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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.     )

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material Pursuant to §240.14a-12

 

THE ESTÉE LAUDER COMPANIES INC.

(Name of Registrant as Specified In Its Charter)

 

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The Estée Lauder Companies Inc.
767 Fifth Avenue
New York, New York 10153
   

William P. Lauder
Executive Chairman

 


LOGO

 

 

September 24, 2015

Dear Fellow Stockholder:

        You are cordially invited to attend the Annual Meeting of Stockholders. It will be held in New York City on Thursday, November 12, 2015, at 10:00 a.m., local time, at the JW Marriott Essex House New York, where we will ask you to vote on the items set forth in the Notice of Annual Meeting of Stockholders below.

        Please vote your shares using the Internet or telephone, or by requesting a printed copy of the proxy materials and completing and returning by mail the proxy card you will receive in response to your request. Instructions on each of these voting methods are outlined in the enclosed Proxy Statement. Please vote as soon as possible.

        I look forward to seeing you at the Annual Meeting.

GRAPHIC

YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY SUBMIT YOUR PROXY
BY INTERNET, TELEPHONE, OR MAIL.


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THE ESTÉE LAUDER COMPANIES INC.
767 Fifth Avenue
New York, New York 10153
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Date and Time:

Place:

Items of Business:

        We also will transact such other business as may properly come before the meeting and any adjournments or postponements of the meeting.

    By Order of the Board of Directors

 

 

SPENCER G. SMUL
Senior Vice President,
Deputy General Counsel
and Secretary

 

 

New York, New York
September 24, 2015

        THE BOARD OF DIRECTORS URGES YOU TO VOTE BY INTERNET OR BY TELEPHONE OR BY REQUESTING A PRINTED COPY OF THE PROXY MATERIALS AND COMPLETING AND RETURNING BY MAIL THE PROXY CARD YOU WILL RECEIVE IN RESPONSE TO YOUR REQUEST.

        IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 12, 2015: The Company's Proxy Statement for the 2015 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended June 30, 2015, are available at www.envisionreports.com/EL.


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TABLE OF CONTENTS

Proxy Statement Summary

  1

Information about the Annual Meeting and Voting

  4

ELECTION OF DIRECTORS (Item 1)

  9

Board of Directors

  9

NOMINEES FOR ELECTION TO TERM EXPIRING 2018 (CLASS I)

  9

INCUMBENT DIRECTORS – TERM EXPIRING 2016 (CLASS II)

  11

INCUMBENT DIRECTORS – TERM EXPIRING 2017 (CLASS III)

  14

Additional Information Regarding the Board of Directors

  16

Stockholders' Agreement and Lauder Family Control

  16

Board Committees

  16

Compensation Committee Interlocks and Insider Participation

  18

Board and Board Committee Meetings; Attendance at Annual Meetings; Executive Sessions

  18

Board Leadership Structure

  18

Board Role in Risk Oversight

  19

Risk in Compensation Programs

  19

Director Qualifications

  19

Board Membership Criteria

  22

Board Independence Standards for Directors

  23

Communications with the Board

  24

Director Nominees Recommended by Stockholders

  25

Corporate Governance Guidelines and Code of Conduct

  25

Section 16(a) Beneficial Ownership Reporting Compliance

  25

Policy and Procedures for the Review of Related Person Transactions

  25

Certain Relationships and Related Transactions

  27

Director Compensation

  31

Ownership of Shares

  35

Executive Compensation

  42

Compensation Discussion and Analysis

  42

Compensation Committee and Stock Plan Subcommittee Report

  62

Summary Compensation Table

  63

Employment Agreements

  66

Grants of Plan-Based Awards in Fiscal 2015

  68

Outstanding Equity Awards at June 30, 2015

  70

Option Exercises and Stock Vested in Fiscal 2015

  72

Pension Benefits

  73

Nonqualified Deferred Compensation in Fiscal 2015 and at June 30, 2015

  74

Potential Payments Upon Termination of Employment or Change of Control

  75

Audit Committee Report

  83

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (Item 2)

  84

ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (Item 3)

  86

Equity Compensation Plan Information as of June 30, 2015

  87

APPROVAL OF THE COMPANY'S AMENDED AND RESTATED FISCAL 2002 SHARE INCENTIVE PLAN (Item 4)

  88

APPROVAL OF THE COMPANY'S AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR SHARE INCENTIVE PLAN (Item 5)

  101

Proxy Procedure and Expenses of Solicitation

  110

Stockholder Proposals and Director Nominations for the 2016 Annual Meeting

  110

Other Information

  111

Appendix A – Reconciliation of Non-GAAP Financial Measures

  A-1

Appendix B – The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan

  B-1

Appendix C – The Estée Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan

  C-1

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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement before voting.

2015 Annual Meeting of Stockholders

Date and Time:   November 12, 2015 at 10:00 a.m.

Place:

 

JW Marriott Essex House New York
Grand Salon
160 Central Park South
New York, New York

Record Date:

 

September 14, 2015

Voting Matters

Items of Business

Board
Recommendation


Proxy Statement
Disclosure
     
1.   Election of Class I Directors   FOR
each director nominee

 
Page 9
2.   Ratification of Appointment of KPMG LLP as Independent Auditors   FOR   Page 84
3.   Advisory Vote to Approve Executive Compensation   FOR   Page 86
4.   Approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan   FOR   Page 88
5.   Approval of the Company's Amended and Restated Non-Employee Director Share Incentive Plan   FOR   Page 101

Director Nominees

        The following table provides information about the Class I Director Nominees standing for election to serve until the 2018 Annual Meeting of Stockholders. Information about all the Directors can be found in this Proxy Statement beginning on page 9.

Nominee

Current Position

Committee Membership
   
Rose Marie Bravo   Retail and Marketing Consultant   Compensation Committee
Stock Plan Subcommittee
Paul J. Fribourg   Chairman and Chief Executive Officer of Continental Grain Company   Audit Committee
Compensation Committee
Stock Plan Subcommittee
Mellody Hobson   President of Ariel Investments, LLC   Audit Committee
Irvine O. Hockaday, Jr.   Former President and Chief Executive Officer of Hallmark Cards, Inc.   Audit Committee
Barry S. Sternlicht   Chairman and Chief Executive Officer of Starwood Capital Group   Nominating and Board Affairs Committee

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Executive Compensation Highlights

        As noted in the "Compensation Discussion and Analysis" below, during fiscal 2015, we continued to successfully execute our long-term strategy. We achieved approximately $11 billion in net sales, 14.9% in operating margin (15.9% as adjusted), and over $1.9 billion in cash flow from operations. Our performance, as highlighted in the table below, was fueled by multiple engines of growth in all regions. We delivered these results despite considerable macroeconomic headwinds and challenges, thanks to the ongoing determination and collective talents and efforts of our executive officers, other members of management, and all of our employees.

Financial Metric


Fiscal 2015

Change over
Prior Year


3-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)





5-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)
       

Net Sales

  $10.8 billion   –1.7%   3.5%   6.7%

Net Sales as adjusted(1)

  $11.0 billion   1.6%   4.1%   7.0%

Net Sales as adjusted at constant currency(1)

  $11.5 billion   6.4%   N/A   N/A

Operating Margin

  14.9%   –180bp   +140bp   +480bp

Operating Margin as adjusted(1)

  15.9%   –20bp   +170bp   +470bp

Diluted EPS

  $2.82   –7.8%   9.4%   18.8%

Diluted EPS as adjusted(1)

  $3.05   3.4%   10.3%   17.3%

Return on Invested Capital(2)

  21.5%   –330bp   –250bp   +300bp

Cash Flow from Operations

  $1.9 billion   26.6%   19.9%   15.2%

Total Stockholder Return ("TSR")

  18.1%     18.6%   27.1%

TSR – S&P 500 Composite

  7.4%     17.3%   17.1%

(1)
Periods other than fiscal 2015 have been adjusted to exclude returns and charges (adjustments) associated with restructuring activities. Each of fiscal 2015 and 2014 has been adjusted for charges to remeasure net monetary assets in Venezuela and for the accelerated sales orders in fiscal 2014 in connection with the Company's July 2014 implementation of its Strategic Modernization Initiative ("SMI"). Fiscal 2010 has been adjusted to exclude debt extinguishment charges. Net Sales as adjusted in constant currency excludes the negative impact ($0.5 billion) of foreign currency translation. See Appendix A for reconciliation and other information about these non-GAAP financial measures.

(2)
Excludes returns and charges (adjustments) associated with restructuring activities in each period, where applicable.

        In fiscal 2015, we also raised the common stock dividend 20%, repurchased 12.4 million shares for $983 million, and used $473 million of cash flow from operations for capital expenditures. In addition, we strengthened and diversified our portfolio with the acquisition of four uniquely positioned brands. Over the five-year period ended June 30, 2015, the total market value of the Company increased by 195% or approximately $21.5 billion.

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        The following summarizes certain executive compensation decisions that affected compensation in, or relating to, fiscal 2015:

        For more complete information about our executive compensation philosophy and approach, please see additional information below in "Executive Compensation" including "Compensation Discussion and Analysis."

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THE ESTÉE LAUDER COMPANIES INC.
767 Fifth Avenue
New York, New York 10153

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 12, 2015

September 24, 2015

Annual Meeting and Voting

        This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of The Estée Lauder Companies Inc. (the "Company," "we," or "us"), a Delaware corporation, to be voted at the Annual Meeting of Stockholders to be held in the Grand Salon at the JW Marriott Essex House New York, 160 Central Park South, New York, New York, on Thursday, November 12, 2015, at 10:00 a.m., local time, and at any adjournment or postponement of the meeting. The approximate date on which this Proxy Statement and form of proxy are first being sent or given to stockholders, or being made available through the Internet for those stockholders receiving their proxy materials electronically, is September 30, 2015.

Admission to the Meeting will require a ticket.

        If you are a stockholder of record and plan to attend, please check the appropriate box on the proxy card, or so indicate when you vote by telephone or Internet, and an admission ticket will be mailed to you. Please bring photo identification if you attend the meeting. If you are a stockholder whose shares are held through an intermediary, such as a bank or broker, and you plan to attend, please request an admission ticket by writing to the Investor Relations Department at The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. Evidence of your ownership of shares of our Common Stock on September 14, 2015 (the "Record Date"), which you can obtain from your bank, broker, or other intermediary, must accompany your letter.

Who May Vote?

        Only stockholders of record of shares of Class A Common Stock or Class B Common Stock at the close of business on the Record Date are entitled to vote at the Annual Meeting and at any adjournment or postponement of the meeting. Each owner of record of Class A Common Stock on the Record Date is entitled to one vote for each share of Class A Common Stock. Each owner of record of Class B Common Stock on the Record Date is entitled to ten votes for each share of Class B Common Stock. On the Record Date, there were 224,014,142 shares of Class A Common Stock and 146,658,737 shares of Class B Common Stock issued and outstanding.

Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the proxy materials?

        In accordance with rules adopted by the Securities and Exchange Commission (the "SEC"), we have elected to furnish to our stockholders this Proxy Statement and our Fiscal 2015 Annual Report by providing access to these documents on the Internet rather than mailing printed copies. Accordingly, a Notice of Internet Availability of Proxy Materials (the "Notice") is being mailed to our stockholders of record and beneficial owners (other than those who previously requested printed copies or electronic delivery of our proxy materials), which will direct stockholders to a website where they can access our proxy materials and view instructions on how to vote online or by telephone. If you would prefer to receive a paper copy of our proxy materials, please follow the instructions included in the Notice.

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How do I cast my vote if I am a stockholder of record?

        If you are a stockholder of record (which means your shares are registered directly in your name with the Company's transfer agent, Computershare, Inc., or you have a physical stock certificate), you can vote your shares in one of two ways: either by proxy or in person at the Annual Meeting. If you choose to vote by proxy, you may do so by using the Internet or the telephone, or by requesting a printed copy of our proxy materials and completing and returning by mail the proxy card you will receive in response to your request.

        Whichever method you use, each valid proxy received in time will be voted at the Annual Meeting in accordance with your instructions. To ensure that your proxy is voted, it should be received before November 12, 2015. If you submit a proxy without giving instructions, your shares will be voted as recommended by the Board of Directors.

How do I cast my vote if my shares are held in "street name"?

        If you are a beneficial owner of shares held in a stock brokerage account or by a bank or other nominee (i.e. in "street name"), you are invited to attend the Annual Meeting. However, since you are not a stockholder of record, you may not vote these shares in person at the Annual Meeting unless you bring with you a legal proxy from the stockholder of record. A legal proxy may be obtained from your broker, bank, or nominee.

        If you do not wish to vote in person or you will not be attending the Annual Meeting, you may vote over the Internet by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you will receive voting instructions from your broker, bank, or nominee describing the available processes for voting your stock.

        If your shares are held for you by a broker, your broker must vote those shares in accordance with your instructions. If you do not give voting instructions to your broker, your broker may vote your shares for you on any discretionary items of business to be voted upon at the Annual Meeting, i.e. the ratification of the appointment of KPMG LLP (Item 2).

        Important Consideration for "street name" holders: You must instruct your broker if you want your shares to be counted in the election of directors at the Annual Meeting (Item 1), the advisory vote to approve executive compensation (Item 3), the approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan (Item 4), and the approval of the Company's Amended and Restated Non-Employee Director Share Incentive Plan (Item 5). New York Stock Exchange ("NYSE") rules prevent your broker from voting your shares on these matters without your instructions. Please follow the instructions provided by your broker so that your vote can be counted.

May I change my vote?

        All proxies delivered pursuant to this solicitation are revocable at any time before they are exercised at the option of the persons submitting them by giving written notice to the Secretary of the Company at the mailing address set forth below, by submitting a later-dated proxy (either by mail, telephone, or Internet), or by voting in person at the Annual Meeting. The mailing address of our principal executive offices is 767 Fifth Avenue, New York, New York 10153.

What constitutes a quorum?

        The holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum for the transaction of business at the

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Annual Meeting. Abstentions, broker non-votes, and votes withheld are included in the count to determine a quorum.

What if a quorum is not represented at the Annual Meeting?

        In the event that a quorum does not exist, the Executive Chairman or the holders of a majority of the votes entitled to be cast by the stockholders who are present in person or by proxy may adjourn the meeting. At a subsequent meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

How many votes are required to approve a proposal?

        The following table notes for each proposal: (i) the vote required of Class A Common Stock and Class B Common Stock (voting together) for approval; (ii) whether abstentions count as votes cast; and (iii) whether broker discretionary voting is allowed.

Proposal


Vote required

Do abstentions count
as votes cast?


Is broker discretionary
voting allowed?
     

Item 1:
Election of Class I
Directors



 
Plurality of Votes Cast*   Not Applicable   No

Item 2:
Ratify approval of
KPMG LLP's appointment

  Majority of Votes Cast   No   Yes

Item 3:
Advisory vote to
approve Executive Compensation



 
Majority of Votes Cast**   No   No

Item 4:
Approval of the Company's
Amended and Restated Fiscal 2002
Share Incentive Plan

  Majority of Votes Cast   Yes   No

Item 5:
Approval of the Company's
Amended and Restated
Non-Employee Director Share
Incentive Plan





 
Majority of Votes Cast   Yes   No

*
In the election of directors (Item 1), shares present at the Annual Meeting that are not voted for a particular nominee, broker non-votes, and shares present by proxy where the stockholder withholds authority to vote for the nominee will not be counted toward the nominee's achievement of a plurality.

**
The advisory vote to approve executive compensation (Item 3) is not binding on the Company. However, the Compensation Committee and the Stock Plan Subcommittee, which are responsible for designing and administering the Company's executive compensation program, value the opinions expressed by stockholders. See "Compensation Discussion and Analysis – Advisory Vote on Executive Compensation" below.

When a matter requires stockholder approval under NYSE rules (Items 4 and 5), it must be approved by a majority of votes cast, with abstentions treated as votes cast.

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        Broker non-votes do not count as votes cast, and therefore have no effect on vote outcomes. Abstentions count as votes cast only in matters that require stockholder approval under NYSE rules; for these items, an abstention has the practical effect of a vote against a proposal. For all other matters, abstentions do not count as votes cast, and therefore do not affect the vote outcome.

How will my shares be voted?

        All proxies properly submitted pursuant to this solicitation and not revoked will be voted at the Annual Meeting in accordance with the directions given. In the election of directors (Item 1), stockholders may vote in favor of, or withhold their votes from, each nominee. For the ratification of the appointment of KPMG LLP (Item 2); the advisory vote to approve executive compensation (Item 3); the approval of the Company's Amended and Restated Fiscal 2002 Share Incentive Plan (Item 4); and the approval of the Company's Amended and Restated Non-Employee Director Share Incentive Plan (Item 5), stockholders may vote in favor of the proposal, may vote against the proposal, or may abstain from voting. Stockholders should specify their choices on the proxy card or pursuant to the instructions thereon for telephone or Internet voting. If no specific choices are indicated, the shares represented by a properly submitted proxy will be voted:

        If you have returned your signed and completed proxy card, and other matters are properly presented at the Annual Meeting of Stockholders for consideration, the proxy holders appointed by the Board of Directors (the persons named in your proxy card if you are a stockholder of record) will have the discretion to vote on those matters for you.

Who will count the vote?

        Representatives of Computershare, Inc. will tabulate the votes and act as inspectors of election.

May I see a list of stockholders entitled to vote as of the Record Date?

        A list of registered stockholders as of the close of business on the Record Date will be available for examination by any stockholder for any purpose germane to the meeting at the Annual Meeting and during normal business hours from October 29, 2015 through November 11, 2015, at the office of Spencer G. Smul, Senior Vice President, Deputy General Counsel and Secretary of the Company, at 767 Fifth Avenue, New York, New York 10153.

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Can I access the Notice of Annual Meeting, Proxy Statement, Annual Report, and Form 10-K on the Internet?

        Our Proxy Statement (including Notice of Annual Meeting) and Fiscal 2015 Annual Report to Stockholders are available at www.envisionreports.com/EL.

        These proxy materials are also available, along with the Annual Report on Form 10-K for the fiscal year ended June 30, 2015, in "Reports and Filings" of the "Investor Relations" section of our website at www.elcompanies.com. Instead of receiving future copies of our Proxy Statement (including Notice of Annual Meeting) and Annual Report by mail, stockholders can access these materials online. Opting to receive your proxy materials online will save us the cost of producing and mailing documents to your home or business and will also give you an electronic link to the proxy voting site.

        Stockholders of record can enroll at www.computershare.com/investor for online access to future proxy materials.

        If you hold your shares in a bank or brokerage account, you also may have the opportunity to receive copies of these documents electronically. Please check the information provided in the proxy materials mailed to you by your bank or broker regarding the availability of this service.

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ELECTION OF DIRECTORS
(Item 1)

Board of Directors

        Currently, the Board of Directors is comprised of fifteen directors. The directors are divided into three classes, each serving for a period of three years.

        The stockholders elect one class of the members of the Board of Directors annually. The directors whose terms will expire at the 2015 Annual Meeting of Stockholders are Rose Marie Bravo, Paul J. Fribourg, Mellody Hobson, Irvine O. Hockaday, Jr., and Barry S. Sternlicht, each of whom has been nominated to stand for re-election as a director at the 2015 Annual Meeting, to hold office until the 2018 Annual Meeting and until his or her successor is elected and qualified. In the unanticipated event that one or more of these nominees is unable or declines to serve for any reason, the Board of Directors may reduce the number of directors or take action to fill the vacancy or vacancies. In addition to the director biographies below, see "Additional Information Regarding the Board of Directors – Director Qualifications" below.

        The Board recommends a vote FOR each nominee as a director to hold office until the 2018 Annual Meeting. Proxies received by the Board will be so voted unless a contrary choice is specified in the proxy.


NOMINEES FOR ELECTION TO TERM EXPIRING 2018 (CLASS I)



PHOTO

 


ROSE MARIE BRAVO, CBE
Director since 2003
Age 64

Ms. Bravo is a retail and marketing consultant. She was Vice Chairman of Burberry Group Plc from July 2006 to July 2007. Prior to that, she was Burberry's Chief Executive from 1997 to July 2006. Prior to her appointment at Burberry, Ms. Bravo was President of Saks Fifth Avenue from 1992, with responsibility for merchandising, marketing, and product development. From 1974 to 1992, Ms. Bravo held a number of positions at R.H. Macy & Co., culminating as Chairman and Chief Executive Officer of the U.S. retailer I. Magnin from 1987 to 1992. Ms. Bravo is a member of the Board of Directors of Tiffany & Co. and of Williams-Sonoma,  Inc. She also serves on the Board of Directors of Phoenix House Foundation.

