**EXHIBIT 10.26**

JONES APPAREL GROUP, INC. DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS

    Jones Apparel Group, Inc. (the "Company") desiresto establish a Deferred Compensation Plan for Outside Directors (the"Plan") in order to enhance the Company's ability to attract andretain talented individuals to serve as Directors of the Board of Directors ofthe Company (the "Board") by giving them the opportunity to defer receipt of allor a portion of their annual retainer and meeting attendance fees from theCompany (the "Fees"). 

    1. Effective Date. The effective dateof the Plan is January 1, 2003, and the Plan shall be effective with respect toFees payable for periods beginning on and after January 1, 2003.

    2. Participation. Each non-employeeDirector ("Eligible Director") may elect to defer all or a portion ofhis or her Fees in accordance with Section 4 of the Plan. Each Eligible Directorwho makes any such election shall be a Plan Participant.

    3. Administration. The Board'sCompensation Committee shall act as the administrator of the Plan (the"Administrator"). The Administrator shall have the power and authorityto administer, construe and interpret the Plan and to correct any defect orsupply any omission or reconcile any inconsistency in the Plan as, in its solediscretion, it deems necessary or desirable. All actions and determinations ofthe Administrator shall be final, conclusive and binding on all partiesconcerned. The Administrator shall not be liable for any act done ordetermination made in good faith. The expense of administering the Plan shall beborne by the Company and shall not be charged against benefits payablehereunder. The Administrator may employ agents and delegate to them suchadministrative duties as the Administrator sees fit. Notwithstanding theforegoing provisions of this Section 3, the Board may exercise any power orperform any function of the Administrator, in which case any applicablereference to Administrator shall be deemed to refer to the Board.

    4. Deferral of Compensation.(a)  Deferral Election. Prior to the first day of each calendaryear (or such earlier date as the Administrator may determine from time totime), an Eligible Director may elect to defer all or a portion of the Feesotherwise payable to that Eligible Director for such calendar year (the"Plan Year") by executing a Deferral Election Form in the formprescribed by the Administrator. In the event that an Eligible Director firstbecomes eligible to participate during a Plan Year, he or she may make aDeferral Election within thirty (30) days of becoming eligible to participate inthe Plan with respect to Fees earned in such calendar year following thesubmission of the Deferral Election Form. In addition to electing to defer Fees(a "Deferral Election"), the Deferral Election Form for each Plan Year willrequire the Eligible Director to elect to have the deferred Fees credited on theCompany's books in the form of (i) share units ("Share Units"), with each unitrepresenting a share of common stock, par value $0.01, of the Company ("CommonStock"), (ii) cash units ("Cash Units"), the value of which shall be determinedas set forth below in Section 4(d) of this Plan, or (iii) such other investmentunit alternatives as the Board may make available from time to time ("OtherInvestment Units"). Except as otherwise determined by the Administrator, aDeferral Election shall be irrevocable for a Plan Year after that Plan Yearbegins. A Deferral Election shall continue in effect until such time as theParticipant provides written notice of its revocation or submits a new DeferralElection Form; provided that any such revocation or change to the amount of Feesdeferred shall not be effective until the calendar year following the year inwhich such revocation or change is made.

        (b)  Creditingto Participant Accounts. An account (an "Account") shall beestablished on the Company's books to record a Participant's deferrals, whichshall be credited in the form of Cash Units, Share Units and/or Other InvestmentUnits, as the case may be. Each Participant Account shall be credited with anamount equivalent to the Fees that would have otherwise been paid to theParticipant, such credit to be made on the date on which the Fees would havebeen paid absent a Deferral Election. 

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The number of Share Units to be credited to a Participant'sAccount shall be determined by dividing the dollar amount of the deferred Feesby the Market Value of the Common Stock on the date the Fees would haveotherwise been paid. The "Market Value" of the Common Stock as of agiven date means the closing price of the Common Stock on the New York StockExchange (as reported in the Eastern Edition of The Wall Street Journal) on suchgiven date or, if shares were not traded on such date, on the next precedingdate on which shares were traded; provided that, if the Common Stock is tradedon an exchange or market in which prices are reported on a bid and asked pricebasis, "Market Value" shall mean the average of the mean between the bid and theasked price for the Common Stock at the close of trading for the ten consecutivetrading days immediately preceding such given date; and provided further that,if the Common Stock is not listed on a national securities exchange nor tradedon the over-the-counter market, the "Market Value" shall be determined by theAdministrator in good faith.

