Kroger 2011 Annual Report Download - page 25

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23
PE R F O R M A N C E -BA S E D AN N U A L CA S H BO N U S
A large percentage of our employees at all levels, including the named executive officers, are eligible
to receive a performance-based annual cash bonus based on Kroger or unit performance. The Committee
establishes bonus potentials for each executive officer, other than the CEO whose bonus potential is established
by the independent directors. Actual payouts, which can exceed 100% of the potential amounts, represent the
extent to which performance meets or exceeds the thresholds established by the Committee.
The Committee considers several factors in making its determination or recommendation as to bonus
potentials. First, the individual’s level within the organization is a factor in that the Committee believes
that more senior executives should have a substantial part of their compensation dependent upon Kroger’s
performance. Second, the individual’s salary is a factor so that a substantial portion of a named executive
officer’s total cash compensation is dependent upon Kroger’s performance. Finally, the Committee considers
the reports of its compensation consultants to assess the bonus potential of the named executive officers in
light of total compensation paid to comparable executive positions in the industry.
The annual cash bonus potential in effect at the end of the year for each named executive officer is shown
below. Actual bonus payouts are prorated to reflect changes, if any, to bonus potentials during the year.
Annual Bonus Potential
2009 2010 2011
David B. Dillon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000 $1,500,000 $1,500,000
J. Michael Schlotman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000 $ 525,000 $ 525,000
W. Rodney McMullen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000 $1,000,000 $1,000,000
Paul W. Heldman ......................................... $ 550,000 $ 550,000 $ 550,000
Michael J. Donnelly* ...................................... — — $ 425,000
* Mr. Donnelly became a named executive officer in 2011.
The amount of bonus that the named executive officers earn each year is determined by Kroger’s
performance compared to targets established by the Committee based on the business plan adopted by the
Board of Directors. In 2011, thirty percent of bonus was earned based on an identical sales target for Kroger’s
supermarkets and other business operations; thirty percent was based on a target for EBITDA, excluding
supermarket fuel; and forty percent was based on implementation and results of a set of measures under our
strategic plan. An additional 5% would be earned if Kroger achieved three goals with respect to its supermarket
fuel operations; achievement of the targeted fuel EBITDA as set forth in the business plan, increase of at least
3% in gallons sold at identical fuel centers, and achievement of the planned number of fuel centers placed
in service.
Over time the Committee has placed an increased emphasis on the strategic plan by making the target
more difficult to achieve. The bonus plan allows for minimal bonus to be earned at relatively low levels to
provide incentive for achieving even higher levels of performance.
Following the close of the year, the Committee reviewed Kroger’s performance against the identical
sales, EBITDA, and strategic plan objectives and determined the extent to which Kroger achieved those
objectives. Kroger’s EBITDA for 2011 was $3.899 billion, and Kroger’s identical retail sales for 2011, excluding
supermarket fuel, were 4.9%. In 2011, Kroger’s supermarket fuel EBITDA was $183.210 million, which
exceeded the goal of $122.865 million necessary to earn a bonus for the fuel component. Kroger’s sale of fuel
in identical supermarket fuel centers was 3.371 billion gallons, or 2.6% over the prior year. We operated 1,090
supermarket fuel centers as of the end of 2011, exceeding our goal of 1,075 centers. As a result, the officers
earned the additional 5% fuel bonus. Due to the Company’s excellent performance when compared to the
targets established by the Committee, and based on the business plan adopted by the Board of Directors, the
named executive officers earned 138.666% of their bonus potentials, which percentage payout exceeded that
of last year and the average bonus payout over the previous several years. This reflects Kroger’s outstanding
performance in exceeding its aggressive EBITDA, sales, and strategic plan goals.