Ms. Bravo is a member of the Compensation Committee and Stock Plan Subcommittee.

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PHOTO

 


PAUL J. FRIBOURG
Director since 2006
Age 61

Mr. Fribourg has been the Chairman and Chief Executive Officer of Continental Grain Company, an international agribusiness and investment company with investments in the poultry and pork businesses, since July 1997. He joined Continental Grain Company (formerly known as ContiGroup Companies, Inc.) in 1976 and worked in various positions there with increasing responsibility in both the United States and Europe. Mr. Fribourg is on the Board of Directors of Loews Corporation, Restaurant Brands International Inc., and Apollo Global Management, LLC. He also serves as a member of Rabobank's International North American Agribusiness Advisory Board, and as a Board member and Executive Committee member of Castleton Commodities International LLC. He has been a member of the Council on Foreign Relations since 1985.

Mr. Fribourg is a member of the Audit Committee, the Compensation Committee, and the Stock Plan Subcommittee.


 


PHOTO

 


MELLODY HOBSON
Director since 2005
Age 46

Ms. Hobson has been the President of Ariel Investments, LLC, a Chicago-based investment management firm and adviser to the mutual funds offered by the Ariel Investment Trust, since 2000, and she is also President and Director of its governing member, Ariel Capital Management Holdings, Inc. In addition, she serves as President and Chairman of the Board of Trustees of the Ariel Investment Trust, a registered investment company. Ms. Hobson is Chairman of the Board of DreamWorks Animation SKG, Inc. and a member of the Board of Directors of Starbucks Corporation. Additionally, within the past five years, she served as a director of Groupon, Inc. Ms. Hobson works with a variety of civic and professional institutions, including serving as Chairman of After School Matters, as a board member of the Chicago Public Education Fund, and as Emeritus Trustee of the Sundance Institute.

Ms. Hobson is a member of the Audit Committee.


 


PHOTO

 


IRVINE O. HOCKADAY, JR.
Director since 2001
Age 79

Mr. Hockaday is the former President and Chief Executive Officer of Hallmark Cards, Inc. He retired in December 2001. Prior to joining Hallmark in 1983, he was President and Chief Executive Officer of Kansas City Southern Industries, Inc. Mr. Hockaday was a member of the Hallmark Board of Directors from 1978 until January 2002. He is currently a member of the Board of Directors of Aratana Therapeutics, Inc. Additionally, within the past five years, Mr. Hockaday served as a director of Crown Media Holdings, Inc. and Ford Motor Company.

Mr. Hockaday is Presiding Director and Chair of the Audit Committee.

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PHOTO

 


BARRY S. STERNLICHT
Director since 2004
Age 54

Mr. Sternlicht is Chairman and Chief Executive Officer of Starwood Capital Group, the private investment firm he formed in 1991 that is focused on global real estate, hotel management, oil and gas, energy infrastructure, and securities trading. He also serves as Chairman of Starwood Property Trust, Inc., a commercial mortgage REIT, Starwood Waypoint Residential Trust, and TRI Pointe Homes. Mr. Sternlicht is a member of the Board of Directors of A.S. Roma. He is Chairman of the Board of Baccarat S.A. Additionally, within the past five years, Mr. Sternlicht served as a director of Restoration Hardware Holdings, Inc. and Riviera Holdings Corporation. He currently serves as a member of the Board of The Robin Hood Foundation, and is on the board of the Dreamland Film & Performing Arts Center and the Executive Advisory Board of Americans for the Arts. Mr. Sternlicht is a trustee of Brown University and serves on the boards of numerous other civic organizations and charities. From 1995 through early 2005, Mr. Sternlicht was Chairman and CEO of Starwood Hotels & Resorts Worldwide, Inc., a company he founded in 1995.

Mr. Sternlicht is a member of the Nominating and Board Affairs Committee.


INCUMBENT DIRECTORS – TERM EXPIRING 2016 (CLASS II)



PHOTO

 


AERIN LAUDER
Director since 2004
Age 45

Ms. Lauder is the Creative Director and Chairman of Aerin LLC, a luxury lifestyle brand that she formed in April 2011. She also serves as Style and Image Director for the Estée Lauder brand. From July 2004 through April 2011, Ms. Lauder was Senior Vice President, Creative Director for the Estée Lauder brand. From April 2001 through June 2004, she was Vice President of Global Advertising for the brand. From 1997 through April 2001, she was Executive Director, Creative Marketing. From 1995 to 1997, she was Director, Creative Product Development for the Estée Lauder brand. Ms. Lauder joined the Company in 1992 as a member of the Prescriptives marketing team. She is a member of the Education Committee for the Board of Trustees at The Metropolitan Museum of Art and is a member of the International Council of the Museum of Modern Art.

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WILLIAM P. LAUDER
Director since 1996
Age 55

Mr. Lauder is Executive Chairman of the Company and, in such role, he is Chairman of the Board of Directors. He was Chief Executive Officer of the Company from March 2008 through June 2009 and President and Chief Executive Officer from July 2004 through February 2008. From January 2003 through June 2004, he was Chief Operating Officer. From July 2001 through 2002, he was Group President, responsible for the worldwide business of the Clinique and Origins brands and the Company's retail store and online operations. From 1998 to 2001, he was President of Clinique Laboratories, LLC. Prior to 1998, he was President of Origins Natural Resources Inc., and he had been the senior officer of that division since its inception in 1990. Prior thereto, he served in various positions since joining the Company in 1986. He is a member of the Board of Directors of Jarden Corporation. Additionally, within the past five years, Mr. Lauder served as a director of GLG Partners, Inc. He currently serves as Chairman of the Board of the Fresh Air Fund and as a member of the Boards of Trustees of The University of Pennsylvania and The Trinity School in New York City, the Boards of Directors of the 92nd Street Y and the Partnership for New York City, and the Advisory Board of Zelnick Media.

Mr. Lauder is a member of the Nominating and Board Affairs Committee.


 


PHOTO

 


RICHARD D. PARSONS
Director since 1999
Age 67

Mr. Parsons has been a senior advisor to Providence Equity Partners LLC since 2009. From 1996 until 2012, he was a director of Citigroup Inc. and served as its Chairman from February 2009 to April 2012. From May 2003 until his retirement in December 2008, he served as Chairman of the Board of Time Warner Inc. From May 2002 until December 2007, he served as Chief Executive Officer of Time Warner Inc. From January 2001 until May 2002, Mr. Parsons was Co-Chief Operating Officer of AOL Time Warner. From 1995 until the merger with America On-Line Inc., he was President of Time Warner Inc. From 1990 through 1994, he was Chairman and Chief Executive Officer of Dime Bancorp, Inc. Mr. Parsons is currently a member of the Board of Lazard Ltd. and The Madison Square Garden Company. Among his numerous community activities, he is Chairman of the Apollo Theatre Foundation and the Jazz Foundation of America.

Mr. Parsons is Chair of the Compensation Committee and is a member of the Nominating and Board Affairs Committee.

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PHOTO

 


LYNN FORESTER DE ROTHSCHILD
Director since 2000
Age 61

Lady de Rothschild has been the Chief Executive of E.L. Rothschild LLC, a private investment company with investments in media, information technology, agriculture, financial services, and real estate worldwide, since 2002. Holdings of E.L. Rothschild LLC include The Economist Group (UK). Lady de Rothschild has been a director of The Economist Newspaper Limited since October 2002. From 2004 to 2007, she was also Co-Chair of FieldFresh Pvt. Ltd., a 50-50 joint venture with Bharti Enterprises, established to develop the agricultural sector in India. From 1989 to 2002, she was President and Chief Executive Officer of FirstMark Holdings, Inc., which owned various telecommunications companies worldwide. She was Executive Vice President for Development at Metromedia Telecommunications, Inc. from 1984 to 1989, and an associate at the law firm of Simpson, Thacher and Bartlett LLP in New York City until 1984. She is a trustee or board member of the Peterson Institute for International Economics, FAI (Fondo per L'Ambiente Italiano), the ERANDA Foundation (de Rothschild family foundation), the Alfred Herrhausen Society for International Dialogue of Deutsche Bank, the International Advisory Board of Columbia University School of Law, and the Alzheimer Drug Discovery Foundation. Lady de Rothschild is a member of the Council on Foreign Relations (USA), Chatham House (UK), the International Advisory Council of Asia House (UK), the International Institute of Strategic Studies (UK), and the Foreign Policy Association (USA).

Lady de Rothschild is Chair of the Nominating and Board Affairs Committee.


 


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RICHARD F. ZANNINO
Director since 2010
Age 56

Mr. Zannino is a Managing Director at the private equity firm CCMP Capital Advisors, LLC, a position he has held since July 2009. He is a partner on the firm's Investment Committee and co-heads the consumer retail practice. Prior to joining CCMP Capital, Mr. Zannino was an independent retail and media advisor from February 2008 to June 2009. He was Chief Executive Officer and a member of the Board of Directors of Dow Jones & Company, Inc. from February 2006 until his resignation in January 2008, shortly after its acquisition by News Corp. Mr. Zannino joined Dow Jones as Executive Vice President and Chief Financial Officer in February 2001 and was promoted to Chief Operating Officer in July 2002. From 1998 to 2001, he was Executive Vice President of Liz Claiborne, Inc., where he oversaw the finance, administration, retail, fragrance, and licensing divisions. From 1993 to 1998, Mr. Zannino was with Saks Fifth Avenue, serving as Vice President and Treasurer, Senior Vice President, Finance and Merchandise Planning, and then Executive Vice President and Chief Financial Officer. He is a director of IAC/InterActiveCorp and Ollie's Bargain Outlet Holdings, Inc. Additionally, within the past five years, Mr. Zannino served as a director of Francesca's Holdings Corporation. He currently serves as Vice Chairman of the Board of Trustees of Pace University.

Mr. Zannino is a member of the Audit Committee, the Compensation Committee, and the Stock Plan Subcommittee.

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INCUMBENT DIRECTORS – TERM EXPIRING 2017 (CLASS III)



PHOTO

 


CHARLENE BARSHEFSKY
Director since 2001
Age 65

Ambassador Barshefsky is Senior International Partner at the law firm of WilmerHale in Washington, D.C. Prior to joining the law firm, she was the United States Trade Representative from 1997 to 2001, and Deputy United States Trade Representative and Acting United States Trade Representative from 1993 to 1996. Ambassador Barshefsky is also a member of the Board of Directors of American Express Company, Starwood Hotels & Resorts Worldwide, Inc., and Intel Corporation. In addition, she is a member of the Council on Foreign Relations and a Trustee of the Howard Hughes Medical Institute.

Ambassador Barshefsky is a member of the Nominating and Board Affairs Committee.


 


PHOTO

 


WEI SUN CHRISTIANSON
Director since 2011
Age 59

Ms. Christianson is a Managing Director and Co-Chief Executive Officer of Asia Pacific and Chief Executive Officer of China at Morgan Stanley based in Beijing. In addition to her regional role, Ms. Christianson is responsible for all aspects of Morgan Stanley's operations in China and is a member of Morgan Stanley's Management Committee. Prior to rejoining Morgan Stanley in 2006, she was the Chairman of China for Citigroup Global Markets (Asia Ltd.) and previously served as Chairman of China and Country Manager for Credit Suisse First Boston. Ms. Christianson held an earlier position at Morgan Stanley beginning in 1998 as Executive Director and Beijing Representative. She is a member of the Advisory Committee of the Securities and Futures Commission of Hong Kong.

Ms. Christianson is a member of the Nominating and Board Affairs Committee.


 


PHOTO

 


FABRIZIO FREDA
Director since 2009
Age 58

Mr. Freda has served as President and Chief Executive Officer of the Company since July 2009. From March 2008 through June 2009, he was President and Chief Operating Officer where he oversaw the Clinique, Bobbi Brown, La Mer, Jo Malone London, Aveda, and Bumble and bumble brands, and the Aramis and Designer Fragrances division. He also was responsible for the Company's International Division, as well as Global Operations, Research and Development, Packaging, Quality Assurance, Merchandise Design, Corporate Store Design, and Retail Store Operations. Prior to joining the Company, Mr. Freda served in a number of positions of increasing responsibility at The Procter & Gamble Company ("P&G"), where he was responsible for various operating, marketing, and key strategic efforts for over 20 years. From 2001 through 2007, Mr. Freda was President, Global Snacks, at P&G. Mr. Freda also spent more than a decade in the Health and Beauty Care division at P&G. From 1986 to 1988, he directed marketing and strategic planning for Gucci SpA. Mr. Freda is currently a member of the Board of Directors of BlackRock, Inc., a global asset management company.

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PHOTO

 


JANE LAUDER
Director since 2009
Age 42

Ms. Lauder has served as Global Brand President, Clinique, since April 2014. Immediately prior to that, she was Global President, General Manager of the Origins, Ojon, and Darphin brands. From July 2008 until July 2010, she was Senior Vice President/General Manager of the Origins brand. Ms. Lauder began her career with the Company in 1996 at Clinique and served in various positions throughout the Company until July 2006, when she became Senior Vice President, Global Marketing for Clinique.


 


PHOTO

 


LEONARD A. LAUDER
Director since 1958
Age 82

Mr. Lauder is Chairman Emeritus of the Company. He was Chairman of the Board of Directors from 1995 through June 2009 and served as the Company's Chief Executive Officer from 1982 through 1999 and President from 1972 until 1995. Mr. Lauder formally joined the Company in 1958 after serving as an officer in the United States Navy. Since joining, he has held various positions, including executive officer positions other than those described above. He is Chairman Emeritus of the Board of Trustees of the Whitney Museum of American Art, a Charter Trustee of The University of Pennsylvania, a Trustee of The Aspen Institute, and the co-founder and Co-Chairman of the Alzheimer's Drug Discovery Foundation. He also served as a member of the White House Advisory Committee on Trade Policy and Negotiations under President Reagan.

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Additional Information Regarding the Board of Directors

        Stockholders' Agreement and Lauder Family Control.  All Lauder Family Members who are party to a stockholders' agreement with the Company (the "Stockholders' Agreement") have agreed to vote shares beneficially owned by them for Leonard A. Lauder (or for one of his sons), Ronald S. Lauder (or for one of his daughters), and one person, if any, designated by each as a director of the Company. Aerin Lauder and Jane Lauder are parties to the Stockholders' Agreement solely as trustees of certain trusts. The term "Lauder Family Members" is defined below (see "Certain Relationships and Related Transactions—Lauder Family Relationships and Compensation"). Shares subject to the Stockholders' Agreement represent approximately 84% of the voting power of the Company as of the Record Date. The right of each of Leonard A. Lauder (or his sons) and Ronald S. Lauder (or his daughters) to designate a nominee exists only when he (including his descendants) beneficially owns (other than by reason of the Stockholders' Agreement) shares of Common Stock with at least 10% of the total voting power of the Company. Currently, William P. Lauder is the nominee of Leonard A. Lauder, and Aerin Lauder and Jane Lauder are the nominees of Ronald S. Lauder. The right of each of Leonard A. Lauder (or one of his sons) and Ronald S. Lauder (or one of his daughters) to be nominated will exist so long as he (including his descendants) beneficially owns shares of Common Stock with at least 5% of the total voting power of the Company. In the event that Leonard A. Lauder ceases to be a member of the Board of Directors by reason of his death or disability, then his sons, William P. Lauder and Gary M. Lauder, will succeed to his rights to be nominated as a director and to designate one nominee. If either son is unable to serve by reason of his death or disability, the other son will have the right to designate a nominee. Similarly, Aerin Lauder and Jane Lauder, Ronald S. Lauder's daughters, will succeed to their father's rights upon his death or disability. If either daughter is unable to serve by reason of her death or disability, the other daughter will have the right to designate a nominee. In the event none of Leonard A. Lauder and his sons and Ronald S. Lauder and his daughters are able to serve as directors by reason of death or disability, then the rights under the Stockholders' Agreement to be a nominee and to designate a nominee will cease. The Stockholders' Agreement will terminate upon the occurrence of certain specified events, including the transfer of shares of Common Stock by a party to the Stockholders' Agreement that causes all parties thereto immediately after such transaction to own beneficially in the aggregate shares having less than 10% of the total voting power of the Company.

        The Company is a "controlled company" under the rules of the New York Stock Exchange (the "NYSE") because the Lauder family and their related entities hold more than 50% of the voting power of the outstanding voting stock. As such, the Company may avail itself of exemptions relating to the independence of the Board and certain Board committees. Despite the availability of such exemptions, the Board of Directors has determined that it will have a majority of independent directors and that both the Nominating and Board Affairs Committee and the Compensation Committee will have otherwise required provisions in their charters. As permitted by the NYSE rules for "controlled companies," our Board does not require that the Nominating and Board Affairs Committee and the Compensation Committee be comprised solely of independent directors.


        Board Committees.  The Board of Directors has established the following standing committees – the Audit Committee, the Compensation Committee (which includes the Stock Plan Subcommittee), and the Nominating and Board Affairs Committee. Each director on these committees is an independent director except for William P. Lauder and Richard D. Parsons.

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        The members of the committees are set forth in the following table:

Director
​Audit
Committee
 



​Compensation
Committee
 



​Nominating and
Board Affairs
Committee
 
Charlene Barshefsky           ü
Rose Marie Bravo†       ü    
Wei Sun Christianson           ü
Paul J. Fribourg†   ü   ü    
Mellody Hobson   ü        
Irvine O. Hockaday, Jr.*   Chair        
William P. Lauder           ü
Richard D. Parsons       Chair   ü
Lynn Forester de Rothschild           Chair
Barry S. Sternlicht           ü
Richard F. Zannino†   ü   ü    

Also member of Stock Plan Subcommittee
*
Presiding Director

        Copies of the charters adopted by the Board of Directors for each committee may be found in the "Investor Relations" section of the Company's website, www.elcompanies.com, within the "Leadership" subsection under the heading "Corporate Governance" by selecting "Committees." Stockholders may also contact Investor Relations at 767 Fifth Avenue, New York, New York 10153 or call 800-308-2334 to obtain a hard copy of these documents without charge.

        The Audit Committee, among other things, appoints the independent auditors; reviews the independence of such auditors; approves the scope of the annual audit activities of the independent auditors and the Company's Internal Control Department; reviews audit results; reviews and discusses the Company's financial statements with management and the independent auditors; reviews and discusses with the Board the Company's risk assessment and management processes; and is responsible for our policy for the review of related person transactions. The committee also meets separately, at least quarterly, with the Chief Financial Officer and Chief Internal Control Officer and with representatives of the independent auditors. The Board of Directors has determined that each of the committee members – Mr. Hockaday, Mr. Fribourg, Ms. Hobson, and Mr. Zannino – qualifies as an "Audit Committee Financial Expert" in accordance with the rules of the SEC.

        The Compensation Committee establishes and approves compensation plans and arrangements with respect to the Company's executive officers and administers the Company's Executive Annual Incentive Plan. The Stock Plan Subcommittee has authority over all decisions regarding awards to executive officers under the Company's share incentive plans and authority to administer the Company's share incentive plans under which executive officers and other employees may receive grants. The Company also has an Employee Equity Award Committee, the sole member of which is Mr. Freda. The sole purpose of this committee is to make limited grants of equity awards under the

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share incentive plan to employees who are not executive officers. To date, this committee has not made any grants.

        The Nominating and Board Affairs Committee, among other things, recommends nominees for election as members of the Board; considers and makes recommendations regarding Board practices and procedures; considers corporate governance issues that arise from time to time and develops appropriate recommendations for the Board regarding such matters; and reviews the compensation for service as a Board member.

        Each committee reports regularly to the Board and has the authority to engage its own advisors.


        Compensation Committee Interlocks and Insider Participation.  In fiscal 2015, Ms. Bravo, Mr. Fribourg, Mr. Parsons, and Mr. Zannino served on the Compensation Committee. None of these directors is a former or current officer or employee of the Company or any of its subsidiaries. During fiscal 2015, none of our executive officers served as a member of the compensation committee (or other committee performing similar functions) or as a director of any other entity of which an executive officer served on our Board or Compensation Committee. None of the directors who served on our Compensation Committee during fiscal 2015 has any relationship requiring disclosure under this caption under the rules of the SEC.