        (c)  Dividendand Interest Credits. Each Account that holds Share Units shall be adjustedappropriately by the Administrator for any dividends on the Common Stock as ofthe dividend payment date, which adjustment shall be in the form of additionalShare Units determined by multiplying the number of Share Units then credited tothe Account by the ratio of the dollar amount of the dividend per share over thecurrent Market Value of the Common Stock. The Administrator shall also adjustappropriately the number of Share Units in each Account for any stock dividend,split, combination or other change in the Common Stock (including, withoutlimitation, pursuant to any merger, acquisition or other transaction). CashUnits credited to an Account shall accrue interest compounded on the last day ofeach calendar month based on the weighted-average U.S. Treasury bill interestrate during the applicable month.

        (d)  TransfersAmong Investment Units. A Participant may transfer and reallocate amounts inhis or her Account among Share Units, Cash Units and any Other Investment Unitsin accordance with procedures and policies as may be adopted by theAdministrator; provided that nothing herein shall require the Administrator toadopt any such procedures and policies.

        (e)  AccountVesting. A Participant shall be fully vested in his or her Account at alltimes.

        (f)  NoAttendant Rights from Share Units. Except as provided in Section 4(c), aParticipant shall not have any of the attendant rights of a holder of a share ofCommon Stock in connection with Share Units allocated to his or her Account,including the right to vote and the right to receive dividends provided toholders of actual shares of Common Stock.

    5. Payment of Accounts. (a) Subject toSection 7, payment of a Participant's Account balance will commence as soon aspracticable following the earlier of (x) the termination of the Participant'smembership on the Board for any reason (a "Board Termination") or (y) the dateelected by the Participant on a Payment Election Form in the form prescribed bythe Administrator, if any (which date shall be the first day of the monthelected by the Participant). Payment of a Participant's Account balance will bemade in a lump-sum payment, unless the Participant elects on a Payment ElectionForm to receive the amounts in annual installments over a period of time not toexceed ten (10) years. Accounts shall be paid to Participants in the form ofcash. The Administrator may at any time elect in its sole discretion toaccelerate the payment of all or any portion of all or any Accounts held underthe Plan.

        (b) Lump-SumPayment. 

           (i) Valuation Upon Board Termination. If a lump-sum payment is madepursuant to clause (x) of Section 5(a), the Participant's Account shall bevalued on the date of such termination by determining the value of Share Unitsbased on the Market Value of Common Stock on such date, by crediting interest toCash Units at the applicable rate from the end of the preceding month to thedate of the 

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Participant's Board Termination and by determining the value ofOther Investment Units on such date in accordance with procedures established bythe Administrator. 

           (ii) Valuation in Connection with an Elected Date. If a lump-sum paymentis made pursuant to clause (y) of Section 5(a), the Participant's Accountbalance shall be valued on the last day of the calendar month immediatelypreceding the date elected by the Participant by determining the value of ShareUnits based on the Market Value of Common Stock on that date, by creditinginterest to Cash Units at the applicable rate through that date and bydetermining the value of Other Investment Units on that date in accordance withprocedures established by the Administrator.

        (c) InstallmentPayment. 

           (i) Installment Amount. If the annual installment method is elected, theamount of each annual payment will be determined by dividing the Account (asdetermined below) on the Payment Date by the remaining number of installmentpayments (e.g., if 10 installments are elected, the first payment would be equalto 1/10 of the balance on the first Payment Date, the second payment would beequal to 1/9 of the balance on the second Payment Date, and so on), with thefull Account balance being distributed on the last Payment Date. For purposes ofthis Plan, the first "Payment Date" shall be the earlier of (1) the first day ofthe month elected by the Participant in his or her Payment Election Form, ifany, or (2) the first day of the month following the Participant's BoardTermination, and each subsequent "Payment Date" shall be on the annualanniversary of the first Payment Date. 

