Kroger 2010 Annual Report Download - page 32

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Total operating costs as a percentage of sales, excluding fuel, at the commencement of the 2008 plan were
27.89%. Actual payouts are based on the degree to which improvements are achieved, and will be awarded
based on the participant’s salary at the end of fiscal year 2007. In no event can any participant receive a
performance-based long-term cash bonus in excess of $5,000,000.
The Committee adopted a long-term plan in 2010, which measures improvements through fiscal year
2012. Participants receive a 1% payout for each point by which the performance in the key categories
increases, a 0.25% payout for each percentage reduction in operating costs, and a 2% payout based on
improvement in associate engagement measures. Total operating costs as a percentage of sales, excluding
fuel, at the commencement of the 2010 plan were 27.62%. Cash bonus payouts are based on the degree to
which improvements are achieved, and will be awarded based on the participant’s salary at the end of fiscal
year 2009. In no event can any participant receive a performance-based long-term cash bonus in excess
of the lesser of $5,000,000 and the participant’s salary at the end of fiscal year 2009. In addition to a cash
bonus, under the 2010 plan participants also receive performance units, more particularly described under
“Equity” below.
The Committee adopted a new long-term plan in 2011, which measures improvements through fiscal
year 2013. Participants receive a 2% payout for each point by which the performance in the key categories
increases, a 0.50% payout for each percentage reduction in operating costs, and a 2% payout based on
improvement in associate engagement measures. Total operating costs as a percentage of sales, excluding
fuel, at the commencement of the 2011 plan were 27.51%. Cash bonus payouts are based on the degree to
which improvements are achieved, and will be awarded based on the participant’s salary at the end of fiscal
year 2010. In no event can any participant receive a performance-based long-term cash bonus in excess
of the lesser of $5,000,000 and the participant’s salary at the end of fiscal year 2010. In addition to a cash
bonus, under the 2011 plan participants also receive performance units, more particularly described under
“Equity” below.
The Committee anticipates adopting a new plan each year, measuring improvement over successive
three-year periods.
EQ U I T Y
Awards based on Kroger’s common shares are granted periodically to the named executive officers and
a large number of other employees. Equity participation aligns the interests of employees with your interest
as shareholders, and Kroger historically has distributed equity awards widely. In 2010, Kroger granted
3,692,785 stock options to approximately 7,340 employees, including the named executive officers, under
one of Kroger’s long-term incentive plans. The options permit the holder to purchase Kroger common
shares at an option price equal to the closing price of Kroger common shares on the date of the grant. The
Committee adopted a policy of granting options only at one of the four Committee meetings conducted
within a week following Kroger’s public release of its quarterly earnings results.
Kroger’s long-term incentive plans also provide for other equity-based awards, including restricted
stock. During 2010, Kroger awarded 2,440,368 shares of restricted stock to approximately 18,450 employees,
including the named executive officers. This amount is comparable to amounts awarded over the past few
years as we began reducing the number of stock options granted and increasing the number of shares of
restricted stock awards. The change in Kroger’s broad-based equity program from predominantly stock
options to a mixture of options and restricted shares was precipitated by (a) the perception of increased
value that restricted shares offer, (b) the retention benefit to Kroger of restricted shares, and (c) changes in
accounting conventions that permitted the change without added cost.