        Board and Board Committee Meetings; Attendance at Annual Meetings; Executive Sessions.  Directors are expected to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. In furtherance of the Board's role, directors are expected to attend all scheduled Board and Board committee meetings and all meetings of stockholders. In fiscal 2015, the Board of Directors met six times, the Compensation Committee and the Stock Plan Subcommittee each met five times, the Audit Committee met eight times, and the Nominating and Board Affairs Committee met three times. The total combined attendance for all Board and committee meetings was over 90%, and no director attended less than 75% of Board and committee meetings. The non-employee directors met five times in executive session in fiscal 2015, including at least one meeting at which only independent directors were present. All of the directors who were on the Board attended the Annual Meeting of Stockholders in November 2014.

        The Presiding Director serves a one-year term beginning with the meeting of the Board immediately following the Annual Meeting of Stockholders and is selected from among the independent members of the Board. Mr. Hockaday served as the Presiding Director for all executive sessions of the Board of Directors in fiscal 2015, and he has been appointed by the Board to serve for an additional one-year term beginning after the 2015 Annual Meeting.


        Board Leadership Structure.  Our Board is currently led by our Executive Chairman, who is a member of the Lauder family. As provided in our Corporate Governance Guidelines, we also have an independent director who serves as our Presiding Director. The remaining directors include our President and Chief Executive Officer, nine other non-employee directors (eight of whom are independent), and three more members of the Lauder family. A majority of the directors are independent.

        The Board of Directors considers this structure appropriate in view of the Lauder family's significant investment in the Company, including direct and indirect holdings of approximately 87% of the voting power of the Company. The structure also comports with the Stockholders' Agreement among various members of the Lauder family and the Company, which was originally entered into in connection with our initial public offering in 1995. See "Additional Information Regarding the Board of Directors – Stockholders' Agreement and Lauder Family Control" above.

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        In addition to his responsibilities as Chairman of the Board, Mr. W. Lauder, as Executive Chairman, works with the President and Chief Executive Officer to set overall vision, strategy, financial objectives, and investment priorities for the business. Mr. W. Lauder also continues to provide high-level leadership in areas that are important to the Company, including marketing, trade relations, global communications, and regulatory affairs. Mr. Hockaday, the current Presiding Director, presides at all meetings or executive sessions of non-employee or independent directors.


        Board Role in Risk Oversight.  Our Board of Directors regularly receives reports from our President and Chief Executive Officer and other members of senior management regarding areas of significant risk to us, including strategic, operational, financial, legal and regulatory, and reputational risks. However, senior management is responsible for assessing and managing the Company's various risk exposures on a day-to-day basis. In this regard, various management functions, such as the Company's Legal Department, Treasury Group, and Environmental Affairs and Safety Department, focus on particular risks, and over time, management has developed a more systemic and integrated approach to overall risk management, which includes the identification of risks and mitigation plans in the strategic planning process. The Board's role is one of oversight, assessing major risks facing the Company and reviewing options for their mitigation with management. In addition, the Audit Committee reviews and discusses with management our enterprise risk management processes.


        Risk in Compensation Programs.  The Company has developed a framework for evaluating incentive plan design features that may encourage or help mitigate risk, such as a mix of compensation elements, metrics, leverage, caps, and time horizons in order to determine whether the risks arising from our compensation programs (in addition to those applicable only to executive officers) were reasonably likely to have a material adverse effect on the Company. Using this framework again in 2015, we concluded that our compensation programs are not reasonably likely to have a material adverse effect on the Company. The results were reviewed with senior management and the Compensation Committee.


        Director Qualifications.  Our Board is comprised of individuals with diverse and complementary business experience, leadership experience, and financial expertise. Many of our current directors have leadership experience at major domestic and multinational companies, as well as experience on the boards of other companies and organizations, which provides an understanding of different business processes, challenges, and strategies. Other directors have government, legal, public policy, or media experience that provides insight into issues faced by public companies. The members of the Board are inquisitive and collaborative, challenging yet supportive, and demonstrate maturity and sound judgment in performing their duties. In addition to their own attributes, skills, and experience, and their significant personal investments in the Company, Lauder Family Members (including related entities) who control the Company have agreed to vote their shares in favor of four individuals. They are the four Lauder family members who are currently on the Board.

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        The Board believes that the above-mentioned attributes, along with the leadership skills and other experience of its Board members, some of which are described immediately below, provide the Company with the appropriate perspectives and judgment to guide the Company's long-term strategy, monitor progress and, in general, oversee management. Nominees for election at the 2015 Annual Meeting have an asterisk (*) next to their names.

Charlene Barshefsky  

International, government, and public policy experience as United States Trade Representative

   

Legal experience, including current role as Senior International Partner at WilmerHale

   

Board experience at American Express Company, Starwood Hotels & Resorts Worldwide Inc., and Intel Corporation

   

Trustee of the Howard Hughes Medical Institute

Rose Marie Bravo*

 

Global management, marketing, retail, and consumer and luxury brand industry experience as former Chief Executive of Burberry, various leadership positions at Saks Fifth Avenue (including as President) and Macy's (including as Chairman and Chief Executive Officer of I. Magnin), and in senior roles in merchandising the Beauty category for much of her career

   

Board experience at Tiffany & Co. and Williams-Sonoma, Inc.

   

Experience working abroad

   

Merchandise and product development expertise

Wei Sun Christianson

 

Global management and investment banking experience as Managing Director and Co-Chief Executive Officer of Asia Pacific and Chief Executive Officer of China at Morgan Stanley based in Beijing

   

Experience working abroad, particularly in China

   

Financial expertise

   

Government experience (in Hong Kong)

Fabrizio Freda

 

Global management, marketing, and other business, consumer, and luxury brand industry experience as President and Chief Executive Officer of The Estée Lauder Companies Inc.

   

Similar experience, including developing and leading global organizations, in leadership positions at The Procter & Gamble Company and Gucci SpA

   

Experience leading successful creative organizations with innovation programs based on research and development

   

Board experience at BlackRock,  Inc.

   

Experience living and working in several countries

   

Financial expertise

Paul J. Fribourg*

 

Global management, marketing, and other business experience as Chairman and Chief Executive Officer of Continental Grain Company

   

Board experience at Loews Corporation, Restaurant Brands International Inc., and Apollo Global Management, LLC

   

Affiliation with leading business and public policy associations (Council on Foreign Relations)

   

Financial expertise

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Mellody Hobson*

 

Management and investment experience as President of Ariel Investments, LLC

   

Board experience at DreamWorks Animation SKG,  Inc., Starbucks Corporation, and Groupon, Inc.

   

Media experience as on-air regular contributor and analyst on finance, the markets, and economic trends for CBS News

   

Financial expertise

Irvine O. Hockaday, Jr.*

 

Global business experience and consumer brand industry experience as former CEO of Hallmark Cards, Inc.

   

Board experience at numerous public companies, including Aratana Therapeutics, Inc., Ford Motor Company, and Sprint Nextel Corporation

   

Financial expertise

   

Legal experience

Aerin Lauder

 

Marketing and other consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1992 and through the creation and leadership of Aerin LLC

   

Significant stockholder and party to Stockholders' Agreement (solely as trustee of one or more trusts)

Jane Lauder

 

Management, marketing and other industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1996

   

Significant stockholder and party to Stockholders' Agreement (solely as trustee of one or more trusts)

Leonard A. Lauder

 

Global business, marketing, and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1958

   

Experience leading successful creative organizations with innovation programs based on research and development

   

Affiliation with leading business, civic, and public policy associations

   

Charter Trustee of The University of Pennsylvania

   

Significant stockholder and party to Stockholders' Agreement

William P. Lauder

 

Global business, marketing, Internet, retail, and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1986

   

Experience leading successful creative organizations with innovation programs based on research and development

   

Board experience at Jarden Corporation, GLG Partners, Inc., and True Temper Sports, Inc.

   

Trustee of University of Pennsylvania and lecturer at The Wharton School

   

Financial expertise

   

Significant stockholder and party to Stockholders' Agreement

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Richard D. Parsons

 

Global business, marketing, media, Internet, banking, and other business and consumer brand experience through leadership roles at Time Warner Inc. and Dime Bancorp, Inc.

   

Board experience at Citigroup, Inc., Time Warner Inc., The Madison Square Garden Company, and Lazard Ltd.

   

Private equity experience at Providence Equity Partners LLC

   

Legal and government experience

   

Financial expertise

Lynn Forester de Rothschild

 

Global business and investment experience as Chief Executive of E.L. Rothschild LLC and CEO of FirstMark Holdings, Inc.

   

Board and media experience as director of The Economist Newspaper Limited

   

Affiliation with leading business and public policy associations (Council on Foreign Relations)

   

Experience working abroad

   

Legal and government expertise

   

Financial expertise

Barry S. Sternlicht*

 

Global business, investment, real estate, financial, private equity, entrepreneurial, and consumer brand and luxury industry expertise at Starwood Capital Group, and as Chairman of Starwood Property Trust, Inc., and as founder and former Chief Executive of Starwood Hotels & Resorts Worldwide, Inc.

   

Board experience at Starwood Property Trust,  Inc., Ellen Tracy, Field & Stream, Restoration Hardware Holdings, and Mammoth Mountain, and as Chairman of Baccarat

   

Trustee of Brown University

   

Financial expertise

Richard F. Zannino

 

Management, media, finance, retail, and consumer brand industry experience in various positions at Dow Jones & Company, Inc. (including CEO, COO, and CFO), Liz Claiborne, Inc. (including CFO), and Saks Fifth Avenue (including CFO)

   

Consumer, retail, media, and private equity experience at CCMP Capital Advisors, LLC

   

Board experience at Dow Jones & Company, Inc., IAC/InterActiveCorp, Ollie's Bargain Outlet Holdings, Inc., and Francesca's Holdings Corporation

   

Trustee of Pace University

   

Financial expertise

        The Company does not have a specific policy on diversity of the Board. Instead, the Board evaluates nominees in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on the group's diversity of experience, represent stockholder interests through the exercise of sound judgment. Such diversity of experience may be enhanced by a mix of different professional and personal backgrounds and experiences. The Company is proud to have a board that is highly diverse, including with respect to gender and race.


        Board Membership Criteria.  The Nominating and Board Affairs Committee works with the Board on an annual basis to determine the appropriate characteristics, skills, and experience for the Board as

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a whole and for its individual members. All directors should possess the highest personal and professional ethics as well as an inquisitive and objective perspective, practical wisdom, and mature judgment. In evaluating the suitability of individual Board members, the Board takes into account many factors, including general understanding of marketing, finance, and other disciplines relevant to the success of a large publicly traded company in today's business environment; understanding of the Company's business on a technical level; and educational and professional background. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on its diversity of experience, represent stockholder interests through the exercise of sound judgment. In determining whether to recommend a director for re-election, the Nominating and Board Affairs Committee also considers the director's past attendance at meetings and participation in and contributions to the activities of the Board.

        Upon determining the need for additional or replacement Board members, the Nominating and Board Affairs Committee will identify one or more director candidates and evaluate each candidate under the criteria described above based on the information it receives with a recommendation or that it otherwise possesses, which information may be supplemented by additional inquiries. Application of these criteria involves the exercise of judgment and cannot be measured in any mathematical or routine way. Based on its assessment of each candidate's independence, skills, and qualifications and the criteria described above, the Committee will make recommendations regarding potential director candidates to the Board. The Committee may engage third parties to assist in the search for director candidates or to assist in gathering information regarding a candidate's background and experience. The Committee will evaluate stockholder-recommended candidates in the same manner as other candidates. Candidates may also be designated pursuant to the Stockholders' Agreement. See "Additional Information Regarding the Board of Directors – Stockholders' Agreement and Lauder Family Control" above.


        Board Independence Standards for Directors.  To be considered "independent" for purposes of membership on the Company's Board of Directors, the Board must determine that a director has no material relationship with the Company, including any of its subsidiaries, other than as a director. For each director, the Board broadly considers all relevant facts and circumstances. In making its determination, the Board considers the following categories of relationships to be material, thus precluding a determination that a director is "independent:"

(i)
the director is an employee of the Company, or an immediate family member of the director is an executive officer of the Company, or was so employed during the last three years.

(ii)
the director receives, or an immediate family member of the director receives, 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).

(iii)
(A) the director is a current partner or employee of a firm that is the Company's internal or external auditor, (B) the director has an immediate family member who is a current employee of such a firm, (C) 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 (D) the director or an immediate family member of the director was within the last three years a partner or employee of such a firm and personally worked on the Company's audit within that time.

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(iv)
the director or an immediate family member of the director 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.

(v)
the director is a current employee, or an immediate family member of the director 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 following relationships will not be considered to be "material" relationships that would impair a director's independence:

(i)
any of the relationships described in (i)-(v) above, if such relationships occurred more than three years ago, or

(ii)
if a director is a current employee, or an immediate family member of a director is a current executive officer of another company that does business with the Company and such other company, during the current or last fiscal year, made payments to or received payments from, the Company of less than $1 million or 2% of such other company's consolidated gross revenues, whichever is greater.

        Contributions to tax exempt organizations shall not be considered payments for purposes of these independence standards. An "immediate family member" includes a director's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home.

        The Board reviews at least annually whether directors meet these Director Independence Standards.

        The following directors, including all five of the directors nominated for re-election, have been determined by the Board to be "independent" pursuant to NYSE rules and the Company's Independent Director Standards described above: Charlene Barshefsky, Rose Marie Bravo, Wei Sun Christianson, Paul J. Fribourg, Mellody Hobson, Irvine O. Hockaday, Jr., Lynn Forester de Rothschild, Barry S. Sternlicht, and Richard F. Zannino.

        In addition to the foregoing, in order to be considered "independent" under NYSE rules for purposes of serving on the Company's Audit Committee or Compensation Committee, a director also may not accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company, other than as a director, and may not be an "affiliated person" of the Company. Audit Committee members may receive directors' fees and fixed payments for prior service with the Company. The Board has determined that each member of the Audit Committee and each independent member of the Compensation Committee meets these additional independence requirements.


        Communications with the Board.  A stockholder or any other interested party who wishes to communicate with the Board, any Committee thereof, the non-management directors as a group, or any individual director, including the Presiding Director for the executive sessions of the Board, may do so by addressing the correspondence to that individual or group, c/o Sara E. Moss, Executive Vice President and General Counsel, The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. She, or her designee, will review all such correspondence to determine that the substance of the correspondence relates to the duties and responsibilities of the Board or individual Board member before forwarding the correspondence to the intended recipient. Spam, junk mail, solicitations, and hostile, threatening, illegal, or similarly unsuitable material will not be forwarded to the intended recipient and, if circumstances warrant, may be forwarded to the Company's security staff. Any communication that is not forwarded may be made available to the intended recipient at his or her request.

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        Director Nominees Recommended by Stockholders.  The Nominating and Board Affairs Committee will consider stockholder recommendations of nominees in the same manner as and pursuant to the same criteria by which it considers all other nominees, except for nominations received pursuant to the Stockholders' Agreement. See "Board Membership Criteria" above. Stockholders who wish to suggest qualified candidates should send their written recommendation to the Nominating and Board Affairs Committee, c/o Sara E. Moss, Executive Vice President and General Counsel, The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. The following information must accompany any such recommendation by a stockholder: (i) the name and address of the stockholder making the recommendation; (ii) the name, address, telephone number, and social security number of the proposed nominee; (iii) the class or series and number of shares of the Company that are beneficially owned by the stockholder making the recommendation; (iv) a description of all arrangements or understandings between the stockholder and the candidate, and an executed written consent of the proposed nominee to serve as a director of the Company if so elected; (v) a copy of the proposed nominee's resume and references; and (vi) an analysis of the candidate's qualifications to serve on the Board of Directors and on each of the Board's committees in light of the criteria for Board membership established by the Board. See "Board Membership Criteria" above. For stockholders intending to nominate an individual for election as a director directly, there are specific procedures set forth in our bylaws. See "Stockholder Proposals and Director Nominations for the 2016 Annual Meeting" below.

Corporate Governance Guidelines and Code of Conduct

        The Board of Directors has developed corporate governance practices to help it fulfill its responsibilities to stockholders in providing general direction and oversight of management of the Company. These practices are set forth in the Company's Corporate Governance Guidelines. The Company also has a Code of Conduct (the "Code") applicable to all employees, officers, and directors of the Company including, without limitation, the Chief Executive Officer, the Chief Financial Officer, and other senior officers. These documents, as well as any waiver of a provision of the Code granted to any senior officer or director or any material amendment to the Code, may be found in the "Investor Relations" section of the Company's website: www.elcompanies.com within the "Leadership" subsection under the heading "Corporate Governance." Stockholders may also contact Investor Relations at 767 Fifth Avenue, New York, New York 10153 or call 800-308-2334 to obtain a hard copy of these documents without charge.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and any persons who own more than 10% of the Class A Common Stock, to file forms reporting their initial beneficial ownership of common stock and subsequent changes in that ownership with the SEC and the NYSE. Officers, directors, and greater-than-10% beneficial owners also are required to furnish the Company with copies of all forms they file under Section 16(a). Based solely upon a review of the copies of the forms furnished to the Company, or a written representation from a reporting person that no Form 5 was required, the Company believes that during the 2015 fiscal year, all Section 16(a) filing requirements were satisfied.

Policy and Procedures for the Review of Related Person Transactions

        We have a written policy that sets forth procedures for the review and approval or ratification of transactions involving "Related Persons" (the "Policy"), which persons consist of any director, nominee for director, executive officer, or greater-than-5% stockholder of the Company, and the "Immediate Family Members" of any such director, nominee for director, executive officer, or greater-than-5% stockholder. The Audit Committee (or its Chair under certain circumstances) is responsible for

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applying the Policy with the assistance of the Executive Vice President and General Counsel ("EVP GC") or designee (if any).

        "Transactions" covered by the Policy consist of any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships in which:

(i)
with respect to any fiscal year, any transaction which is currently proposed or has been in effect at any time since the beginning of such fiscal year in which the Company was, is or is proposed to be a participant; and

(ii)
a person who at any time during such fiscal year was a Related Person had, has or will have a direct or indirect material interest.

        Determination of materiality may include the importance of the interest to the Related Person (financially or otherwise); the relationship of the Related Person to the Transaction and of Related Persons with each other; the dollar amount involved in the Transaction; and whether any Related Person has or will have a direct material interest or an indirect material interest in the transaction.

        The Policy includes a list of categories of transactions identified by the Board as having no significant potential for an actual or the appearance of a conflict of interest or improper benefit to a Related Person, and thus are not subject to review by the Audit Committee ("Excluded Transactions"). Excluded Transactions include certain transactions in the ordinary course of business between the Company and another entity with which a Related Person is affiliated and certain discretionary charitable contributions by the Company to an established non-profit entity with which a Related Person is affiliated, as long as the amounts involved are below certain percentages of the consolidated gross revenues of the Company and the Related Person.

        Each Transaction by a Related Person should be reported to the EVP GC, or designee, for presentation to the Audit Committee for approval prior to its consummation, or for ratification, if necessary, after consummation. The EVP GC or designee will assess whether any proposed transaction involving a Related Person is a related person transaction covered by the Policy, and if so, the transaction will be presented to the Audit Committee for review and consideration at its next meeting or, in those instances in which the EVP GC or designee determines that it is not practicable or desirable for the Company to wait until the next Audit Committee meeting, to the Chair of the Audit Committee. If the EVP GC or designee potentially may be involved in a related person transaction, the applicable person is required to inform the Chief Executive Officer and the Chair of the Audit Committee. Transactions by Related Persons (other than Excluded Transactions) will be reviewed and be subject to approval by the Audit Committee. If possible, the approval will be obtained before the Company commences the transaction or enters into or amends any contract relating to the transaction. If advanced Audit Committee approval of a related person transaction is not feasible or not identified prior to the commencement of a transaction, then the transaction will be considered and, if the Audit Committee determines it to be appropriate, ratified at the Audit Committee's next regularly scheduled meeting.