           (ii) Valuation for Installment Method. If payments are made using theinstallment method, the Participant's Account shall be valued as of the end ofthe month preceding each Payment Date (the "Valuation Date") by determining thevalue of Share Units based on the Market Value of Common Stock on the ValuationDate, by crediting interest to Cash Units at the applicable rate through theValuation Date and by determining the value of Other Investment Units on theValuation Date in accordance with procedures established by the Administrator.

           (d) Change in Payment Election Form. A Participant may change a PaymentElection Form by submitting to the Administrator a new Payment Election Form;provided such changes shall not take effect until thirteen months after the datethe new Payment Election Form is submitted.

    6. Early Payment. A Participant mayfile a written request with the Administrator for payment from his or herAccount due to an unforeseeable emergency that is caused by an event beyond thecontrol of the Participant and that would result in severe financial hardship tothe Participant if payment were not permitted, such as may result from a suddenand unexpected illness or accident not covered by insurance, loss of propertydue to casualty, or similar circumstance. The Administrator may, in its solediscretion, accept or reject any such request as it deems appropriate.

    7. Payment in the Event of Death. Inthe event that a Participant's service is terminated by reason of death, theCompany shall, within thirty (30) days thereafter, pay the aggregate balance ofthe Participant's Account to the Participant's beneficiary or beneficiaries inthe form of a single lump-sum. Each Participant may designate one or more deathbeneficiaries by executing a Beneficiary Designation Form in the form prescribedby the Administrator. A Participant may change the designated beneficiary orbeneficiaries at any time prior to the Participant's death by the delivery tothe Administrator of a new Beneficiary Designation Form. If no beneficiary hasbeen designated, or if no designated beneficiary survives the Participant,payments pursuant to this Section 7 shall be made to the Participant's estate.

    8. Assignment and Alienation of Benefits.Except to the extent provided in Section 7 of this Plan or pursuant to adomestic relations order issued by a court of proper authority (which orderspecifies the amount and timing of any payment to a 

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Participant's former spouse), no Participant or beneficiary maysell, assign, transfer, encumber, or otherwise dispose of the right to receivepayments hereunder.

    9. Unsecured Obligation. Theobligation of the Company to make payments of amounts credited to theParticipant's Account shall be a general unsecured obligation of the Company,and such payment shall be made from general assets and property of the Company.The Participant's relationship to the Company under the Plan shall be only thatof a general unsecured creditor and neither this Plan, nor any agreement enteredinto hereunder, or action taken pursuant hereto, shall create or be construed tocreate a trust for purposes of holding and investing Account balances. TheCompany reserves the right to establish such a trust, but such establishmentshall not create any rights in or against any amounts held thereunder.

    10. Amendment or Termination. TheBoard may amend or terminate this Plan at any time and from time to time. Anyamendment or termination of this Plan shall not affect the rights of aParticipant accrued prior thereto without the Participant's written consent.Notwithstanding the foregoing provisions of this Section 10, the Board may atany time partially or completely terminate the Plan if, in its judgment, thetax, accounting, or other effects of the continuance of the Plan would not be inthe best interests of the Company.

        (a)  PartialTermination. The Board may partially terminate this Plan by instructing theAdministrator to not accept any additional deferrals and/or any additionalDeferral Elections under the Plan. If such a partial termination occurs, thePlan shall continue to operate and be effective with regard to (i) Accounts inexistence prior to the effective date of such partial termination and (ii) inthe case of the cessation only of future Deferral Elections, future deferralspursuant to Deferral Elections made prior to the effective date of such partialtermination.

        (b)  CompleteTermination. The Board may completely terminate this Plan, in which case (i)no further deferrals will be accepted by the Plan, (ii) no further DeferralElections will be accepted by the Plan and (iii) all Accounts will be paid outin full within thirty (30) days after the effective date of such completetermination.

    11. Taxes. The Company is notresponsible for any of the income taxes resulting from an Eligible Director'sparticipation in the Plan. The Company shall comply with all applicable taxreporting requirements relating to payments under the Plan, and all paymentsunder the Plan shall be subject to any required tax withholding.

