

Director Compensation

Director Compensation for 2019

As previously noted, compensation decisions regarding 2019 were made prior to the rapidly unfolding developments of COVID-19, and the non-employee directors of the Company have since elected to suspend payment of the annual cash retainer fees for service on the Board.

With respect to 2019 director compensation, in 2019, we reviewed market information provided by the independent compensation consultant related to director compensation, including competitive survey data, peer group proxy information and general industry practices. The review showed that while the equity component of our director compensation was generally competitive (just below market median), the cash levels were below market. This resulted in overall director compensation falling between the 25^th and 50^th percentiles of the market for a typical director.

Based on these findings, in July 2019, the Board approved several changes to non-employee director compensation. The following table describes components of non-employee director compensation in effect prior to July 2019 and subsequent to that date:

 

Compensation Element		Prior Director Compensation		New Director Compensation
Annual Retainer		$55,000 annual fee for service on the Board of Directors		$65,000 annual fee for service on the Board of Directors
Lead Independent Director Additional Annual Retainer		$15,000		$25,000
Additional Annual Retainer for Committee Service		$7,500 for Audit Committee $4,500 for Compensation Committee $3,500 for Nominating & Corporate Governance Committee		$9,000 for Audit Committee $7,500 for Compensation Committee $5,000 for Nominating & Corporate Governance Committee

 

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Cash fees are paid quarterly. We reimburse all directors for reasonable out-of-pocket expenses that they incur in connection with their service as directors.

Directors who are also employees receive no compensation for serving as directors. Non-employee directors are not eligible to participate in the deferred compensation plan for executive officers but the Company has a deferred compensation plan for non-employee directors. Information regarding Mr. O’Donnell and Ms. Henry’s compensation is reflected in the tables beginning on page 36 under “Executive Compensation Tables .”

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Stock Ownership Guidelines for Non-Employee Directors

Each non-employee director is required to own common stock of the Company equal in value to two times his or her base annual retainer for service on our Board. For purposes of our non-employee director stock ownership guidelines, a director’s “annual retainer” excludes any retainer for serving as a member or as a chair of any Board committees and any meeting fees. Shares subject to stock options and unvested or unearned performance shares will not count toward the minimum ownership requirement. Restricted stock and restricted stock units (whether or not vested) will count toward the minimum ownership requirement. Non-employee directors have three years to achieve their targeted level. All non-employee directors satisfied our stock ownership guidelines as of the end of fiscal 2019.

Anti-Hedging and Pledging Policy

Our insider trading policy prohibits our directors, Named Executive Officers, other elected and appointed officers, designated employees who are subject to specific preclearance procedures under the Company’s insider trading policy and any other employees who receive performance-based compensation, from engaging in hedging, pledging or other specified transactions. Specifically, this policy prohibits such persons from: engaging in hedging or derivative transactions, such as prepaid variable forward contracts, equity swaps, collars and exchange funds or other similar or related transactions; trading in puts, calls, options, warrants or other similar derivative instruments involving Company securities; or engaging in short sales of Company securities.

None of the shares of Company stock held by our executive officers or directors are pledged or subject to any hedging transaction.

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EXECUTIVE COMPENSATION

PROPOSAL 2 ADVISORY VOTE ON EXECUTIVE COMPENSATION
✓ Your Board of Directors recommends a vote FOR the approval of named executive officer compensation

In accordance with Section 14A of the Exchange Act, we are asking our shareholders to approve, on an advisory basis, the compensation of the executive officers named in the Summary Compensation Table under “Executive Compensation” of this proxy statement, who we refer to as our “Named Executive Officers.” While this vote, known as a say-on-pay vote, is non-binding, Ruth’s values the opinions of our shareholders and will carefully consider the outcome of the vote when making future compensation decisions.

Shareholder Engagement

At our 2017 annual meeting of shareholders, a majority of our shareholders voted in favor of holding a non-binding say-on-pay vote on an annual basis. In light of those results, our Board determined that the Company would continue to hold a non-binding advisory vote on executive compensation on an annual basis. The next required non-binding advisory vote regarding the frequency of this agenda item will be held at our 2023 annual meeting of shareholders.

At the 2019 annual meeting, 59% of the votes cast supported the advisory proposal on executive compensation. This level of support for our executive compensation program was disappointing. Accordingly, at the direction of the Compensation Committee, we conducted a formal stockholder outreach initiative to better understand shareholders’ key concerns with our executive compensation program. Between August and December 2019, we invited 33 of our largest shareholders, representing approximately 68% of the Company’s outstanding common stock, to participate in discussions regarding executive compensation, corporate governance, or any other topics of interest. We ultimately had discussions with five of those shareholders, representing approximately 34% of the outstanding common stock. In addition to these discussions, we received feedback from six of our largest shareholders, representing approximately 10% of the outstanding common stock, that no discussion on the topic was necessary. Finally, we participated in discussions about our stockholder engagement and executive compensation practices with the stockholder advisory firm Institutional Shareholder Services, which is used for proxy voting by at least twelve of our largest shareholders representing approximately 14% of the outstanding common stock.