        In determining whether to approve or ratify a related person transaction covered by the Policy, the Audit Committee may take into account such factors it deems appropriate, which may include (if applicable), but not be limited to:

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        A member of the Audit Committee who is a Related Person in connection with a particular proposed related person transaction will not participate in any discussion or approval of the transaction, other than discussions for the purpose of providing material information concerning the transaction to the Audit Committee.

Certain Relationships and Related Transactions

        Lauder Family Relationships and Compensation.  Leonard A. Lauder is Chairman Emeritus. His brother, Ronald S. Lauder is Chairman of Clinique Laboratories, LLC. Leonard A. Lauder has two sons, William P. Lauder and Gary M. Lauder. William P. Lauder is Executive Chairman and in such role is Chairman of the Board of Directors. Gary M. Lauder is not an employee of the Company. Ronald S. Lauder and his wife, Jo Carole Lauder, have two daughters, Aerin Lauder and Jane Lauder, both of whom are directors of the Company. Aerin Lauder is also Style and Image Director for the Estée Lauder brand (see "Agreements with Aerin Lauder" below for additional information). Jane Lauder is also Global Brand President, Clinique.

        For fiscal 2015, the following Lauder Family Members received the following amounts from the Company as compensation: Leonard A. Lauder received an aggregate of $1,600,000 for his services; Ronald S. Lauder received $650,000 in salary and a bonus of $401,150; and Jane Lauder received $676,000 in salary and a bonus of $515,200, performance share units with a target payout of 4,303 shares of Class A Common Stock, stock options in respect of 14,976 shares of Class A Common Stock, and restricted stock units in respect of 4,303 shares of Class A Common Stock. Each of these Lauder Family Members is entitled to participate in standard benefit plans, such as the Company's pension and medical plans. For information regarding fiscal 2015 compensation for William P. Lauder, see "Executive Compensation" below.

        For fiscal 2016, Leonard A. Lauder has a base salary of $1,800,000; Ronald S. Lauder has a base salary of $650,000 and bonus opportunities with a target payout of $350,000; and Jane Lauder has a base salary of $700,000 and bonus opportunities with a target payout of $525,000. On September 4, 2015, Jane Lauder was granted performance share units with a target payout of 4,262 shares of Class A Common Stock, stock options in respect of 15,699 shares of Class A Common Stock, and restricted stock units in respect of 4,262 shares of Class A Common Stock, in each case for fiscal 2015. The grants were consistent with those made to employees at her level. For information regarding fiscal 2016 compensation for William P. Lauder, see "Compensation Discussion and Analysis" below.

        Leonard A. Lauder's current employment agreement (the "LAL Agreement") provides for his employment as Chairman Emeritus until such time as he resigns, retires, or is terminated. Mr. L. Lauder is entitled to participate in standard benefit plans, such as the Company's pension and medical plans. Mr. L. Lauder is also entitled to participate in the Amended and Restated Fiscal 2002 Share Incentive Plan, but no grants have been made to him under the plan to date. If Mr. L. Lauder retires, the Company will continue to provide him with the office he currently occupies (or a comparable office if the Company relocates) and a full-time executive secretary for as long as he would like. The Company may terminate Mr. L. Lauder's employment at any time if he becomes "permanently disabled," in which event Mr. L. Lauder will be entitled to (i) receive his base salary for a period of two years after termination, (ii) receive bonus compensation during such salary continuation period at an annual rate equal to the average of the actual bonuses paid to him prior to such termination under

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the LAL Agreement (the "Leonard Lauder Bonus Compensation"), and (iii) participate in the Company's benefit plans for two years. In the event of Mr. L. Lauder's death during the term of his employment, for a period of one year from the date of Mr. L. Lauder's death, his beneficiary or legal representative will be entitled to receive Mr. L. Lauder's base salary and the Leonard Lauder Bonus Compensation. Mr. L. Lauder may terminate his employment at any time upon six months' written notice to the Company, in which event Mr. L. Lauder will be entitled to receive his base salary and the Leonard Lauder Bonus Compensation for the six-month period following termination. In addition, the Company may terminate Mr. L. Lauder's employment for any reason upon 60 days' written notice. In the event of termination of his employment by the Company (other than for cause, disability, or death) or a termination by Mr. L. Lauder for good reason after a change of control, (a) Mr. L. Lauder, for a period of three years from the date of termination, will be entitled to (i) receive his base salary in effect at the time of termination, (ii) receive the Leonard Lauder Bonus Compensation, (iii) participate in the Company's benefit plans and (b) in the case of termination by the Company (other than for cause, disability, or death), Mr. L. Lauder will not be subject to the non-competition covenant contained in the LAL Agreement. Upon termination for any reason, any options previously granted to Mr. L. Lauder will remain exercisable for the remainder of their respective terms, subject to certain non-competition and good conduct provisions.

        As used in this Proxy Statement, the term "Lauder Family Members" includes only the following persons: (i) the estate of Mrs. Estée Lauder; (ii) each descendant of Mrs. Lauder (a "Lauder Descendant") and their respective estates, guardians, conservators, or committees; (iii) each "Family Controlled Entity" (as defined below); and (iv) the trustees, in their respective capacities as such, of each "Family Controlled Trust" (as defined below). The term "Family Controlled Entity" means: (i) any not-for-profit corporation if at least 80% of its board of directors is composed of Lauder Descendants; (ii) any other corporation if at least 80% of the value of its outstanding equity is owned by Lauder Family Members; (iii) any partnership if at least 80% of the value of its partnership interests are owned by Lauder Family Members; and (iv) any limited liability or similar company if at least 80% of the value of the company is owned by Lauder Family Members. The term "Family Controlled Trust" includes certain trusts existing on November 16, 1995 and trusts the primary beneficiaries of which are Lauder Descendants, spouses of Lauder Descendants, and/or charitable organizations, provided that if the trust is a wholly charitable trust, at least 80% of the trustees of such trust consist of Lauder Descendants.


        Registration Rights Agreement.  Leonard A. Lauder, Ronald S. Lauder, The Estée Lauder 1994 Trust, William P. Lauder, Gary M. Lauder, Aerin Lauder, Jane Lauder, certain Family Controlled Entities and other Family Controlled Trusts, Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), and the Company are parties to a Registration Rights Agreement (the "Registration Rights Agreement"), pursuant to which each of Leonard A. Lauder, Ronald S. Lauder, and Morgan Guaranty have three demand registration rights and The Estée Lauder 1994 Trust has six demand registration rights in respect of shares of Class A Common Stock (including Class A Common Stock issued upon conversion of Class B Common Stock) held by them. Three of the demand rights granted to The Estée Lauder 1994 Trust may be used only by a pledgee of The Estée Lauder 1994 Trust's shares of Common Stock. All the parties to the Registration Rights Agreement (other than the Company) also have an unlimited number of piggyback registration rights in respect of their shares. The rights of Morgan Guaranty and any other pledgee of The Estée Lauder 1994 Trust under the Registration Rights Agreement will be exercisable only in the event of a default under certain loan arrangements. Leonard A. Lauder and Ronald S. Lauder may assign their demand registration rights to Lauder Family Members. The Company is not required to effect more than one registration of Class A Common Stock in any consecutive twelve-month period. The piggyback registration rights allow the holders to include their shares of Class A Common Stock in any registration statement filed by the Company, subject to certain limitations.

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        The Company is required to pay all expenses (other than underwriting discounts and commissions of the selling stockholders, taxes payable by the selling stockholders, and the fees and expenses of the selling stockholders' counsel) in connection with any demand registrations, as well as any registrations pursuant to the exercise of piggyback rights. The Company has agreed to indemnify the selling stockholders against certain liabilities, including liabilities arising under the Securities Act of 1933.


        Stockholders' Agreement.  All Lauder Family Members who are party to the Stockholders' Agreement have agreed to vote shares beneficially owned by them for Leonard A. Lauder (or for one of his sons), Ronald S. Lauder (or for one of his daughters), and one person, if any, designated by each as a director of the Company. Aerin Lauder and Jane Lauder are parties to the Stockholders' Agreement solely as trustees of certain trusts. Shares subject to the Stockholders' Agreement represent approximately 84% of the voting power of the Company as of the Record Date. See "Additional Information Regarding the Board of Directors – Stockholders' Agreement and Lauder Family Control" above. Parties to the Stockholders' Agreement, may, without restriction under the agreement, sell their shares in a widely distributed underwritten public offering, in sales made in compliance with Rule 144 under the Securities Act of 1933 or to other Lauder Family Members. In addition, each party to the Stockholders' Agreement may freely donate shares in an amount not to exceed 1% of the outstanding shares of Common Stock in any 90-day period. In the case of other private sales, each stockholder who is a party to the Stockholders' Agreement (the "Offering Stockholder") has granted to each other party (the "Offeree") a right of first offer to purchase shares of Class A Common Stock that the Offering Stockholder intends to sell to a person (or group of persons) who is not a Lauder Family Member. Each Offeree has the opportunity to purchase the Offeree's pro rata portion of the shares to be offered by the Offering Stockholder, as well as additional shares not purchased by other Offerees. Any shares not purchased pursuant to the right of first offer may be sold at or above 95% of the price offered to the Offerees. The Stockholders' Agreement also includes provisions for bona fide pledges of shares of Common Stock and procedures related to such pledges. The Stockholders' Agreement will terminate upon the occurrence of certain specified events, including the transfer of shares of Common Stock by a party to the Stockholders' Agreement that causes all parties thereto immediately after such transaction to own beneficially in the aggregate shares having less than 10% of the total voting power of the Company.


        Agreements with Aerin Lauder.  In April 2011, Estee Lauder Inc. ("ELI"), a subsidiary of the Company, entered into (a) a creative consultant agreement with Aerin Lauder (the "Creative Consultant Agreement") and (b) a brand license agreement with Ms. Lauder and Aerin LLC, a limited liability company wholly owned by Ms. Lauder (the "License Agreement").

        Under the Creative Consultant Agreement, which was amended in October 2014, Aerin Lauder is a spokesperson for the Estée Lauder brand and collaborates with the Estée Lauder Creative Director on creative aspects of the brand as Style and Image Director. The initial term of the agreement expires on June 30, 2016. Ms. Lauder received approximately $537,400 in fiscal 2015 (reduced from $757,000 in fiscal 2014) for her services under the agreement. She will receive approximately $558,900 in fiscal 2016 for such services. During the term of the agreement, the Company has the exclusive right to use Ms. Lauder's name and image to market beauty products and related services of the Estée Lauder brand. For fiscal 2016, Ms. Lauder has agreed to a minimum of 25 full days of personal appearances worldwide for the brand, the Company, or its subsidiaries. If ELI requires Ms. Lauder to provide additional days in fiscal 2016, she will be paid $24,000 per extra day. Ms. Lauder will be provided with an office and access to an assistant in connection with her services.

        Under the License Agreement, Aerin LLC has granted ELI a worldwide license to use the "Aerin" trademark and "A" logo (and related marks) and Ms. Lauder's name and image (i) exclusively in connection with "Core Beauty Products" (cosmetics, fragrances, toiletries, skin care, hair care, value sets, and beauty accessories) and (ii) non-exclusively in connection with "Non-Core Beauty Products"

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(cosmetics bags, tote bags, and fragranced candles). The License Agreement covers the name "Aerin" and not the name "Lauder," for which the Company and its subsidiaries retain sole ownership. The initial license term lasts until June 30, 2017, with three 5-year renewal terms if ELI does not give notice of non-renewal and net sales hit certain performance targets (or if ELI cures a sales shortfall, in certain circumstances). Aerin LLC will receive the following royalties: (i) for all products other than fragrances, 4% of annual net sales up to $40 million and 5% of annual net sales in excess thereof; and (ii) for fragrances, 5% of annual net sales. For fiscal 2015, Aerin LLC was paid approximately $273,000 in royalties. ELI must spend the following minimum amounts to promote Aerin-branded products: 20% of ELI's net sales of Aerin-branded products each year in the initial term and 15% of such net sales each year thereafter, with such requirement capped each year at 50% of Aerin LLC's similar expenditures, either directly or through other licensees, on Aerin-branded products. Both ELI and Aerin LLC will distribute Aerin-branded products only through prestige retailers. In addition, the Company has agreed to make payments totaling $500,000 in each of fiscal 2015 and fiscal 2016 to Aerin LLC in connection with brand-building activities for AERIN Beauty and the AERIN lifestyle brand.

        ELI launched AERIN Beauty in September 2012 with several products, and additional products have been introduced since then. ELI may launch additional Aerin-branded products in its reasonable commercial judgment. Ms. Lauder has agreed to provide at least ten personal appearances during each fiscal year, for which she will not be compensated, and which are in addition to those appearances covered by the Creative Consultant Agreement. ELI will be responsible for Ms. Lauder's reasonable travel expenses in connection with such appearances.

        Aerin LLC may terminate the License Agreement if an unaffiliated third party obtains more than 50% of the voting power or equity of ELI. ELI may terminate the License Agreement if control of Aerin LLC (or substantially all of its assets) is transferred to a competitor of ELI or to certain categories of retailers not engaged in prestige distribution. Either side may terminate the License Agreement for an uncured material breach.

        Other Arrangements.    The Company has subleased certain of its office space in New York to an affiliate of Ronald S. Lauder. For fiscal 2015, the rent paid or accrued was approximately $855,000, which equals the Company's lease payments for that space. The Company also has agreed to provide such affiliate with certain services, such as phone systems, payroll service, and office and administrative services, which are reimbursed at a rate approximating the Company's incremental cost thereof. For fiscal 2015, the affiliate paid approximately $11.3 million pursuant to such agreement. At June 30, 2015, the affiliate had deposited with the Company approximately $1.6 million to cover expenses. The Company has similar arrangements for space and services with an affiliate of Leonard A. Lauder and his family. For fiscal 2015, that affiliate and/or family members paid the Company approximately $6.8 million for office space and certain services, such as phone systems, payroll service, and office and administrative services. At June 30, 2015, the affiliate and family members had deposited with the Company approximately $226,000 to cover expenses. The payments by the affiliates and family members approximated the Company's incremental cost of such space and services.

        Certain members of the Lauder family (and entities affiliated with one or more of them) own numerous works of art that are displayed at the Company's offices. The Company pays no fee to the owners for displaying such works. The owners of the works pay for their maintenance. In fiscal 2015, the Company paid premiums of about $10,000 for insurance relating to such works.

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Director Compensation

        The following summary describes compensation for non-employee directors.


        Annual Cash Retainer for Board Service.  Each non-employee director receives an annual cash retainer of $75,000, payable quarterly in advance, which may be deferred, as explained below.


        Annual Cash Retainer for Committee Service.  Each non-employee director who serves on a committee receives an additional annual cash retainer, payable quarterly in advance, in the following amounts: $12,000 per year for service on the Audit Committee, $8,000 per year for service on the Compensation Committee (including service on the Stock Plan Subcommittee), and $8,000 per year for service on the Nominating and Board Affairs Committee. The Chairman of the Audit Committee receives a further annual cash retainer of $25,000. The Chairmen of the Compensation Committee and the Nominating and Board Affairs Committee receive a further annual cash retainer of $15,000 each. These cash retainers for committee service may be deferred, as explained below.


        Deferral of Annual Cash Retainers.  Non-employee directors may elect to defer receipt of all or part of their cash-based compensation. Specifically, pursuant to Deferred Compensation Agreements, they may defer any or all of the above-referenced annual cash retainers into either (i) stock units (accompanied by dividend equivalent rights) or (ii) an interest-bearing cash account, in each case to be paid out in a lump sum in cash after the director's retirement.


        Initial Stock Grant.  On the date of the first annual meeting of stockholders that is more than six months after a non-employee director's initial election to the Board, the director receives a grant of 4,000 shares of Class A Common Stock (plus a cash payment in an amount to cover related income taxes), pursuant to the Non-Employee Director Share Incentive Plan.


        Annual Stock Units Retainer for Board Service.  An additional $75,000 is payable to each non-employee director by a grant of stock units (accompanied by dividend equivalent rights) as an annual stock retainer, pursuant to the Non-Employee Director Share Incentive Plan. This grant is made on the date of each annual meeting of stockholders. The number of stock units to be awarded is determined by dividing $75,000 by the average closing price of the Class A Common Stock on the twenty trading days preceding the date of grant. Each stock unit is convertible into one share of Class A Common Stock, and the Class A Common Stock represented by the stock units is distributed to the director on or after the first business day of the calendar year following the one in which the director ceases to be a member of the Board.


        Annual Stock Options.  In addition to the cash and stock portion of the retainer, each non-employee director receives an annual grant of options valued at no more than $100,000 on the date of grant, pursuant to the Non-Employee Director Share Incentive Plan. This grant is made on the date of each annual meeting of stockholders. The exercise price of the options is equal to the closing price of the Class A Common Stock on the date of grant. The options are exercisable beginning one year after the date of grant, provided that the director continues to serve as of such date. The options generally terminate ten years after the date of grant.


        Stock Ownership Requirement.  As set forth in the Company's Corporate Governance Guidelines, the Board believes that in order to align the interests of directors and stockholders, directors should have a significant financial stake in the Company. Specifically, each director should own shares of the Company's Common Stock with a value equal to or greater than four times the annual cash retainer for Board service. A director is required to comply with these guidelines no later than three years after his or her initial election to the Board. Applying this guideline for fiscal 2015, each director was required to own shares of the Company's Common Stock with a value equal to or greater than $300,000 (i.e. $75,000 × 4). As of the end of fiscal 2015, each director was in compliance with this stock ownership requirement.

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        Company Products.  The Company provides directors with certain Company products from different brands and product categories. The Company believes that providing these products serves a business purpose by expanding the directors' knowledge of the Company's business. The Company also provides each non-employee director with the opportunity to purchase up to $1,280 worth of the Company's products each calendar year (based on suggested retail prices) at no charge; if a director chooses to take advantage of this opportunity and purchase more than $640 worth of the Company's products, the excess is imputed as taxable income to the director. For the year ended June 30, 2015, the aggregate incremental cost to the Company for these products provided to the directors was substantially less than $10,000 per director. Non-employee directors may also purchase Company products at a price equal to 50% off the suggested retail price, which is the same discount made available to officers and other employees of the Company.


        Reimbursement of Expenses.  Non-employee directors are reimbursed for their reasonable expenses (including costs of travel, food, and lodging) incurred in attending Board, committee, and stockholder meetings. Directors are also reimbursed for any other reasonable expenses relating to their service on the Board, including participating in director continuing education and Company site visits.


        Management Directors.  Directors who are also employees of the Company receive no additional compensation for service as directors. These directors are Jane Lauder, Leonard A. Lauder, William P. Lauder, and Fabrizio Freda. Aerin Lauder, who is no longer an employee of the Company, continues to be treated as a management director for purposes of director compensation, and therefore she received no additional compensation for service as a director in fiscal 2015. Information concerning the compensation of the Lauder family members, including those who serve as directors, and Mr. Freda, is described in "Executive Compensation" (for Mr. W. Lauder and Mr. Freda) and "Certain Relationships and Related Transactions" under "Lauder Family Relationships and Compensation" and "Agreements with Aerin Lauder."

        The following table sets forth compensation information regarding the Company's non-employee directors in fiscal 2015.

Name







Fees
Earned or
Paid in
Cash
($)(1)








Stock
Awards
($)(2)(3)






Option
Awards
($)(4)(5)







Non-Equity
Incentive Plan
Compensation
($)












Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(6)











All Other
Compensation
($)





Total
($)
 
             

Charlene Barshefsky

  $ 83,000   $ 72,703   $ 99,978         $ 255,682  

Rose Marie Bravo

    83,000     72,703     99,978                 255,682  

Wei Sun Christianson

  83,000   72,703   99,978         255,682  

Paul J. Fribourg

    95,000     72,703     99,978                 267,682  

Mellody Hobson

  87,000   72,703   99,978         259,682  

Irvine O. Hockaday, Jr.

    112,000     72,703     99,978                 284,682  

Richard D. Parsons

  106,000   72,703   99,978         278,682  

Lynn Forester de Rothschild

    98,000     72,703     99,978                 270,682  

Barry S. Sternlicht

  83,000   72,703   99,978         255,682  

Richard F. Zannino

    95,000     72,703     99,978                 267,682  

(1)
These amounts represent the Annual Cash Retainer for Board Service and the Annual Cash Retainer for Committee Service.