    12. No Right to Continued Directorship.Nothing in this Plan confers upon any Director the right to continue as a memberof the Board or interferes with the rights of the Company and its shareholdersto remove any Director in accordance with the Company's bylaws.

    13. Validity. In case any provision ofthis Plan shall be held illegal or invalid for any reason, such illegality orinvalidity shall not affect the remaining parts of the Plan, and the Plan shallbe construed and enforced as if such illegal and invalid provision had neverbeen incorporated herein.

    14. Successors and Assigns. TheCompany's obligations under the Plan shall be binding on all assigns of theCompany and upon any successor corporation or entity resulting from the merger,acquisition, consolidation, dissolution or reorganization of the Company, orupon any successor corporation or organization succeeding to all orsubstantially all of the assets of the Company. The Plan shall be binding on allsuccessors and assigns of a Participant, including the Participant'sbeneficiaries and estate and the executor, administrator or trustee of suchestate, or any receiver or trustee in bankruptcy or representative of theParticipant's creditors.

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    15. Compliance with Rule 16b-3. It isthe Company's intention that the Plan comply with Rule 16b-3 promulgated underSection 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),and that Participants remain non-employee directors ("Non-Employee Directors")for purposes of administering other employee benefit plans of the Company andhaving such other plans be exempt from Section 16(b) of the Exchange Act. If anyPlan provision is found to not be in compliance with Rule 16b-3 or if any Planprovision would disqualify Participants from remaining Non-Employee Directors,that provision shall be deemed amended so that the Plan does so comply and theParticipants remain Non-Employee Directors, to the extent permitted by law anddeemed advisable by the Administrator, and in all events the Plan shall beconstrued in favor of its meeting the requirements of Rule 16b-3.

    16. Applicable Law. This Plan isgoverned under the laws of the State of New York.

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JONES APPAREL GROUP, INC. DEFERRED COMPENSATION PLAN FOROUTSIDE DIRECTORSDEFERRAL ELECTION FORM

I hereby elect that the following percentage of my annual retention andmeeting attendance fees from Jones Apparel Group, Inc. to be earned duringsubsequent calendar years be deferred and credited to my Account (SELECT ONE OFTHE FOLLOWING): 

| 25%                               |   _____ |
|-----------------------------------|--------------|
| 50%                               |   _____ |
| 75%                               |   _____ |
| 100%                              |   _____ |
| Other Percentage        (specify) |   _____ |

 

I hereby further elect that all amounts to be deferred to my Account forsubsequent calendar years be credited in the form of Share Units and/or CashUnits (as such terms are defined in the Plan) in the following percentages (FILLIN ONE OR BOTH OF THE FOLLOWING WITH WHOLE NUMBERS TOTALING 100%):

| Cash Units:  |   _____%                    |
|--------------|----------------------------------|
| Share Units: |   _____%                    |
| Total:       | _______           100% |

 

| ___________________________________        PARTICIPANT                | Date: ______________                     |
|-----------------------------------------------------------------------|------------------------------------------|
| Accepted by Administrator:        ___________________________________ |           Date: ______________ |

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JONES APPAREL GROUP, INC. DEFERRED COMPENSATION PLAN FOROUTSIDE DIRECTORSPAYMENT ELECTION FORM

ELECTION OF PAYMENT COMMENCEMENT DATE

I hereby elect to receive payment of my Account commencing (CHOOSE ONE):

| ____              | as soon as practicable following        the date on which my service as a Director on the Company's Board        terminates. |
|-------------------|------------------------------------------------------------------------------------------------------------------------------|
| ____        MONTH | ____________________ 1, _____         YEAR                                                                              | (FILL IN MONTH AND YEAR - DAY WILL BE FIRST        OF THE ELECTED MONTH)  |

> 
   Note: If your service as a Director on the Company's Board terminates prior to  the date you elect herein, payment of your Account will commence as soon as  practicable following termination of your directorship.

If no election is made, you will automatically be deemed to have elected toreceive payment of your Account commencing as soon as practicable following thedate on which your service as a Director terminates. 