Our Executive Chairman and our General Counsel participated in all of the discussions with the shareholders who accepted our invitation to engage. In addition, the Chair of the Compensation Committee and Lead Independent Director participated in some discussions with shareholders and with Institutional Shareholder Services. The goal was to better understand the concerns of our shareholders with respect to executive compensation and corporate governance. We discussed how our executive compensation programs directly tie into the history of the Company, our succession planning process and our current business strategy. We solicited stockholder views on the compensation philosophy and program design.

During the discussions with our shareholders, we talked about the special one-time long-term equity grant that was made to our Chief Executive Officer upon her promotion to that position in August 2018. We discussed that the promotion grant did not begin to vest for three years, until 2021, then vests pro-rata over a three-year period. Several shareholders inquired as to whether the Compensation Committee would consider including performance criteria as a condition to vesting in the case of future special equity grants. We also discussed the use of performance criteria with our shareholders and we asked them questions about the policies and guidelines they

 

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apply to executive compensation when determining how to vote for the companies in which they invest. As a result of these conversations, our Compensation Committee has discussed with the independent compensation consultant how they might apply an additional performance component to future equity grants that are made to newly hired or promoted executive officers. As of the date of this proxy statement, no such equity grants have been made but this performance component remains on the Compensation Committee’s agenda for such time as it becomes applicable. Finally, based on our conversations with shareholders, the Company has enhanced the disclosures in this proxy statement to more clearly explain the Company’s executive compensation and corporate governance practices.

Compensation Program & Design

In considering the Company’s executive compensation programs, we urge you to carefully consider the information included in the “Executive Compensation” section of this proxy statement, including the “Compensation Discussion and Analysis,” which describes in detail our executive compensation programs and the decisions made by the Compensation Committee with respect to the fiscal year ended December 29, 2019.

The Board believes that the executive compensation as disclosed in the Compensation and Disclosure Analysis, the accompanying tables and other disclosures in this proxy statement is consistent with our pay-for-performance compensation philosophy and aligns with the pay practices of our executive compensation peer group. Further, the Board believes that the Company’s commitment to linking compensation and the achievement of our near- and long-term business goals has helped drive our performance over time, without encouraging excessive risk-taking by management.

For the reasons described above, as discussed more fully in the Compensation and Disclosure Analysis, the Board of Directors recommends that shareholders vote to approve the following non-binding advisory resolution:

RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is hereby approved.

Effect of Proposal

As an advisory vote, this proposal is not binding; however, our Compensation Committee and Board of Directors value the opinions expressed by our shareholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for Named Executive Officers.

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For information with respect to Cheryl J. Henry and Michael P. O’Donnell, please see the information about the members of our Board of Directors beginning on page 8.

Mr. Haak has served as Executive Vice President and Chief Financial Officer since August 2011. From 1999 through 2011, Mr. Haak held a number of leadership positions with AirTran Airways (“AirTran”) (NYSE: AAI), which is now a wholly owned subsidiary of Southwest Airlines Co. (NYSE: LUV). From 2008 to 2011, Mr. Haak served as AirTran’s Senior Vice President of Finance and Chief Financial Officer. From 2005 to 2008, Mr. Haak served as AirTran’s Vice President of Finance and Treasurer. Mr. Haak has also held various positions with U.S. Airways, Inc. (NYSE: LCC) in pricing and revenue management.

Ms. Mirdamadi has served as our Executive Vice President and Chief Administrative Officer since October 2018. Prior to that, she was Senior Vice President and Chief Services Officer from June 2017 until October 2018. She joined Ruth’s Hospitality Group in June 2012 as Chief Information Officer. Prior to that she held various Operations and IT leadership positions at Denny’s Corporation (NASDAQ: DENN) from 2000 until 2012, including Vice President, Operations Services and Chief Information Officer.

Ms. Givens has served as Senior Vice President, General Counsel and Chief Compliance Officer since August 2019 and was Vice President, General Counsel and Chief Compliance Officer from February 2016 until August 2019. Prior to that, she was at J.Crew Group, Inc. (NYSE: JCG) as Vice President, Associate General Counsel from 2012 – 2016 and Vice President, Senior Corporate Counsel from 2007 – 2012. From 1996 to 2007, she served in various legal and compliance roles for Circuit City Stores, Inc. (NYSE: CC), a consumer electronics retailer.

Mr. Hyatt has served as Senior Vice President and Chief People Officer since June 2019. Prior to that, he was Managing Director, Colorado Campus at the Center for Creative Leadership from 2016 to 2019. From 2010 until 2016, Mr. Hyatt was President of ON, Inc., a consulting firm focused on leadership development and organizational culture. Mr. Hyatt also held various positions from 1998—2010, including as President at Corvirtus, an HR consultancy focused on hiring, development and retention through assessments, performance development tools and employee experience surveys. From 1994 – 1998, he was in consulting roles with National Computer Systems and from 1990 – 1994 he was an Assistant Professor at the University of Wisconsin, Oshkosh.

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