Kroger 2010 Annual Report Download - page 24

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22
CO M P E N S A T I O N DI S C U S S I O N A N D AN A L Y S I S
EX E C U T I V E CO M P E N S A T I O N – OV E R V I E W
As the largest traditional food and drug retailer in the United States, our executive compensation
philosophy is to attract and retain the best management talent and to motivate these employees to achieve
business and financial goals that create value for shareholders in a manner consistent with our focus on our
core values: honesty, integrity, respect, inclusion, diversity, and safety.
To achieve our objectives, our Compensation Committee seeks to ensure that compensation is
competitive and that there is a direct link between pay and performance, using the following guiding
principles:
•฀ A฀ significant฀ portion฀ of฀ pay฀ should฀ be฀ performance-based,฀ with฀ the฀ proportion฀ varying฀ with฀ an฀
executive’s level of responsibility;
•฀ Compensation฀should฀include฀incentive-based฀pay฀to฀drive฀performance,฀providing฀superior฀pay฀for฀
superior performance, with both a short- and long-term focus;
•฀ Compensation฀ policies฀ should฀ include฀ an฀ opportunity฀ for฀ and฀ a฀ requirement฀ of฀ equity฀
ownership; and
•฀ Components฀of฀compensation฀should฀be฀tied฀to฀an฀evaluation฀of฀business฀and฀individual฀performance฀
measured against metrics that align with our business strategy.
Our 2010 fiscal year results compared against the compensation of senior executives demonstrated
these principles, and illustrated how our compensation program responds to business challenges and the
marketplace. While many companies have struggled unsuccessfully during this difficult economy, we have
continued to deliver sales growth and positive earnings results.
•฀ Our฀identical฀supermarket฀sales,฀excluding฀fuel,฀increased฀2.8%฀compared฀to฀2009.฀This฀result฀was฀
substantially better than most of our competitors’ sales growth but still fell short of our objectives.
•฀ Our฀earnings฀per฀diluted฀share฀were฀$1.74,฀including฀an฀impairment฀charge฀that฀reduced฀earnings฀by฀
approximately $0.02 per diluted share. Again, these results were laudable in the challenging operating
environment of 2010 but below our objectives.
•฀ Annual฀cash฀dividends฀declared฀per฀common฀share฀during฀the฀year฀increased฀8%฀over฀2009.
•฀ As฀described฀below,฀short-term฀performance-based฀compensation,฀or฀annual฀cash฀bonus,฀of฀53.868%฀
of bonus potentials paid to the named executive officers, was substantially lower than the average
of 74% over the prior nine years, but higher than the 38.450% paid in 2009. This reflects the extent
to which Kroger was able to achieve increasingly more challenging targets for sales, earnings, our
strategic plan, and our fuel program, as well as year-over-year improvement from 2009.
•฀ Beginning฀in฀2010,฀fifty฀percent฀of฀the฀time-based฀equity฀awards฀that฀otherwise฀would฀have฀been฀
granted to the named executive officers as restricted stock have been replaced with performance
units that are earned only to the extent that performance objectives are achieved.
•฀ Equity฀ compensation฀ awards฀ continued฀ to฀ play฀ an฀ important฀ role฀ in฀ rewarding฀ named฀ executive฀
officers for the achievement of long-term business objectives and providing incentives for the creation
of shareholder value.