ELECTION OF FORM OF PAYMENT

I hereby elect the following method for payment of my Account (CHOOSEONE): 

| ____ | payment in a single lump-sum.                                                                  |
|------|------------------------------------------------------------------------------------------------|
| ____ | ____ annual installment payments over ____      years (FILL IN A WHOLE NUMBER UP TO 10 YEARS). |

 If no election is made, you will automatically be deemed to haveelected to receive payment of your Account in a single lump-sum.

| ___________________________________        PARTICIPANT                | Date: ______________                     |
|-----------------------------------------------------------------------|------------------------------------------|
| Accepted by Administrator:        ___________________________________ |           Date: ______________ |

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JONES APPAREL GROUP, INC. DEFERRED COMPENSATION PLAN FOROUTSIDE DIRECTORSBENEFICIARY DESIGNATION FORM

Complete this form to name beneficiaries who will receive your Accountbalance remaining at the time of your death. You can change your beneficiariesat any time by completing a new form. You must sign where indicated on the lastpage for this form to be valid.

I. Participant  

> 
_____________________________________________  Participant's legal name (please print)

II. Primary Beneficiaries

> 
Your remaining Account balance will be paid only to those beneficiaries  living at the time of your death. The proportions must total 100% of your  Account balance. If proportions are not indicated, or do not total 100%, your  remaining Account balance will be paid in equal shares to the designated  beneficiaries. If any of your primary beneficiaries is not living at the time  of your death, your remaining Account balance will be divided proportionately  among the remaining primary beneficiaries.

In the event of my death, pay my Account balance to (if additional  beneficiaries are designated, attach the required information on a separate  page):

| _______________________________________        Name                                                                                                                                                                      | _____________________________        Social Security Number                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| _______________________________________        Relationship                                                                                                                                                              | ______________        Date of Birth                                                                                                                                                       | _____________%        Proportion |
| _______________________________________        Address                                 City | _____________________________        State                              Zip |
| _______________________________________        Name                                                                                                                                                                      | _____________________________        Social Security Number                                                                                                                               |
| _______________________________________        Relationship                                                                                                                                                              | ______________        Date of Birth                                                                                                                                                       | _____________%        Proportion |
| _______________________________________        Address                                 City | _____________________________        State                              Zip |
|                                                                                                                                                                                                                          |                                                                                                                                                                                           | __________        Total   100% |

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III. Secondary Beneficiaries

> 
Your remaining Account balance will be paid to secondary beneficiaries only  (1) if none of your primary beneficiaries is living at the time of your death,  or (2) if all of your primary beneficiaries die before your Account balance  has been completely paid. The proportions must total 100%. If proportions are  not indicated, or do not total 100%, your remaining Account balance will be  paid in equal shares to the designated beneficiaries. If any of your secondary  beneficiaries is not living at the time of your death or on the date that your  last surviving primary beneficiary dies, your remaining Account balance will  be divided proportionately among the remaining secondary beneficiaries.

If none of my primary beneficiaries is living at the time of my death or if  all of my primary beneficiaries die before my Account balance has been  completely paid, pay my Account balance to (if additional beneficiaries are  designated, attach the required information on a separate  page):    

| _______________________________________      Name                                                                                                                                                                    | _____________________________      Social Security Number                                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| _______________________________________      Relationship                                                                                                                                                            | ______________      Date of Birth                                                                                                                                                     | _____________%      Proportion |
| _______________________________________      Address                               City | _____________________________      State                            Zip |
| _______________________________________      Name                                                                                                                                                                    | _____________________________      Social Security Number                                                                                                                             |
| _______________________________________      Relationship                                                                                                                                                            | ______________      Date of Birth                                                                                                                                                     | _____________%      Proportion |
| _______________________________________      Address                               City | _____________________________      State                            Zip |
|                                                                                                                                                                                                                      |                                                                                                                                                                                       | __________      Total   100% |

 

V. Participant's Signature

> 
I hereby revoke every previous designation of beneficiaries for this Plan.  I understand that I may change my beneficiaries at any time by completing a  new form, and that the change is effective when received in writing and  accepted by the Administrator.

| ___________________________________      PARTICIPANT                | Date: ______________              |
|---------------------------------------------------------------------|-----------------------------------|
| Accepted by Administrator:      ___________________________________ |         Date: ______________ |

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