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(2)
These amounts represent the aggregate grant date fair value of the Annual Stock Units Retainer for Board Service (specifically, 1,019.25 units for each director) as computed in accordance with FASB Accounting Standard Codification Topic 718, Compensation – Stock Compensation. The amounts were calculated based on the closing price per share of the Class A Common Stock on the NYSE on the date of grant (November 14, 2014).

(3)
These stock units convert into Class A Common Stock on or after the first business day of the calendar year following the date on which the director ceases to serve on the Board. The amounts shown include dividend equivalents. Presented below are the aggregate number of shares of Class A Common Stock underlying Annual Stock Unit Retainers outstanding as of June 30, 2015.

Name





Total Number of Shares of Class A Common Stock
Underlying Stock Awards Outstanding as of
June 30, 2015
 
 

Charlene Barshefsky

  14,339  

Rose Marie Bravo

    10,923  

Wei Sun Christianson

  4,891  

Paul J. Fribourg

    6,404  

Mellody Hobson

  12,777  

Irvine O. Hockaday, Jr.

    17,780  

Richard D. Parsons

  13,347 *

Lynn Forester de Rothschild

    14,129  

Barry S. Sternlicht

  10,033  

Richard F. Zannino

    5,673  

*
This includes 5,556 stock units held indirectly by Mr. Parsons as a co-trustee of a family trust.
(4)
These amounts represent the aggregate grant date fair value of the Annual Stock Options (specifically, options for 4,374 shares of Class A Common Stock for each director) as computed in accordance with FASB Accounting Standard Codification Topic 718, Compensation – Stock Compensation. Amounts shown disregard estimates of forfeitures related to service-based vesting conditions. The fair-market values of stock options at grant date (November 14, 2014) were calculated using the Black-Scholes options-pricing model, with the following assumptions: an expected volatility of 28% determined using a combination of both current and historical implied volatilities of the underlying Class A Common Stock obtained from public data sources; an expected term to exercise of 9 years from the date of grant; a risk-free interest rate of 2.34%; and a dividend yield of 1.1%. The value of any options that will ultimately be realized by the director will depend upon the actual performance of the Company's Class A Common Stock during the term of the option from the date of grant through the date of exercise.

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(5)
Presented below are the aggregate number of shares of Class A Common Stock underlying stock options outstanding as of June 30, 2015.

Name





Total Number of Shares of Class A Common Stock
Underlying Stock Options Outstanding as of
June 30, 2015
 
 

Charlene Barshefsky

  77,499 *

Rose Marie Bravo

    17,499  

Wei Sun Christianson

  17,499  

Paul J. Fribourg

    40,827  

Mellody Hobson

  50,999  

Irvine O. Hockaday, Jr.

    17,499  

Richard D. Parsons

  17,499  

Lynn Forester de Rothschild

    37,499  

Barry S. Sternlicht

  75,177  

Richard F. Zannino

    27,499  

*
This includes 64,576 shares of Class A Common Stock underlying stock options that are held indirectly by Ambassador Barshefsky through a family trust.
(6)
Non-employee directors do not receive pension benefits from the Company. Certain of the Company's directors in fiscal 2015 and prior years deferred their Annual Cash Retainers for Board and Committee service pursuant to applicable deferral agreements. Ambassador Barshefsky defers her compensation into an interest-bearing cash account; the interest rate is the Citibank base rate at the last day of the calendar year. Using the Citibank base rate and the applicable federal rate set by the Internal Revenue Service (the "AFR") at December 31, 2014 as the rates for fiscal 2014, no interest accrued above the AFR in fiscal 2015. Mr. Fribourg, Ms. Hobson, Mr. Hockaday, Lady de Rothschild, and Mr. Sternlicht defer their Annual Cash Retainers for Board and Committee service into stock units; all earnings on the fees deferred by these directors were based on the value of a hypothetical investment in shares of Class A Common Stock made at the time of the deferral, plus the accrual of dividend equivalents on any dividends paid by the Company on the Class A Common Stock. As of June 30, 2015, the directors held units in respect of the following amounts of shares of Class A Common Stock: Mr. Fribourg, 27,012; Ms. Hobson, 32,163; Mr. Hockaday, 69,137; Lady de Rothschild, 61,023; and Mr. Sternlicht, 33,617.

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Ownership of Shares

        The following table sets forth certain information regarding the beneficial ownership of the Company's Class A Common Stock and Class B Common Stock as of August 10, 2015 by (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of either Class A Common Stock or Class B Common Stock; (ii) each of the Company's directors or nominees; (iii) each of the current or former executive officers whose names appear in the Summary Compensation Table; and (iv) all current directors and executive officers as a group. Except as set forth in the notes to the table, the business or mailing address of each 5% stockholder is 767 Fifth Avenue, New York, New York 10153. As described in the notes to the table, certain named beneficial owners share voting and/or investment power with respect to certain shares of common stock. Consequently, such shares are shown as beneficially owned by more than one person.

  Class A
Common Stock(1)
 



Class B
Common Stock
 



Voting
Power†
 



Name of Beneficial Owner



Number(2)


%


Number


%


%

           

Leonard A. Lauder(3)(4)

    1,885,838     0.8 %           0.1 %

LAL Family Corporation(3)(5)

            90,659,684     61.7 %   53.4 %

Ronald S. Lauder(3)(6)

    73,335     *     10,053,395     6.8 %   5.9 %

William P. Lauder(3)(7)

    1,837,753     0.8 %   8,093,904     5.5 %   4.9 %

Gary M. Lauder(3)(8)

    830,443     0.4 %   787,091     0.5 %   0.5 %

Aerin Lauder(3)(9)

    1,692     *     6,585,594     4.5 %   3.9 %

Jane Lauder(3)(10)

    136,059     *     5,185,594     3.5 %   3.1 %

Joel S. Ehrenkranz, as trustee(3)(11)

    1,805,838     0.8 %           0.1 %

Richard D. Parsons, individually and as trustee(3)(12)

    30,914     *     31,332,820     21.3 %   18.5 %

Carol S. Boulanger, individually and as trustee(3)(13)

    827,975     0.4 %   741,351     0.5 %   0.5 %

Charlene Barshefsky(14)

    108,240     *             *  

Rose Marie Bravo(15)

    32,048     *             *  

Wei Sun Christianson(16)

    22,016     *             *  

Paul J. Fribourg(17)

    46,857     *             *  

Mellody Hobson(18)

    215,125     *             *  

Irvine O. Hockaday, Jr.(19)

    63,645     *             *  

Lynn Forester de Rothschild(20)

    51,254     *             *  

Barry S. Sternlicht(21)

    170,836     *             *  

Richard F. Zannino(22)

    32,798     *             *  

Fabrizio Freda(23)

    1,005,325     0.4 %           *  

John Demsey(24)

    50,505     *             *  

Cedric Prouvé(25)

    243,369     0.1 %           *  

Tracey T. Travis(26)

    100,431     *             *  

FMR LLC(27)

    24,829,118     11.0 %           1.5 %

The Vanguard Group(28)

    12,265,926     5.4 %           0.7 %

All directors and executive officers as a group (24 persons)(29)

    6,601,182     2.9 %   56,340,713     38.3 %   33.5 %

Voting power represents combined voting power of Class A Common Stock (one vote per share) and Class B Common Stock (10 votes per share) owned beneficially by such person or persons as of August 10, 2015. On that date, there were 225,860,589 shares of Class A Common Stock and 147,046,137 shares of Class B Common Stock outstanding.

*
Less than 0.1%

(1)
The number of shares of Class A Common Stock and percentages contained under this heading do not account for the conversion right with regard to Class B Common Stock. Each share of Class B Common Stock is convertible at the option of the holder into one share of Class A Common Stock and is automatically converted into a share of Class A Common Stock upon transfer to a person who is not a Lauder Family Member (as defined, see "Certain Relationships and Related Transactions – Lauder Family Relationships and Compensation" above).

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(2)
The number of shares of Class A Common Stock includes shares owned, any shares underlying restricted stock units payable in shares that are expected to vest within 60 days after August 10, 2015 (i.e. by October 9, 2015), and any exercisable options (including options that will be exercisable as of October 9, 2015). It does not include Performance Share Units ("PSUs") that were paid out after August 10, 2015 and in September 2015; for more information on those awards, see "Outstanding Equity Awards at June 30, 2015" below, as well as the Form 4s filed for the Company's executive officers after the payouts of those PSUs. The stock units included in the table that are beneficially owned by the non-employee directors represent the Annual Stock Units Retainer for Board Service (plus dividend equivalents). Such units will be settled in shares of Class A Common Stock. Amounts are rounded to the nearest whole unit.

(3)
Leonard A. Lauder, Ronald S. Lauder, William P. Lauder, and Gary M. Lauder, each individually and as trustees of various trusts, Aerin Lauder, as trustee, Jane Lauder, as trustee, Joel S. Ehrenkranz, as trustee, Richard D. Parsons, as trustee, Carol S. Boulanger, as trustee, and LAL Family Partners L.P. ("LALFP") are parties to a Stockholders' Agreement, pursuant to which each has agreed to vote his or her or the trust's or partnership's shares for the election of Leonard A. Lauder (or one of his sons), Ronald S. Lauder (or one of his daughters), and one person, if any, designated by each as a director of the Company. See note (12) for certain exceptions. Shares underlying stock options and stock units are not subject to the Stockholders' Agreement until the stock options are exercised or the stock units are converted. For purposes of the table, shares owned by each such individual are not attributed to the others by reason of such voting arrangement.

(4)
Includes shares owned beneficially or deemed to be owned beneficially by Leonard A. Lauder as follows:

(a)
80,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
1,805,838 shares of Class A Common Stock as co-trustee of The Leonard A. Lauder 2013 Revocable Trust and with respect to which he may be deemed to have shared voting and investment power with Joel S. Ehrenkranz, as co-trustee.

(5)
LAL Family Corporation is the sole general partner of LALFP and may be deemed to be the beneficial owner of 90,659,684 shares of Class B Common Stock owned directly by LALFP.

(6)
Includes shares owned beneficially or deemed to be owned beneficially by Ronald S. Lauder as follows:

(a)
10,047,031 shares of Class B Common Stock directly and with respect to which he has sole voting power and shares investment power as described below;

(b)
6,364 shares of Class A Common Stock and 6,364 shares of Class B Common Stock as sole trustee of a trust for the benefit of his children and with respect to which he has sole voting and investment power; and

(c)
66,971 shares of Class A Common Stock as a Director of The Ronald S. Lauder Foundation and with respect to which he shares voting and investment power.

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(7)
Includes shares owned beneficially or deemed to be owned beneficially by William P. Lauder as follows:

(a)
7,352,553 shares of Class B Common Stock directly and with respect to which he has sole voting and investment power;

(b)
795,615 shares of Class A Common Stock and 741,351 shares of Class B Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of William P. Lauder and others and with respect to which Mr. W. Lauder shares voting power with Gary M. Lauder, as co-trustee, and investment power with Gary M. Lauder and Carol S. Boulanger, as co-trustees;

(c)
24,360 shares of Class A Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of Gary M. Lauder and others and with respect to which Mr. W. Lauder shares voting power with Gary M. Lauder, as co-trustee, and investment power with Gary M. Lauder and Carol S. Boulanger, as co-trustees; and

(d)
1,017,778 shares of Class A Common Stock underlying options held by Mr. W. Lauder.
(8)
Includes shares owned beneficially or deemed to be owned beneficially by Gary M. Lauder as follows:

(a)
24,360 shares of Class A Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of Gary M. Lauder and others and with respect to which Mr. G. Lauder shares voting power with William P. Lauder, as co-trustee, and investment power with William P. Lauder and Carol S. Boulanger, as co-trustees;

(b)
795,615 shares of Class A Common Stock and 741,351 shares of Class B Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of William P. Lauder and others and with respect to which Mr. G. Lauder shares voting power with William P. Lauder, as co-trustee, and investment power with William P. Lauder and Carol S. Boulanger, as co-trustees; and

(c)
10,468 shares of Class A Common Stock and 45,740 shares of Class B Common Stock as custodian for his nieces and with respect to which he has sole voting and investment power.
(9)
Includes shares owned beneficially or deemed to be owned beneficially by Aerin Lauder as follows:

(a)
1,692 shares of Class A Common Stock and 1,675,000 shares of Class B Common Stock directly and with respect to which she has sole voting and investment power; and

(b)
4,910,594 shares of Class B Common Stock as co-trustee of the Trust under Article 2 of The Zinterhofer 2008 Descendants Trust Agreement u/a/d December 24, 2008 (the "2008 Descendants Trust") with respect to which she shares voting and investment power with Jane Lauder, as co-trustee.

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Table of Contents

(10)
Includes shares owned beneficially or deemed to be owned beneficially by Jane Lauder as follows:

(a)
23,803 shares of Class A Common Stock and 275,000 shares of Class B Common Stock directly and with respect to which she has sole voting and investment power;

(b)
4,910,594 shares of Class B Common Stock as co-trustee of the 2008 Descendants Trust and with respect to which she shares voting and investment power with Aerin Lauder, as co-trustee; and

(c)
112,256 shares of Class A Common Stock underlying options held by Ms. J. Lauder.
(11)
Represents shares of Class A Common Stock beneficially owned indirectly by Joel S. Ehrenkranz as co-trustee, with Leonard A. Lauder as co-trustee, of The Leonard A. Lauder 2013 Revocable Trust for the benefit of Leonard A. Lauder and with respect to which Mr. Ehrenkranz may be deemed to have shared voting and investment power.
(12)
Includes shares owned beneficially or deemed to be owned beneficially by Richard D. Parsons as follows:

(a)
4,442 shares of Class A Common Stock held indirectly through a family foundation, with respect to which he has shared voting and investment power;

(b)
7,791 shares of Class A Common Stock underlying stock units held directly that are payable in shares, and 5,556 shares of Class A Common Stock underlying stock units held indirectly through a family trust that are payable in shares;

(c)
13,125 shares of Class A Common Stock underlying options;

(d)
11,196,516 shares of Class B Common Stock as trustee of the Aerin Lauder Zinterhofer 2000 Revocable Trust u/a/d 4/24/00 for the benefit of Aerin Lauder and with respect to which Mr. Parsons has sole voting and investment power;

(e)
17,161,020 shares of Class B Common Stock as trustee of the Jane A. Lauder 2003 Revocable Trust for the benefit of Jane Lauder and with respect to which Mr. Parsons has sole voting and investment power; and

(f)
2,975,284 shares of Class B Common Stock as trustee of a trust for the benefit of Ronald S. Lauder (the "4202 Trust") and with respect to which Mr. Parsons has sole voting power. Mr. Parsons has sole investment power with respect to 975,284 shares of such Class B Common Stock, and shared investment power with respect to 2,000,000 shares of such Class B Common Stock as described below.

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Table of Contents

(13)
Includes shares owned beneficially or deemed to be owned beneficially by Carol S. Boulanger as follows:

(a)
8,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
795,615 shares of Class A Common Stock and 741,351 shares of Class B Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of William P. Lauder and others and with respect to which she shares investment power with William P. Lauder and Gary M. Lauder, as co-trustees; and

(c)
24,360 shares of Class A Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of Gary M. Lauder and others and with respect to which she shares investment power with Gary M. Lauder and William P. Lauder, as co-trustees.
(14)
Includes shares owned beneficially by Charlene Barshefsky as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
16,776 shares of Class A Common Stock indirectly through a family trust;

(c)
14,339 shares of Class A Common Stock underlying stock units payable in shares; and

(d)
73,125 shares of Class A Common Stock underlying options, including options that are held indirectly through a family trust.

(15)
Includes shares owned beneficially by Rose Marie Bravo as follows:

(a)
8,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
10,923 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
13,125 shares of Class A Common Stock underlying options.

(16)
Includes shares owned beneficially by Wei Sun Christianson as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
4,891 shares of Class A Common Stock underlying stock units payable in shares; and

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Table of Contents

(17)
Includes shares owned beneficially by Paul J. Fribourg as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;

(b)
6,404 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
36,453 shares of Class A Common Stock underlying options.

(18)
Includes shares owned beneficially by Mellody Hobson as follows:

(a)
6,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
149,723 shares of Class A Common Stock held indirectly in a family member's trust;

(c)
12,777 shares of Class A Common Stock underlying stock units payable in shares; and

(d)
46,625 shares of Class A Common Stock underlying options.

(19)
Includes shares owned beneficially by Irvine O. Hockaday, Jr. as follows:

(a)
32,740 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;

(b)
17,780 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
13,125 shares of Class A Common Stock underlying options.

(20)
Includes shares owned beneficially by Lady Lynn Forester de Rothschild as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;

(b)
14,129 shares of Class A Common Stock underlying stock units payable in shares; and

(c)
33,125 shares of Class A Common Stock underlying options.

(21)
Includes shares owned beneficially or deemed to be owned beneficially by Barry S. Sternlicht as follows:

(a)
54,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;

(b)
36,000 shares of Class A Common Stock indirectly through three family trusts;

(c)
10,033 shares of Class A Common Stock underlying stock units payable in shares; and

(d)
70,803 shares of Class A Common Stock underlying options.

(22)
Includes shares owned beneficially by Richard F. Zannino as follows:

(a)
4,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;

(b)
5,673 shares of Class A Common Stock underlying stock units payable in shares; and

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Table of Contents

(23)
Includes shares owned beneficially by Fabrizio Freda as follows:

(a)
73,174 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
932,151 shares of Class A Common Stock underlying options.

(24)
Represents shares of Class A Common Stock held directly by John Demsey and with respect to which he has sole voting and investment power.

(25)
Includes shares owned beneficially by Cedric Prouvé as follows:

(a)
172,555 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and

(b)
70,814 shares of Class A Common Stock underlying options.

(26)
Includes shares owned beneficially by Tracey T. Travis as follows:

(a)
12,193 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power; and

(b)
88,238 shares of Class A Common Stock underlying options.

(27)
Based on a Schedule 13G Amendment dated February 13, 2015 by FMR LLC, 245 Summer Street, Boston, Massachusetts 02210, FMR LLC may be deemed to be the beneficial owner of 24,829,118 shares of Class A Common Stock, over which it has sole investment power for all such shares and sole voting power for 1,932,701 shares, all of which shares are held for its own benefit or for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates.

(28)
Based on a Schedule 13G Amendment dated February 9, 2015 by The Vanguard Group ("Vanguard"), 100 Vanguard Boulevard, Malvern, Pennsylvania 19355, Vanguard may be deemed to be the beneficial owner of 12,265,926 shares of Class A Common Stock, over which it has (a) sole investment power for 11,895,260 shares, (b) shared investment power for 370,666 shares, and (c) sole voting power for 394,864 shares, all of which shares are held by certain of its subsidiaries.

(29)
See notes (2) through (4), (6), (7), (9), (10), (12) and (14) through (26). Includes for executive officers not named in the table:

(a)
142,512 shares of Class A Common Stock; and

(b)
350,630 shares of Class A Common Stock underlying options.

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Executive Compensation

Compensation Discussion and Analysis

Executive Summary

        During fiscal 2015, we continued to successfully execute our long-term strategy. We achieved approximately $11 billion in net sales, 14.9% in operating margin (15.9% as adjusted), and over $1.9 billion in cash flow from operations. Our performance, as highlighted in the table below, was fueled by multiple engines of growth in all regions. We delivered these results despite considerable macroeconomic headwinds and challenges, thanks to the ongoing determination and collective talents and efforts of our executive officers, other members of management, and all of our employees.

Financial Metric


Fiscal 2015

Change over
Prior Year


3-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)





5-Year
Compound Annual
Growth Rate
(or Basis Point
Improvement)
       

Net Sales

  $10.8 billion   –1.7%   3.5%   6.7%

Net Sales as adjusted(1)

  $11.0 billion   1.6%   4.1%   7.0%

Net Sales as adjusted at constant currency(1)

  $11.5 billion   6.4%   N/A   N/A

Operating Margin

  14.9%   –180bp   +140bp   +480bp

Operating Margin as adjusted(1)

  15.9%   –20bp   +170bp   +470bp

Diluted EPS

  $2.82   –7.8%   9.4%   18.8%

Diluted EPS as adjusted(1)

  $3.05   3.4%   10.3%   17.3%

Return on Invested Capital(2)

  21.5%   –330bp   –250bp   +300bp

Cash Flow from Operations

  $1.9 billion   26.6%   19.9%   15.2%

Total Stockholder Return ("TSR")

  18.1%     18.6%   27.1%

TSR – S&P 500 Composite

  7.4%     17.3%   17.1%

(1)
Periods other than fiscal 2015 have been adjusted to exclude returns and charges (adjustments) associated with restructuring activities. Each of fiscal 2015 and 2014 has been adjusted for charges to remeasure net monetary assets in Venezuela and for the accelerated sales orders in fiscal 2014 in connection with the Company's July 2014 implementation of its Strategic Modernization Initiative ("SMI"). Fiscal 2010 has been adjusted to exclude debt extinguishment charges. Net Sales as adjusted in constant currency excludes the negative impact ($0.5 billion) of foreign currency translation. See Appendix A for reconciliation and other information about these non-GAAP financial measures.

