Kroger 2012 Annual Report Download - page 20

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CO M P E N S A T I O N D I S C U S S I O N A N D A N A L Y S I S
EX E C U T I V E C O M P E N S A T I O N – OV E R V I E W
As one of the largest retailers in the world, our executive compensation philosophy remains to attract
and retain the best management talent and motivating these employees to achieve our business and financial
goals. We believe that strategy creates 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.฀To฀do฀so,฀it฀is฀guided฀by฀the฀following฀principles:
•฀ A significant portion of pay should be performance-based, increasing proportionally with an executive’s
level of responsibility;
•฀ Compensation฀ should฀ include฀ incentive-based฀ pay฀ to฀ drive฀ performance,฀ providing฀ superior฀ pay฀ for฀
superior performance, including 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.
The compensation of our senior executives in fiscal year 2012 once again reflected these principles. Total
compensation for the year reflects how well Kroger performed compared to our business plan, reflecting
how฀our฀compensation฀program฀responds฀to฀business฀challenges฀and฀the฀marketplace.฀We฀have฀continued฀to฀
deliver sales growth and positive earnings results.
•฀ A฀key฀metric,฀identical฀supermarket฀sales,฀excluding฀fuel฀and฀the฀53rd฀week,฀increased฀3.5%฀compared฀to฀
2011. Through fiscal 2012, we have achieved 37 consecutive quarters of positive identical sales growth.
•฀ Net฀earnings฀ per฀ diluted฀ share฀were฀ $2.77,฀ and฀even฀ after฀taking฀into฀account฀several฀items฀ that฀we฀
believe฀ are฀ necessary฀ to฀ make฀ these฀ results฀ comparable฀ to฀ fiscal฀ 2011,฀ our฀ results฀ still฀ exceeded฀ our฀
guidance range.
•฀ In฀September฀2012,฀the฀Board฀of฀Directors฀raised฀the฀quarterly฀cash฀dividend฀by฀approximately฀30%,฀to฀
$0.15 per share.
•฀ Kroger’s฀stock฀price฀increased฀15.8%฀in฀fiscal฀year฀2012.
The Committee believes our management produced excellent results in 2012, measured against
increasingly aggressive business plan objectives for sales, earnings, and our strategic plan. The compensation
paid to our named executive officers reflected this fact as the annual performance-based cash bonus paid out
at฀85.881%฀of฀bonus฀potentials.฀The฀strong฀link฀between฀pay฀and฀performance฀is฀illustrated฀by฀a฀comparison฀
of the 2011 annual cash bonus, with a 138.666% payout. In 2011, we exceeded our business plan goals for
identical sales and EBITDA. In 2012, although our results were very strong, we did not achieve all of our
business plan objectives.
In฀keeping฀with฀our฀overall฀compensation฀philosophy,฀we฀endeavor฀to฀ensure฀that฀our฀compensation฀
practices฀conform฀to฀best฀practices.฀In฀particular,฀over฀the฀past฀several฀years฀we฀have:
•฀ put฀in฀place฀significant฀stock฀ownership฀guideline฀levels฀to฀reinforce฀the฀link฀between฀the฀interests฀of฀
our named executive officers and those of our shareholders;
•฀ adopted฀ claw-back฀ policies฀ under฀ which฀ the฀ repayment฀ of฀ bonuses฀ may฀ be฀ required฀ in฀
certain circumstances;
•฀ eliminated฀tax฀gross-ups;฀and
•฀ adopted฀the฀recommendation฀of฀shareholders฀that฀they฀be฀permitted฀annually,฀on฀an฀advisory฀basis,฀to฀
vote on executive compensation.