(2)
Excludes returns and charges (adjustments) associated with restructuring activities in each period, where applicable.

        In fiscal 2015, we also raised the common stock dividend 20%, repurchased 12.4 million shares for $983 million, and used $473 million of cash flow from operations for capital expenditures. In addition, we strengthened and diversified our portfolio with the acquisition of four uniquely positioned brands. Over the five-year period ended June 30, 2015, the total market value of the Company increased by 195% or approximately $21.5 billion.

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        The following summarizes certain executive compensation decisions that affected compensation in, or relating to, fiscal 2015:

Advisory Vote on Executive Compensation

        At the 2014 Annual Meeting, over 99% of the votes cast in connection with the stockholders advisory vote on compensation of the NEOs were cast in favor of the proposal. The Company has considered this voting result, and in light of the high level of support, our compensation policies and decisions, as explained in this Compensation Discussion and Analysis, continue to be focused on sustainable financial performance and aligning the interests of senior management with the interests of stockholders.

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Overview of Compensation Philosophy and Objectives

        Our compensation program for executive officers is designed to attract and retain high quality people and to motivate them to achieve both our long-term and short-term goals. We believe that the design and governance of our program supports, and aligns executive officers with, the business strategy and the overall goal to continue sustainable growth of net sales, profitability, and return on invested capital on an annual and long-term basis. Periodically, we review various aspects of our compensation program to ensure that it remains aligned with our business strategy and the above-referenced goals.

        Key features of our compensation programs, policies, and practices are as follows:

        Our executive compensation program is designed to achieve our business and financial goals by providing compensation that:

        We have been in the beauty business since 1946, and have established a strong record of growth and profitability. For the first 50 years, we were wholly owned by the Lauder family. Today, the family continues to own a significant portion of our outstanding stock. Our executive compensation program reflects our successful track record and the control by the Lauder family.

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        In fiscal 2015, our executive officers included the Executive Chairman, the President and Chief Executive Officer, two Group Presidents, and the heads of six functions. There is internal equity among similarly situated executive officers, which is intended to foster a team-oriented approach to managing the business. The Named Executive Officers for fiscal 2015 are: William P. Lauder, Executive Chairman; Fabrizio Freda, President and Chief Executive Officer; Tracey T. Travis, Executive Vice President and Chief Financial Officer; John Demsey, Group President; and Cedric Prouvé, Group President, International.

        We have entered into employment agreements with our executive officers to attract and retain strong candidates and to provide the basis for a mutual understanding of the employment relationship. The employment agreements in effect during fiscal 2015 for our NEOs are described under "Employment Agreements" below. Our standard employment agreements for executive officers cover termination and severance and include non-competition, confidentiality, and related provisions. They do not include specified amounts of salary, bonus opportunities, or equity-based compensation for future years. For executive officers who are recruited to join the Company, we will specify levels of salary, bonus opportunities, and equity-based compensation grants for certain initial periods or that relate to initial grants (e.g., to compensate the officer for amounts or awards that may be forfeited at a prior employer).

        The compensation program for executive officers is established and administered by the Committee and the Subcommittee. The Subcommittee approves the terms of all grants to executive officers under our long-term incentive plan (including any equity compensation-related terms of employment agreements for executive officers). The Committee approves all other aspects of executive compensation.

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Elements of Compensation; Allocation

        Our executive compensation program for fiscal 2015 consisted of the following:

GRAPHIC

        The Committee, Subcommittee, and our senior management begin their review of compensation by looking first at the components of total direct compensation, gauging, for each type of position in the executive officer group, the extent to which total direct compensation is broadly aligned with that of our executive compensation peer group. The Committee, Subcommittee, and our senior management then review the elements of compensation (i.e. base salary, annual cash incentive bonus opportunities, and long-term equity-based compensation opportunities) and determine a mix of these elements as a percentage of total direct compensation. The mix is intended to be performance-oriented (i.e. provide a greater percentage of compensation in the form of variable annual and long-term incentive compensation) and reasonable when compared with the peer group. Executive officers with similar responsibilities generally have a similar mix of pay elements. Total direct compensation and allocations of metrics within the EAIP are determined based on the type and level of responsibility of the particular executive officer, internal pay equity, and competitive considerations.

        Generally, we believe that executive officers should have a greater percentage of their compensation based on performance in the form of long-term equity-based incentives ("LTI"), followed by short-term annual cash incentives, and then by base salary.

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        Based on target levels for incentive compensation for fiscal 2015, the mix of pay for executive officers is shown below:

GRAPHIC


(1)
Includes amounts attributable to fiscal 2015 for the RSUs and PSUs granted to Mr. Freda on September 24, 2012; without these grants, his annual target pay mix for fiscal 2015 was 11% salary, 27% target annual incentive, and 62% LTI.

(2)
Includes all of the NEOs except William P. Lauder. For fiscal 2015, Mr. Lauder had a target pay mix of 23% base salary, 46% target annual incentive, and 31% LTI.

        For fiscal 2015, the average annual target pay mix for most of the other executive officers was 28% base salary, 24% target annual incentive, and 48% LTI. Leonard A. Lauder and Ronald S. Lauder have not received LTI since fiscal 2000.

        Our intention behind our annual and long-term incentive plans is to cover a portfolio of performance measures that balance growth, profitability, and stockholder return over both an annual and long-term period. We work to establish goals that support the long-term strategy of growing revenue at least 1% ahead of global prestige beauty, deriving more than 60% of sales from outside the United States, improving operating margin, maintaining return on invested capital, and optimizing inventory.

        Target levels of performance for a given fiscal year are determined based on our internal planning and forecasting processes and are benchmarked against select peer companies. The Committee and the Subcommittee consider various factors including the expected performance of our competitors and our long-term strategy in establishing the performance required to achieve the maximum payout under each measure for both our annual cash and long-term incentive plans.

        In addition to total direct compensation described above, we also provide competitive benefits and modest perquisites. In certain circumstances, we may pay amounts or grant equity to attract executives to work for us, to move to particular locations, or to provide additional incentives to remain with us. This reflects, in part, the global nature of our business and the executives that we seek to attract and retain.

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        Base Salary. We pay base salaries to provide executives with a secure base of cash compensation. In determining the amount of base salary for an executive officer, the Committee primarily considers the executive's position, current salary, tenure, and internal pay equity, as well as competitiveness of the salary level in the marketplace. The Committee also considers the impact of Section 162(m) of the Internal Revenue Code and recommendations from the Executive Chairman, the President and Chief Executive Officer, and the Executive Vice President – Global Human Resources. See "Tax Compliance Policy" below.

        Annual Incentive Bonus. Annual incentives provided under the EAIP are of key importance in aligning the interests of our executives with our short-term goals and rewarding them for performance. For executive officers, the level of bonus opportunities and performance targets are based on the scope of the executive's responsibilities, internal pay equity among executives with similar responsibilities, and competitive considerations. The measures in our annual incentive program are designed to foster interdependence and collaboration among brands, regions, and functions to drive the corporate strategy by ensuring alignment of business unit performance with overall corporate performance.

        Aggregate bonus opportunities for executive officers under the EAIP are set annually by the Committee. For fiscal 2015, the EAIP payout is the product of the target for each executive officer and the EAIP payout percentage ("EAIP Payout %"), which is comprised of (a) the Corporate Multiplier and (b) the Business Unit Multiplier, as described below.

GRAPHIC

        Target level performance on each of the criteria would result in multipliers at 100% and payout at 100% of the executive officer's target opportunity. Provided the minimum threshold has been achieved, payouts can range from 31.25% of target up to a maximum of 150% of target. Failure to achieve the pre-established minimum threshold level of performance would result in no credit for that particular criteria and, depending upon performance in respect of other criteria, could result in no bonus being paid. Measurement of performance is subject to certain automatic adjustments, such as changes in accounting principles, impairment of intangibles, the impact of discontinued operations and non-recurring income/expenses, and the impact on net sales of unplanned changes in foreign currency rates. Such automatic adjustments in fiscal 2015 included the impact of accelerated orders associated with the July 2014 SMI rollout and the Venezuela remeasurement charge. For fiscal 2015, annual incentives payable to Messrs. W. Lauder, Freda, Demsey, and Prouvé required that we achieve positive net operating profit and limited the aggregate amount of annual incentives to such individuals to 2% of net operating profit. For fiscal 2015, the total annual incentives paid to such executive officers did not exceed 2% of net operating profit.

        The target payout, business criteria, the performance levels within each multiplier, and the threshold, target, and maximum payouts associated with each criteria and performance level were set by the Committee in consultation with management and the Committee's compensation consultant during the first quarter of the fiscal year. Target payouts for executive officers are largely based on the prior year's target amount and are reviewed by the Committee annually.

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        Corporate Multiplier. The Corporate Multiplier is comprised of four equally weighted, Company-wide performance criteria: (1) diluted net earnings per share from continuing operations ("Diluted EPS"); (2) net operating margin percentage ("NOP Margin"); (3) Net Sales; and (4) return on invested capital ("ROIC"). If actual performance is between the target and the maximum, or between the threshold and the target, the payout factor is calculated mathematically using the target level of performance as a base. As an example, for Net Sales performance that is between the threshold and the target, for each 1% that performance is below target, the payout will be 31/3% below the target payout of 100%.

        The chart below shows the threshold, target, and maximum for each criteria making up the Corporate Multiplier as well as the results for fiscal 2015. Because performance exceeded the maximum level for ROIC, the payout factor was at 120% of target; for Diluted EPS and Net Sales, performance was just below target resulting in payouts of 95.5% and 99.6%, respectively; and for NOP Margin, performance was between target and maximum, resulting in a payout of 111.8%. The Corporate Multiplier was therefore 106.7%. Each executive officer's incentive payment is subject to the Corporate Multiplier.

      Threshold  

Target  

Maximum  

Actual Performance(1)    

  Fiscal
2015
Target



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)



% of
Target


Payout
(% of
Oppty)
 
                 

Diluted EPS

  $3.12   50%   50%   100%   100%   104.5%   120%   97.8%   95.5%  

NOP Margin

  16.5%   50%   50%   100%   100%   101.7%   120%   101.0%   111.8%  

Net Sales

  $11.3 billion   85%   50%   100%   100%   101.1%   120%   99.8%   99.6%  

ROIC

  22.7%   50%   50%   100%   100%   101.3%   120%   102.2%   120.0%  

Corporate Multiplier

                  106.7%  

(1)
Net Sales are calculated at budgeted exchange rates at the time the target was set. Measurement of performance, for each of the metrics, is subject to certain automatic adjustments described in this section of the Compensation Discussion and Analysis.

        Business Unit Multiplier. The Business Unit Multiplier works similarly, but is based on various combinations of business criteria at the business unit level, including: (1) Net Sales; (2) NOP Margin; (3) inventory management; (4) productivity and other cost savings; and (5) other divisional goals tied to our long-term strategy ("Business Unit Strategic Objectives"). The weighting of the various measures is fixed for each executive officer depending upon position and responsibilities. As with the Corporate Multiplier, target level performance on all the applicable criteria leads to a Business Unit Multiplier of 100%. If the threshold level of performance is not achieved for any of the applicable criteria, then the Business Unit Multiplier would be zero for those criteria. When performance exceeds the maximum level, the payout factors are at 125% of target. In the case where the actual performance was between the target and the maximum, or between the threshold and the target, the payout factor was calculated mathematically using the target level of performance and associated payout as a base.

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        For the Business Unit Multiplier, the Global Brands results represent the consolidated results of all brands, and the Functions Average is a simple average of the performance against Business Unit Strategic Objectives for the six Corporate Functions (i.e. Finance; Human Resources; Legal; Global Communications; Global Research and Development, Corporate Product Innovation, Package Development; and Global Supply Chain). For Messrs. Demsey and Prouvé, the threshold, target, and maximum for each criteria making up the Business Unit Multiplier for their respective units, as well as the results for fiscal 2015, are shown in the table set forth below.

      Threshold  

Target  

Maximum  

Actual
Performance(1)
 



  Fiscal
2015
Target





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)



                   

Net Sales

                                     

Demsey

  $7.5 billion   85 % 62.5 % 100.0 % 100.0 % 101.5 % 125 % 100.8 % 113.2 %

Prouvé

  $6.7 billion   85 % 62.5 % 100.0 % 100.0 % 101.5 % 125 % 99.6 % 99.0 %

NOP Margin

                                                     

Demsey

  26.5%     85 %   62.5 %   100.0 %   100.0 %   101.2 %   125 %   100.0 %   100.0 %

Prouvé

  28.2%     85 %   62.5 %   100.0 %   100.0 %   101.1 %   125 %   99.2 %   98.0 %

Inventory Management – Days to Sell

                                     

Demsey

  202   85 % 62.5 % 100.0 % 100.0 % 105.0 % 125 % 100.9 % 106.2 %

Prouvé

  NA   85 % 62.5 % 100.0 % 100.0 % 105.0 % 125 % NA % NA %

Inventory Management – Days of Supply

                                                     

Demsey

  215     85 %   62.5 %   100.0 %   100.0 %   105.0 %   125 %   121.9 %   125 %

Prouvé

  142     85 %   62.5 %   100.0 %   100.0 %   105.0 %   125 %   104.8 %   125 %

Inventory Management – Weighted Forecast Accuracy

                                     

Demsey

  49.7%   95 % 62.5 % 100.0 % 100.0 % 105.0 % 125 % 119.4 % 125.0 %

Prouvé

  58.2%   95 % 62.5 % 100.0 % 100.0 % 105.0 % 125 % 105.8 % 125.0 %

Productivity – Employee Costs

                                                     

Demsey

  $555 million     90 %   62.5 %   100.0 %   100.0 %   103.0 %   125 %   103.3 %   125.0 %

Prouvé

  $669 million     90 %   62.5 %   100.0 %   100.0 %   103.0 %   125 %   102.0 %   116.4 %

Productivity – Employee Costs as % of Net Sales

                                     

Demsey

  7.4%   90 % 62.5 % 100.0 % 100.0 % 105.0 % 125 % 102.9 % 114.7 %

Prouvé

  10.1%   90 % 62.5 % 100.0 % 100.0 % 105.0 % 125 % 100.4 % 102.2 %

(1)
Net Sales and all of the income statement measures are calculated at weighted average exchange rates for the measurement period. Measurement of performance, for each of the metrics, is subject to certain automatic adjustments described in this section of the Compensation Discussion and Analysis.

        Ms. Travis, Mr. Demsey, and Mr. Prouvé were each assigned Business Unit Strategic Objectives for fiscal 2015 that accounted for the percentages of the individual's aggregate bonus opportunity target indicated below.

        These Business Unit Strategic Objectives are aligned with high-level themes, explained below, that help focus collective efforts in areas that are important to shared success across business units and drive the corporate strategy.

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        After the end of fiscal 2015, the Executive Chairman, the President and Chief Executive Officer, and the Executive Vice President – Global Human Resources, with appropriate input from other employees, reviewed the actions taken by each Group President and the Executive Vice President and Chief Financial Officer and, based on those achievements, recommended the payout percentages shown in the table below (with a maximum of 125%). The assessment of these achievements and related payouts were confirmed by the Committee in its business judgment.

        Calculation of EAIP Payout Percentage. As noted, the weightings of the various criteria for an executive officer's Business Unit Multiplier depend upon the officer's position and responsibilities, as shown in the calculation of the Business Unit Multiplier below. The overall brand and region performance is a consolidation of the performance on the financial criteria discussed above for the relevant brands or geographies.

        For each NEO, the calculation of the individual's EAIP Payout %, including both the Business Unit Multiplier (weighted accordingly) and the Corporate Multiplier is as follows:

 
   
   
   
   
   
   
   
   
   

  W. P. Lauder &
F. Freda
 



T.T. Travis  

J. Demsey  

C. Prouvé  

 

% of
Target




Actual
payout %




% of
Target




Actual
payout %




% of
Target




Actual
payout %




% of
Target




Actual
payout %


 
                 

Global Brands Results

  90 % 98.9 % 50 % 98.9 % 15 % 98.9 % 15 % 98.9 %  

Functions Average

    10 %   115.3 %   10 %   115.3 %   5 %   115.3 %   5 %   115.3 %  

Business Unit Strategic Objectives

      30 % 120.0 % 20 % 123.0 % 20 % 110.0 %  

Division Net Sales(1)

                            20 %   113.2 %   20 %   99.0 %  

Division NOP Margin(1)

          20 % 100.0 % 20 % 98.0 %  

Inventory Management

                            10 %   114.4 %   10 %   121.0 %  

Productivity

      10 % 121.1 % 10 % 122.4 % 10 % 117.2 %  

Business Unit Multiplier (a)

    100 %   100.6 %   100 %   109.1 %   100 %   111.5 %   100 %   105.8 %  

Corporate Multiplier (b)

    106.7 %   106.7 %   106.7 %   106.7 %  

  EAIP Payout % (a) x (b)

          107.3 %         116.4 %         119.0 %         112.9 %  

(1)
Net Sales are calculated at weighted average exchange rates at the time of measurement. Measurement of performance, for each of the metrics, is subject to certain automatic adjustments described in this section of the Compensation Discussion and Analysis.

        For more information about the potential bonus opportunities of our NEOs for fiscal 2015 and the actual payouts made in respect of fiscal 2015 performance, see "Grants of Plan-Based Awards in Fiscal 2015" and "Summary Compensation Table" below.

Long-Term Equity-Based Compensation

        General. We consider equity-based compensation awarded under our Amended and Restated Fiscal 2002 Share Incentive Plan to be of key importance in aligning executives with our long-term goals and rewarding them for performance. The awards also provide an incentive for continued employment with us. We grant certain executive officers a combination of stock options, RSUs, and PSUs. Since fiscal 2000, no grants of any equity-based compensation have been made to Leonard A. Lauder or Ronald S. Lauder. The Subcommittee typically makes equity-based compensation awards to our executive officers at its regularly scheduled meeting during the first quarter of each fiscal year. There is no relationship

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between the timing of the grants of equity-based awards and our release of material non-public information.

        The target and actual amounts and allocation of equity-based compensation reflect the business judgment of the Subcommittee after consultation with its executive compensation consultant and our senior management. As with each other element of compensation, and compensation overall, the Subcommittee (or the Committee for non-equity-based compensation), its executive compensation consultant, and management take into account the level of responsibility of the particular executive officer, recent performance and expected future contributions of the executive officer, internal pay equity, and competitive practice. They also consider applicable employment agreements as necessary.

        The allocation among the value of the different types of awards granted in fiscal 2015 is weighted equally among PSUs (at target), stock options, and RSUs – reflecting, in the business judgment of the Subcommittee, a balance among motivating and retaining executive officers, rewarding performance, mitigating risk, and helping executive officers increase their equity ownership. Such allocation may change depending upon any supplemental grants made to executive officers.

        No specific weightings were used to determine the amounts of the equity-based compensation. The Subcommittee applied an individual performance factor to the target equity opportunity for each executive officer. The performance factors ranged from 106% – 125% of target. As with the amount of equity-based compensation granted, the allocation among the equity-based compensation elements are compared with practices of the peer group companies (noted below) to ensure they are competitive and appropriate.

        Performance Share Units. In fiscal 2015, PSUs represented approximately 1/3 of the grant date value of the equity-based compensation granted to executive officers. PSUs are generally rights to receive shares of our Class A Common Stock if certain Company-wide performance criteria are achieved during a three-year performance period. PSUs are expressed in terms of opportunities, and each opportunity is based on a particular financial metric that is considered important in achieving our overall long-term financial goals.

        For the annual grant of PSUs, the Subcommittee approves the performance target for each metric during the first quarter of the three-year performance period. Each opportunity is expressed in shares to be paid out if performance equals 100% of the target. PSUs are accompanied by dividend equivalents that are accrued and paid in cash at the end of the performance period. To the extent shares are paid out on a PSU award, the cash amount paid is equal to the dividends declared per share over the performance period times the number of shares paid out. The target amount of a PSU award represents the aggregate payout if the performance of all opportunities equal 100% of the related target performances. An above-target payout can be achieved under a particular opportunity if the performance associated with such opportunity exceeds 100% of the target, up to a maximum of 150% of target. Failure to achieve the pre-established minimum threshold amount would result in no payout being made under the opportunity.

        Measurement of performance is subject to certain automatic adjustments, such as changes in accounting principles, impairment of intangibles, the impact of discontinued operations and non-recurring income/expenses, and the impact on net sales of unplanned changes in foreign currency rates.

        Fiscal 2013 PSU Grants. The PSU targets for the three-year period ended June 30, 2015 were based on compound annual growth rates ("CAGR") in Company-wide Net Sales, Diluted EPS, and ROIC, weighted equally. Each 1% increase in performance over the threshold results in a 5% increase

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in associated payout for Net Sales and 31/3% increases in associated payouts for Diluted EPS and ROIC up to the target performance levels. Each 1% increase in performance above target results in 13.2%, 5.0%, and 5.3% increases in associated payouts for Net Sales, Diluted EPS, and ROIC, respectively. Performance above maximum results in a payout of 150% of target opportunity.

        The PSUs that were paid out after the end of fiscal 2015 were between target and maximum for Diluted EPS and ROIC and achieved payouts of 106.7% and 128.6%, respectively. Net Sales achieved a payout of 96.4%, between threshold and target. The aggregate payout of the three measures, weighted equally, was 110.5%. The table below summarizes the measures and corresponding payouts.

 


Fiscal
2013
through



Threshold  

Target  

Maximum  

Actual Performance(1)  

 


Fiscal
2015
Target





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)



                   

Net Sales (CAGR)(1)

  6.6 % 90 % 50 % 100 % 100 % 103.8 % 150 % 99.3 % 96.4 %

Diluted EPS (CAGR)

   
9.9

%
 
85

%
 
50

%
 
100

%
 
100

%
 
110.0

%
 
150

%
 
101.3

%
 
106.7

%

ROIC (CAGR)

 

(2.9%

)


85

%


50

%


100

%


100

%


109.5

%


150

%


105.5

%


128.6

%

Aggregate Payout

                                                   
110.5

%

(1)
Net Sales are calculated at budgeted exchange rates at the time the target was set. Measurement of performance, for each of the metrics, is subject to certain automatic adjustments described in this section of the Compensation Discussion and Analysis. For the fiscal 2013 grants, these include the impact of accelerated orders associated with the fiscal 2014 SMI rollout, the Venezuela remeasurement charge, and returns and charges (adjustments) associated with restructuring activities.

        Fiscal 2013 TSR PSU Grant to CEO. The fiscal 2013 TSR PSU grant to the CEO is divided into three tranches with the first having a three-year performance period that ended June 30, 2015, the second a four-year performance period ending June 30, 2016, and the third a five-year performance period ending June 30, 2017. The payout of these PSUs depends upon the relative TSR over the relevant performance period as compared to the companies in the S&P 500 on July 1, 2012 (the "S&P 500 Companies"). The performance hurdles and associated payouts are as follows:

TSR Percentile of the Company vs.
the S&P 500 Companies





Payout as a %
of Target


   

³ 90th Percentile

  160 %

60th Percentile

    100 %

Median

  70 %

40th Percentile

    35 %

< 40th Percentile

  0 %

        Percentiles (i) between the 60th percentile and the 90th percentile shall be interpolated on a straight line basis between the target shares and the maximum shares and (ii) between the 40th percentile and the median, and between the median and the 60th percentile, shall be interpolated on a straight line basis. If Mr. Freda resigns or is terminated for cause prior to the end of the relevant performance period for any of the PSUs, he will receive no shares. If he dies or becomes disabled prior to the end of the relevant performance period or is terminated without cause prior to the end of the performance period, then based on plan achievement the number of shares to be paid out will be multiplied by a fraction, the numerator of which will be the number of completed months of service starting with July 2012 and the denominator of which will be the applicable number of months in the

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full performance period. The PSUs will vest and be paid out upon a "Change in Control" (as defined in the agreement), with performance plan achievement determined by the consideration per share to be received by the holders of the Company's Class A Common Stock relative to the S&P 500 Companies. Dividend equivalents will be paid out in cash in connection with shares that are earned. Shares and cash paid out pursuant to the PSUs are subject to applicable tax withholding requirements.

        The first of the three tranches of this PSU award vested on June 30, 2015 and resulted in a payout of 42,549 shares of the Company's Class A Common Stock on August 19, 2015. During the performance period for the first tranche of the grant, the Company's stock price increased by more than 40%. Under the terms of the grant, the number of shares payable for each tranche depends on the TSR of the Class A Common Stock on the New York Stock Exchange for the performance period, relative to that of the S&P 500 Companies over the same period. For the three-year period ended June 30, 2015, the Company's TSR was ranked at the 52.8th percentile. Given the rigorous performance scale for the award, this TSR rank resulted in a payout of approximately 78.43% of the target number of shares (54,253). Upon payout of the shares, dividend equivalents in connection with the shares earned by Mr. Freda were paid out in cash, in the amount of $118,286. The remaining two tranches of this PSU award will vest on June 30, 2016 and June 30, 2017, based on four- and five-year performance periods, respectively.

        Fiscal 2015 PSU Grants. The targets for the PSU opportunities and corresponding payouts for PSUs granted in fiscal 2015 for the three-year period ending June 30, 2017 are based on CAGR in Company-wide Net Sales, Diluted EPS, and ROIC, weighted equally, as follows:

 


Fiscal
2015
Through



Threshold(2)  

Target  

Maximum  

 


Fiscal
2017
Target(1)





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)





% of
Target





Payout
(% of
Oppty)



               

Net Sales (CAGR)(1)

  6.6 % 90 % 50 % 100 % 100 % 101.3 % 150 %

Diluted EPS (CAGR)

    8.7 %   85 %   50 %   100 %   100 %   104.1 %   150 %

ROIC (CAGR)(3)

  (4.1% ) 85 % 50 % 100 % 100 % 103.0 % 150 %

(1)
Net Sales are calculated at budgeted exchange rates at the time the target was set. Measurement of performance, for each of the metrics, is subject to certain automatic adjustments described in this section of the Compensation Discussion and Analysis.

(2)
Payouts for an opportunity will be made only if performance exceeds the pre-established minimum threshold for such opportunity.

(3)
Target ROIC decrease reflects increasing levels of capital investment to support growth in our businesses, particularly consumer facing investments for counter upgrades and our retail stores.

        The goals above were based on the long-term strategic plan and the conditions that existed at the start of fiscal 2015. We believe the targets when set were reasonably aggressive.

        Stock Options. In fiscal 2015, stock options represented approximately 1/3 of the grant date value of the equity-based compensation granted to executive officers. We believe that stock options are performance-based because the exercise price is equal to the closing price of the underlying Class A Common Stock on the date the option is granted. Under our Amended and Restated Fiscal 2002 Share Incentive Plan, the exercise price cannot be lower than such closing price. Despite the value attributed on the date of grant for accounting purposes, value is realized by the executive officer only to the

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extent that the stock price exceeds such price during the period in which the executive officer is entitled to exercise the options and he or she exercises them. The ability to exercise the options is subject to our policy on insider trading described below. Options granted to our executive officers generally become exercisable in three equal installments approximately 16 months, 28 months, and 40 months after the date of grant, and expire ten years from the grant date.

        Restricted Stock Units. RSUs are the right to receive shares of our Class A Common Stock over a period of time and typically represent approximately 1/3 of the grant date value of the equity-based compensation granted to our executive officers. RSUs are granted to executive officers to serve as a retention mechanism and to help them build their equity ownership. RSUs are accompanied by dividend equivalents that are paid in cash; at the time an RSU vests, the cash amount paid to the executive officer is equal to the dividends declared per share between the grant date and the vesting date times the number of shares paid out.

        The RSUs granted to executive officers in fiscal 2015 vest ratably in thirds on November 2, 2015, October 31, 2016, and October 31, 2017.

        Equity-Based Compensation Granted in Fiscal 2015. As stated above, target award levels and actual grants of equity made to executive officers are determined by taking into account many factors, including an assessment of recent performance and expected future contributions. For the Executive Chairman and the President and Chief Executive Officer, this determination is made by the Subcommittee; for the remaining executive officers, a recommendation is made by the executive officer's immediate manager, and the actual grant is approved by the Subcommittee. Fiscal 2015 equity grants were awarded in September 2014; the resulting equity grant percentages awarded to our NEOs in fiscal 2015 were based on target grant levels and an assessment of each officer's performance and expected future contributions. See the "Grants of Plan-Based Awards in Fiscal 2015" and "Summary Compensation" tables below.

CEO Compensation

        Mr. Freda has demonstrated outstanding performance and leadership as our Chief Executive Officer. Since becoming President and Chief Executive Officer in July 2009, he has the led the development and implementation of our long-term strategy. Through June 30, 2015, we have (i) achieved TSR of 455%, placing us among the top 10% of S&P 500 companies (the TSR of the S&P 500 Index was 124%); and (ii) increased our market capitalization by $26.1 billion from $6.4 billion.

        In recognition of Mr. Freda's leadership and expected future contributions, as well as our strong multi-year performance, the Committee and the Subcommittee increased Mr. Freda's total direct annual compensation for fiscal 2015 by 10.4% to $13.8 million. We increased Mr. Freda's base salary to $1.8 million (from $1.75 million), his target bonus opportunity to $4.5 million (from $4.0 million), and his equity target to $7.5 million (from $6.75 million).

        Mr. Freda's total compensation, as disclosed in the "Summary Compensation Table" below, shows significant fluctuations year-over-year due to the value and timing of equity awards he has received in the past in addition to his annual equity grants. These fluctuations are attributable to applicable disclosure rules, which require that we report the total value of equity grants on the grant date rather

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than over the life of the award. When the additional equity awards were granted, the Subcommittee considered the impact of the compensation on an annualized basis.

  Stock Awards ($000s)  

Total Compensation ($000s)    

Fiscal Year




Annualized
Stock Awards(1)







Grant Date Fair
Value as Reported
in Summary
Compensation
Table








Including
Annualized
Stock Awards(1)







As Reported
in Summary
Compensation
Table
 
       

2015

  $ 10,874   $ 6,250   $ 21,305   $ 16,681  

2014

    13,339     5,626     23,276     15,563  

2013

  11,005   21,025   21,579   31,599  

(1)
See "Fiscal 2013 TSR PSU Grant to CEO" for the payout conditions and termination provisions associated with the additional PSUs received by Mr. Freda in fiscal 2013. See "Potential Payments upon Termination of Employment or Change of Control – Effect of Termination on Outstanding Awards Under Equity Plans" below for the termination provisions of the annual PSU and RSU grants.

        In addition to recognizing the Company's strong performance, the Subcommittee, with input from the Board of Directors, also considered the future of the Company and the importance of ensuring its sustainability and longer-term success. Accordingly, in September 2015, the Subcommittee granted Mr. Freda a long-term equity award that is designed to not be delivered fully to Mr. Freda until the end of fiscal 2023, a length of time that is much longer than typical grants. This award also reflects the desire to both retain Mr. Freda and also further align his interests with the interests of our stockholders over that extended period of time.

        The award covers a period of about eight years in total and involves three separate tranches that vest after three, four, and five years based on Mr. Freda's continued employment and achievement of the performance goals described below, and, if achieved, would be paid out to Mr. Freda after years six, seven, and eight. The delayed distribution feature is a key component of the award, intended to both enhance retention and ensure that Mr. Freda is further incentivized to drive very long-term performance. By separating award vesting from award delivery, we continue to tie a portion of Mr. Freda's income to share value, regardless of whether he is still an executive officer at the Company during those later years. As this award is meant to cover a longer period, we do not expect to make a similar award to Mr. Freda during fiscal 2016 or fiscal 2017.

        The award was made on September 4, 2015 with a target payout equal to 387,848 shares of Class A Common Stock over the three tranches (or approximately 129,283 shares per tranche). The aggregate grant date value of the three tranches is approximately $30.0 million, based on the closing price of our Class A Common Stock on that date. The grant date value of the award will be included in our "Summary Compensation Table" and "Grants of Plan Based Awards Table" for fiscal 2016, but the costs of each tranche to the Company will be amortized over 34-, 46-, and 58-month periods, respectively, subject to Mr. Freda's continued employment.

        In determining the award amount, the Subcommittee considered several factors including Mr. Freda's accumulated vested and unvested awards, the potential future value of the award taking into account varying performance scenarios and the Company's relative market capitalization, individual performance, Company performance, the annualized value of the award over the vesting and delivery periods, and the Subcommittee's business judgment and experience.

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        The award is divided into three tranches with service periods, performance periods and payment dates, if any, as follows:

  Service Period

Performance Period

Payment Date(1)
     

First Tranche

  July 1, 2015 – June 30, 2018   July 1, 2015 – June 30, 2018   June 30, 2021

Second Tranche

  July 1, 2015 – June 30, 2019   July 1, 2016 – June 30, 2019   June 30, 2022

Third Tranche

  July 1, 2015 – June 30, 2020   July 1, 2017 – June 30, 2020   June 30, 2023

(1)
Payment, if any, and the timing of payment are subject to achievement of performance goals and other conditions described below.

        We have provided that no portion of the award will generally vest unless the Company has achieved positive Net Earnings for the fiscal year ending through June 30, 2016. For purposes of this award, "Net Earnings" has the meaning used by the Company in its consolidated financials in accordance with generally accepted accounting principles as in effect on July 1, 2015. If the Net Earnings goal is met, then performance and vesting of each tranche will be based on the Company achieving positive Cumulative Operating Income during the relevant Performance Period. For purposes of this award, "Cumulative Operating Income" means the sum of the operating income for each fiscal year in such Performance Period, subject to certain automatic adjustments, such as changes in accounting principles, impairment of intangibles, the impact of discontinued operations, non-recurring operating income and expenses and the impact of unplanned acquisitions.

        If Mr. Freda's employment is terminated for cause prior to the delivery of the shares associated with any tranche, regardless of whether that tranche has been otherwise earned or vested, he will receive no shares. If Mr. Freda is (a) no longer employed by us for any reason, (b) payment of a tranche has not previously been made, and (c) it is determined that his behavior while he was employed would have constituted cause, then each tranche not previously paid will be forfeited, regardless of whether such tranche has been otherwise earned and vested. In addition, payouts of the award after termination of Mr. Freda's employment are subject to Mr. Freda not (x) competing with the Company for the lesser of (i) the period remaining prior to the payment date of that tranche or (ii) 24 months, nor (y) conducting himself in a manner adversely affecting the Company. If he voluntarily resigns or retires prior to the end of the Service Period any unearned, unvested tranches will be forfeited regardless of whether Mr. Freda is retirement eligible. If Mr. Freda's employment is terminated without cause, then for each tranche that has not yet vested, he will earn and vest in a pro rata portion of such tranche inclusive of an additional 12 months of service (up to a maximum of 100% of the Service Period for that tranche) subject to actual achievement of the performance goals for such tranche. If he dies or becomes disabled, then for each tranche that has not yet vested, he will earn a pro rata portion of such tranche. The performance goals will be deemed to be met upon a "Change in Control" (as defined in the agreement), but the award will only vest upon a "double trigger" event unless the award is not assumed in connection with the Change in Control, in which case it may be settled immediately. Dividend equivalents will be paid out in cash in connection with shares that are earned.

        For fiscal 2016, we also increased Mr. Freda's base salary to $1.9 million, his target incentive bonus opportunity to $4.7 million, and his target equity opportunity to $7.9 million, resulting in a target total compensation increase of 5.1%. In addition to the special grant described above, we also granted Mr. Freda equity-based compensation with an aggregate value of approximately $10.3 million, comprised of PSUs with a target payout of 44,258 shares of Class A Common Stock, stock options in respect of 148,258 shares of Class A Common Stock with an exercise price of $77.35 per share, and RSUs in respect of 44,258 shares of Class A Common Stock. These equity awards will appear in our "Summary Compensation Table" and "Grants of Plan Based Awards Table" for fiscal 2016.

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Fiscal 2016 Compensation Decisions for Other NEOs

        For fiscal 2016, there were no changes to Mr. Lauder's compensation. His base salary is $1.5 million, his target incentive bonus opportunity is $3.0 million, and his target equity opportunity is $2.0 million. In September 2015, we granted him equity-based compensation with an aggregate value of approximately $2.6 million, comprised of PSUs with a target payout of 11,204 shares of Class A Common Stock, stock options in respect of 37,538 shares of Class A Common Stock with an exercise price of $77.35 per share, and RSUs in respect of 11,204 shares of Class A Common Stock.

        For fiscal 2016, we increased Ms. Travis's base salary to $900,000, her target incentive bonus opportunity to $1.0 million, and her target equity opportunity to $2.9 million, resulting in a target total compensation increase of 5.3%. In September 2015, we granted her equity-based compensation with an aggregate value of approximately $3.7 million, comprised of PSUs with a target payout of 15,997 shares of Class A Common Stock, stock options in respect of 53,584 shares of Class A Common Stock with an exercise price of $77.35 per share, and RSUs in respect of 15,997 shares of Class A Common Stock.

        For fiscal 2016, we increased Mr. Demsey's base salary to $1.1 million, his target incentive bonus opportunity to $2.9 million, and his target equity opportunity to $4.4 million, resulting in a target total compensation increase of 5.0%. In September 2015, we granted him equity-based compensation with an aggregate value of approximately $5.7 million, comprised of PSUs with a target payout of 24,650 shares of Class A Common Stock, stock options in respect of 82,574 shares of Class A Common Stock with an exercise price of $77.35 per share, and RSUs in respect of 24,650 shares of Class A Common Stock.

        For fiscal 2016, we increased Mr. Prouvé's base salary to $1.05 million, his target incentive bonus opportunity to $2.325 million, and his target equity opportunity to $3.55 million, resulting in a target total compensation increase of 3.1%. In September 2015, we granted him equity-based compensation with an aggregate value of approximately $4.2 million, comprised of PSUs with a target payout of 17,899 shares of Class A Common Stock, stock options in respect of 59,962 shares of Class A Common Stock with an exercise price of $77.35 per share, and RSUs in respect of 17,899 shares of Class A Common Stock.

Compensation Planning and the Decision Making Process

        Peer Group. We consider the compensation practices of a peer group of companies for the purpose of determining the competitiveness of our total compensation and various elements, but we do not target a specific percentile. We believe the peer group reflects the market in which we compete for executive talent. We believe that we have few direct competitors that are publicly traded in the United States. Therefore, the Committee has selected a mix of primarily consumer products and consumer discretionary companies to ensure the group includes companies of comparable size and business model to us. The Committee refers to the peer group data when considering compensation levels and the allocation of compensation elements for executive officers. The peer group of 14 companies used for compensation in fiscal 2015 was the same peer group used in fiscal 2014:

Avon Products

 

L Brands

Clorox

 

PepsiCo

Colgate-Palmolive

 

Ralph Lauren

Elizabeth Arden

 

Procter & Gamble

The Gap

 

Revlon

International Flavors & Fragrances

 

Starbucks

Johnson & Johnson

 

Tiffany & Co.

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        Our revenues approximate the 52nd percentile relative to the peer group using each company's most recently completed fiscal year ended on or prior to June 30, 2015.

        Compensation Consultant. The Committee has engaged Semler Brossy as its consultant for executive compensation. The Committee determined that Semler Brossy is free of conflicts of interest. The consultant reports directly to the Committee and works with the Committee (and the Subcommittee) and management to, among other things, provide advice regarding compensation structures in general and competitive compensation data. The consultant also reviews information prepared by management for the Committee and/or Subcommittee. All of the decisions with respect to determining the amount or form of executive compensation under our executive compensation programs are made by the Committee or Subcommittee alone and may reflect factors and considerations other than the information and advice provided by the consultant. No other services were provided by Semler Brossy to the Committee, Subcommittee, or Company.

        The Company engaged separate consultants, Towers Watson and The Hay Group, to supplement its internal resources and assist with compensation matters in general and with executive compensation as well.

        Role of Executive Officers. As noted above, executive compensation is set by the Committee and Subcommittee. In performing this function, the Committee and Subcommittee rely on the Executive Chairman, the President and Chief Executive Officer, and the Executive Vice President – Global Human Resources (the "EVP HR") to provide information regarding the executive officers, the executive officers' roles and responsibilities, and the general performance of the Company and the various business units. The three executive officers providing support take directions from and bring suggestions to the Committee and Subcommittee. They suggest performance measures and targets for each of the executive officers under the EAIP and for PSUs. They also make suggestions regarding terms of employment agreements. The final decisions regarding salaries, bonuses (including measures, targets and amounts to be paid), equity grants, and other compensation matters related to executive officers are made by the Committee or Subcommittee, as the case may be. The EVP HR and the human resources staff work with the Executive Vice President and General Counsel, the legal staff, the Executive Vice President and Chief Financial Officer, and the finance staff to support the Committee and Subcommittee.

Other Benefits and Perquisites

        Benefits. We determine benefits for executive officers by the same criteria applicable to the general employee population in the location where the executive officer is situated except as noted below. In general, benefits are designed to provide protection to the executive and/or his or her family in the event of illness, disability, or death and to provide retirement income. The benefits are important in attracting and retaining employees and to mitigate distractions that may arise relating to health care, retirement, and similar issues. The NEOs are entitled to the following two Company-paid benefits that are not generally available to the employee population: (a) supplemental executive life insurance with a face amount of $5 million ($10 million for Mr. Freda) and (b) for the NEOs who were employees prior to January 1, 2011, payment in lieu of a medical reimbursement program that was discontinued as of such date. For costs associated with such programs, see note (8) to the "Summary Compensation Table" below.

        Perquisites. We provide limited perquisites to our executive officers. The perquisites include (a) an annual perquisite allowance of $20,000 for the Executive Chairman and the President and Chief Executive Officer and $15,000 for the other executive officers (other than the Lauders); (b) personal use of a company car (or cash in lieu of a company car); (c) financial counseling costs up to $5,000 per

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year; and (d) spousal or companion travel (with required approval, the executive's spouse, companion, or domestic partner may accompany the executive on up to two business trips per fiscal year). On occasion, we will provide expense reimbursements relating to relocations. We believe these perquisites help to attract and retain executive officers and are more cost-effective to us than providing additional salary to the executive officers.

Post-Termination Compensation

        Retirement Plans. We provide retirement benefits to our employees in the United States, including the NEOs, under The Estee Lauder Companies Retirement Growth Account Plan (the "RGA Plan"), the related The Estee Lauder Inc. Benefits Restoration Plan (the "Restoration Plan"), and The Estee Lauder Companies 401(k) Savings Plan. Executive officers who have worked for our subsidiaries outside the United States may also be covered under plans covering such employees. As with other benefits, the retirement plans are intended to enable us to attract and retain employees. The plans provide employees, including executive officers, with an opportunity to plan for future financial needs during retirement. For a more detailed discussion on the retirement plans, see "Pension Benefits" below.

        In addition, certain executive officers, such as Mr. Freda, who joined us mid-career, or who forfeited certain retirement benefits from their former employers to join us, have been provided with nonqualified supplemental pension arrangements.

        Deferred Compensation. We currently allow executive officers to defer a portion of their base salary and annual bonus. Under the terms of their employment agreements and the EAIP, each of the NEOs may elect to defer all or part of the officer's incentive bonus compensation, subject to the requirements of Section 409A of the Internal Revenue Code ("Section 409A"). The ability to defer is provided to participating executive officers as a way to assist them in saving for future financial needs with relatively little cost to us. The amounts deferred are a general obligation of ours, and the cash that is not paid currently may be used by us for our general corporate purposes. For a more detailed discussion of deferred compensation, see the "Nonqualified Deferred Compensation in Fiscal 2015 and at June 30, 2015" table and the accompanying narrative below.

        Potential Payments upon Termination of Employment. As discussed in more detail under "Potential Payments upon Termination of Employment or Change of Control," the Named Executive Officers' employment agreements provide for certain payments and other benefits in the event their employment is terminated under certain circumstances, such as disability, death, termination by us without cause, and termination by us for material breach of their employment arrangement, or termination by the executive officer for "good reason" following a "change of control."

        In view of the Lauder family's ownership of shares with approximately 87% of the voting power, they have the ability to determine whether our company will undergo a "change of control." In order to protect the interests of the executive officers and to keep them involved and motivated during any process that may result in a "change of control," outstanding PSUs contain provisions that accelerate vesting upon a "change in control." Unvested RSUs and stock options contain provisions that provide for accelerated vesting or exercisability after a "change of control" only if we terminate the executive officer without cause or the executive officer terminates his or her employment for "good reason." The executive employment agreements similarly provide such a "double trigger" for other severance benefits.

        We place great value on the long-term commitment that many executive officers have made to us. In addition to recognizing the service they have provided during their tenure, we attempt to motivate

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them to act in a manner that will provide longer-term benefits to us even as they approach retirement. Therefore, stock options, RSUs, and PSUs granted to executive officers who are retirement-eligible contain provisions that allow the executive officers to continue to participate in the longer-term success of the business following retirement. For example, stock options become immediately exercisable upon retirement and are exercisable for the remainder of their ten-year terms. In addition, to the extent the performance is achieved, a retiree's PSUs will vest in accordance with the original vesting schedule.

        The Amended and Restated Fiscal 2002 Share Incentive Plan provides for forfeiture of awards in the event that after termination of employment, a participant (which includes individuals who are not executive officers) competes with or otherwise conducts herself or himself in a manner adversely affecting the Company.

Tax Compliance Policy

        We are aware of the limitations on deductibility for income tax purposes of certain compensation in excess of $1 million per year paid to our most highly compensated executive officers under Section 162(m). While significant portions of the compensation program as it applied to such persons in fiscal 2015 were generally designed to take advantage of exceptions to Section 162(m), such as the "performance-based" exception for annual bonuses, PSUs, and stock options, certain non-deductible compensation elements, such as the RSUs and the portion of base salaries that exceeded $1 million, were authorized. We consider tax deductibility to be important but not the sole or primary consideration in setting executive compensation. Accordingly, the Committee has the authority to approve, and in specific situations has approved, the payment of compensation that may not be deductible when it believes such payments are in the best interests of stockholders.

Executive Stock Ownership Guidelines and Holding Requirement

        The Company has stock ownership guidelines for executive officers to further align their interests with those of our stockholders. Each executive officer in office prior to January 1, 2012 has three years to meet his or her target set forth below. A person who became, or who becomes, an executive officer on or after January 1, 2012, has five years after he or she reaches that level to meet the targets. Targets are tiered depending on an executive officer's position and are expressed as multiples of annual salary: 5 times for the Executive Chairman and the President and Chief Executive Officer; 3 times for Group Presidents and Executive Vice President and Chief Financial Officer; and 2 times for all other executive officers. Shares held directly by the executive officer or by his or her family members or in controlled entities and unvested RSUs are included in determining the value of the shares held. As of June 30, 2015, all executive officers owned shares (including unvested RSUs) that exceeded the guidelines applicable to them.

        If an executive officer receives an increase in base salary, then he or she has until the third anniversary of the effective date of the salary increase to comply with the incremental change in ownership requirements. In the unlikely event that an executive officer fails to comply with the guidelines by the required deadline, then until such time as the ownership guidelines are met, such officer: (i) may not sell any Common Stock (including shares issued from any share unit vesting); and (ii) must hold any net after-tax value of any stock option exercise. If an executive officer satisfies the guidelines but, due to a drop in the stock price, ownership falls below the required threshold, then he or she is deemed to satisfy the guideline for one year. After one year, if the guidelines are not met, the officer: (i) must hold at least 50% of the net after-tax shares of Common Stock received from any share unit vesting; and (ii) must hold 50% of the net after-tax value of any stock option exercise.

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Policy on Insider Trading

        Our executive officers, as well as members of our Board of Directors, and employees at senior levels and in sensitive areas throughout our organization are subject to our policy on insider trading. Under this policy, such people are generally prohibited from buying or selling shares of our stock during regular and special blackout periods. This also applies to the exercise of stock options and sale of the underlying shares. Moreover, prior to any trade, executive officers, directors, and such employees must obtain preclearance from our Legal Department.

Pledging Policy

        We do not restrict pledges of securities but require that pledges of securities be precleared by our Legal Department. While shares of our stock held in brokerage margin accounts can be considered to be "pledged," we do not consider margin accounts to be subject to our preclearance policy. As of June 30, 2015, none of our executive officers held shares of our stock in margin accounts.

Hedging Policy

        We do not restrict transactions in the Company's securities involving hedging or the use of derivative securities but require that such transactions be precleared by our Legal Department.

Recoupment Policy

        Annual and long-term incentive compensation (whether in the form of stock options or paid or payable in cash or equity) awarded to executive officers are subject to an executive compensation recoupment policy, also known as a "clawback." Under the policy, recoupment would apply in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the applicable securities laws. Recoupment would apply to any current or former executive officer who received incentive compensation within the three-year period prior to the restatement, and the amount to be recouped would be the amount in excess of what the executive officer would have been paid under the restatement.

Compensation Committee and Stock Plan Subcommittee Report

        The Compensation Committee and the Stock Plan Subcommittee have reviewed and discussed with management the foregoing Compensation Discussion and Analysis in this Proxy Statement on Schedule 14A. Based on such review and discussions, the Compensation Committee and the Stock Plan Subcommittee have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company's Annual Report on Form 10-K for the year ended June 30, 2015.

Compensation Committee   Stock Plan Subcommittee
Richard D. Parsons (Chair)   Rose Marie Bravo
Rose Marie Bravo   Paul J. Fribourg
Paul J. Fribourg   Richard F. Zannino
Richard F. Zannino    

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Summary Compensation Table

        The following table, footnotes, and narratives describe the compensation during the past three fiscal years for (a) our Chief Executive Officer, (b) our Chief Financial Officer, and (c) our three other most highly compensated executive officers serving at the end of our fiscal year ended June 30, 2015 ("fiscal 2015"). The fiscal year ended June 30, 2014 is referred to as "fiscal 2014," and the fiscal year ended June 30, 2013 is referred to as "fiscal 2013." See "Compensation Discussion and Analysis" above and other disclosures under "Executive Compensation" for a description of the material factors necessary to an understanding of the information disclosed below.

Name and Principal
Position

​Year  

​Salary
($)
 



​Bonus
($)
 



​Stock
Awards
($)(4)
 




​Option
Awards
($)(5)
 




​Non-Equity
Incentive
Plan
Compensation
($)(6)
 






​Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(7)
 









​All Other
Compensation
($)(8)
 




​Total
($)
 
 
William P. Lauder   2015   $ 1,500,000   $ 0   $ 1,666,692   $ 833,307   $ 3,219,100   $ 380,807   $ 54,206   $ 7,654,112  

Executive Chairman

  2014   1,500,000   0   1,666,865   867,433   3,409,750   653,479   98,215   8,195,742  
  2013   1,500,000   0   1,250,000   1,225,677   3,346,850   244,547   50,734   7,617,808  

Fabrizio Freda(1)

 

 

2015

 

 

1,800,000

 

 

0

 

 

6,249,946

 

 

3,125,061

 

 

4,828,650

 

 

593,427

 

 

84,063

 

 

16,681,147

 

President and Chief

    2014     1,750,000     0     5,625,770     2,927,458     4,546,300     580,888     132,298     15,562,714  

Executive Officer

    2013     1,750,000     0     21,024,945     3,983,423     4,183,550     529,031     127,730     31,598,679  

Tracey T. Travis(2)

 


2015

 


850,000

 


0

 


2,239,942

 


1,120,067

 


1,059,450

 


59,834

 


51,712

 


5,381,005

 

Executive Vice

  2014   825,000   0   2,062,782   1,073,460   1,055,250   12,436   47,700   5,076,628  

President and

  2013   825,000   0   2,449,964   2,402,380   968,550   0   54,094   6,699,988  

Chief Financial

                                     

Officer

                                     

John Demsey(3)

 

 

2015

 

 

1,040,000

 

 

0

 

 

3,416,018

 

 

1,707,975

 

 

3,284,600

 

 

301,676

 

 

66,808

 

 

9,817,077

 

Group President

    2014     1,000,000     0     3,024,642     1,573,834     3,251,050     398,181     74,630     9,322,337  
      2013     1,000,000     0     3,620,392     2,079,150     2,928,300     213,677     48,006     9,889,525  

Cedric Prouvé(3)

 


2015

 


1,030,000

 


0

 


2,470,614

 


1,235,376

 


2,580,000

 


242,262

 


96,977

 


7,655,229

 

Group President –

  2014   1,000,000   0   2,266,328   1,179,283   2,665,050   350,329   102,892   7,563,882  

International

  2013   1,000,000   0   2,575,560   1,790,115   2,406,400   166,760   52,958   7,991,793  

(1)
As described in detail below, stock awards for Mr. Freda in each year reflect annual grants of RSUs and PSUs as well as additional grants in fiscal 2013. The Summary Compensation Table shows the grant date fair value of all stock awards; however, much of the value to be realized by Mr. Freda will depend upon performance of the Company in future periods. In contrast, the table below shows the allocation of the amounts expensed for accounting purposes, subject to continued employment, for those same awards attributable to each fiscal year represented in the Summary Compensation Table (including allocations from awards granted prior to fiscal 2013 and disclosed in previous proxy statements). In such case, the amount of "Stock Awards" and "Total Compensation" for Mr. Freda would be as shown below.

Year 

​Stock Awards ($)  

​Total Compensation ($)    
2015   $ 10,873,886   $ 21,305,087  
2014     13,338,607     23,275,550  
2013   11,005,052   21,578,787  

Of the total grant date fair value of the additional grants in fiscal 2013, $3,860,748 will be recognized in fiscal years 2016 and 2017, subject to continued employment.

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On September 24, 2012, the Subcommittee granted Mr. Freda additional RSUs valued at $6,000,000 based on the closing price of our Class A Common Stock on the NYSE on that date (i.e. $61.44). In addition, on that date, we granted Mr. Freda PSUs based on the Company's TSR over three performance periods ending June 30, 2015, 2016, and 2017 as compared to the TSR of the S&P 500 Companies. Such PSUs were valued at $10,962,430 at the time of grant using a lattice model with a Monte Carlo simulation with the following assumptions for each performance period, respectively: contractual life of 33, 45, and 57 months; average risk-free interest rate of 0.3%, 0.5%, and 0.7%; and a dividend yield of 1.0%. The expected stock price volatility assumption is a combination of both current and historical implied volatilities from options on the underlying stock at the time of grant. The implied volatilities were obtained from publicly available data sources. The expected life is equal to the contractual term of the grant. The average risk-free interest rate is based on the U.S. Treasury strip rates over the contractual term of the grant, and the average dividend yield is based on historical experience. Each of these additional grants (as well as other RSUs and PSUs described in note (4)) is structured to be earned by Mr. Freda over multiple fiscal years. The payout of the PSUs based on TSR could be as low as zero depending upon performance during the applicable periods, and the value of any payout will depend upon the stock price at the time of payout. See "Compensation Discussion and Analysis – Elements of Compensation; Allocation – Long-Term Equity-Based Compensation – Performance Share Units" above.

(2)
Ms. Travis became Executive Vice President and Chief Financial Officer when she joined the Company in August 2012. Amounts for fiscal 2013 include a $2.3 million supplemental award in recognition of equity forfeited from her prior employer. This award was split equally between RSUs and stock options.

(3)
"Stock Awards" and "Total" in fiscal 2013 for Mr. Demsey and Mr. Prouvé include supplemental grants of RSUs made during that year valued at $1.5 million and $750,000, respectively.

(4)
Amounts represent the aggregate grant date fair value of RSUs and PSUs granted in the respective fiscal year computed in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 718, Compensation – Stock Compensation ("FASB ASC Topic 718"). Amounts shown for Mr. Freda for fiscal 2013 include an additional PSU award based on TSR further discussed in note (1). Amounts shown disregard estimates of forfeitures related to service-based vesting conditions and were calculated generally based on the closing prices of our Class A Common Stock on the NYSE on the dates of grant, which were $59.78 on September 4, 2012, $61.44 on September 24, 2012, $67.31 on September 4, 2013, and $76.23 on September 3, 2014. Mr. Demsey's and Mr. Prouvé's amounts for fiscal 2013 include additional RSU awards. For PSUs, the amount included was calculated based on the probable (i.e. likely) outcome with respect to satisfaction of the performance conditions at the date of grant, which is the target payout, consistent with the recognition criteria in FASB ASC Topic 718 (excluding the effect of estimated forfeitures). The maximum potential values of PSUs (assuming the grant date stock price) awarded at the date of grant for fiscal 2015, 2014, and 2013, respectively, were as follows: Mr. Lauder, $1,250,020, $1,250,149, and $937,500; Mr. Freda, $4,687,459, $4,219,327, and $19,046,856; Ms. Travis, $1,679,957, $1,547,120, and $974,982; Mr. Demsey, $2,562,014, $2,268,482, and $1,590,297; and Mr. Prouvé, $1,852,999, $1,699,779, and $1,369,171. The payout of PSUs to all executives could be as low as zero depending on performance over the relevant period, and the value of any payout will depend on the stock price at the time of payout. For a description of the performance criteria applicable to the PSUs, see "Compensation Discussion and Analysis – Elements of Compensation; Allocation – Long-Term Equity-Based Compensation – Performance Share Units" above.

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(5)
Amounts represent aggregate grant date fair value of stock options granted in the respective fiscal year to the NEOs computed in accordance with FASB ASC Topic 718. Amounts shown disregard estimates of forfeitures related to service-based vesting conditions. The fair values of stock options granted were calculated using the Black-Scholes options-pricing model based on the following assumptions:

Date of Grant
  Expected
Volatility
 



​Expected
Term to
Exercise
 




​Dividend
Yield
 



​Risk-Free
Interest
Rate
 
 

September 3, 2014

 

  28 % 9   1.1 % 2.3 %

September 4, 2013

        33 %   8     1.1 %   2.8 %

September 4, 2012

 

  34 % 9   1.0 % 1.4 %

The expected volatility assumption is a combination of both current and historical implied volatilities of the underlying stock. The implied volatilities were obtained from publicly available data sources. See "Grants of Plan-Based Awards in Fiscal 2015" below for information about option awards granted in fiscal 2015 and "Outstanding Equity Awards at June 30, 2015" below for information with respect to options outstanding at June 30, 2015. The actual value, if any, realized by an executive officer from any option will depend on the extent to which the market value of our Class A Common Stock exceeds the exercise price of the option on the date the option is exercised. Accordingly, there is no assurance that the value realized by an executive officer will be at or near the amounts set forth in the table. These amounts should not be used to predict stock performance.

(6)
The amounts represent incentive payments made in respect of each fiscal year under our EAIP. See "Grants of Plan-Based Awards in Fiscal 2015" below for the potential payouts to which the executive was entitled depending on the outcome of the performance criteria. For a description of the performance criteria, see "Compensation Discussion and Analysis – Elements of Compensation; Allocation – Annual Incentive Bonuses" above.

(7)
The amounts represent the aggregate change in each fiscal year in the actuarial present value of each NEO's accumulated pension benefits under the RGA Plan and the Restoration Plan and any above market portion of interest earned during each fiscal year on deferred compensation balances. Mr. Lauder is the only Named Executive Officer with a deferred compensation balance. The above market portions of interest earned during fiscal 2015 and fiscal 2013 were $16,341 and $19,234, respectively. There was no above market interest for fiscal 2014. See "Nonqualified Deferred Compensation in Fiscal 2015 and at June 30, 2015" and the related discussion below for a description of our deferred compensation arrangements applicable to executive officers. For Mr. Freda, the amount also represents a supplemental deferral intended to replicate pension benefits foregone at his former employer plus earnings on such deferral. See "Pension Benefits" below.

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(8)
Amounts reported for fiscal 2015, fiscal 2014, and fiscal 2013 are as follows.

Name
​Year  

​Matching
401(k)
Savings Plan
Contributions
Made on Behalf
of the
Executives
 








​Company-Paid
Premiums
for
Executive
Life
Insuran