Kroger 2012 Annual Report Download - page 21

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19
In addition, 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
continue 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.
The Compensation Committee of the Board has the primary responsibility for establishing the
compensation of Kroger’s executive officers, including the named executive officers, with the exception
of฀ the฀ Chief฀ Executive฀ Officer.฀ The฀ Committee’s฀ role฀ regarding฀ the฀ CEO’s฀ compensation฀ is฀ to฀ make฀
recommendations to the independent members of the Board; those independent Board members establish
the CEO’s compensation.
The following discussion and analysis addresses the compensation of the named executive officers, and
the฀factors฀considered฀by฀the฀Committee฀in฀setting฀compensation฀for฀the฀named฀executive฀officers฀and฀making฀
recommendations to the independent Board members in the case of the CEO’s compensation. Additional
detail is provided in the compensation tables and the accompanying narrative disclosures that follow this
discussion and analysis.
EX E C U T I V E C O M P E N S A T I O N – OB J E C T I V E S
The Committee has several related objectives regarding compensation. First, the Committee believes
that compensation must be designed to attract and retain those best suited to fulfill the challenging roles
that executive officers play at Kroger. Second, some elements of compensation should help align the interests
of the officers with your interests as shareholders. Third, compensation should create strong incentives for
the฀ officers฀ (a)฀ to฀ achieve฀ the฀ annual฀ business฀ plan฀ targets฀ established฀ by฀ the฀ Board,฀ and฀ (b)฀ to฀ achieve฀
Kroger’s long-term strategic objectives. In developing compensation programs and amounts to meet these
objectives, the Committee exercises judgment to ensure that executive officer compensation is appropriate
and competitive in light of Kroger’s performance and the needs of the business.
To฀meet฀these฀objectives,฀the฀Committee฀has฀taken฀a฀number฀of฀steps฀over฀the฀last฀several฀years,฀including฀
the฀following:
•฀ Consulted฀ regularly฀ with฀ its฀ independent฀ advisor฀ from฀ Mercer฀ Human฀ Resource฀ Consulting฀ on฀ the฀
design of compensation plans and on the amount of compensation that is necessary and appropriate for
Kroger’s senior leaders in light of the Committee’s objectives. From time to time, and most recently in
2009, the Committee retains a second independent consultant to determine whether the compensation
plans and amounts conform to the Committee’s objectives and produce value for Kroger’s shareholders.
•฀ Conducted฀ an฀ annual฀review฀of฀all฀ components฀of฀compensation,฀quantifying฀total฀compensation฀for฀
the named executive officers on tally sheets. The review includes a summary for each named executive
officer, including the CEO, of salary; annual performance-based cash bonus; long-term performance-
based฀ cash฀ and฀ performance฀ unit฀ compensation;฀ equity;฀ accumulated฀ realized฀ and฀ unrealized฀ stock฀
option฀gains฀and฀restricted฀stock฀and฀performance฀unit฀values;฀the฀value฀of฀any฀perquisites;฀retirement฀
benefits; severance benefits available under The Kroger Co. Employee Protection Plan; and earnings and
payouts available under Kroger’s nonqualified deferred compensation program.
•฀ Considered฀internal฀pay฀equity฀at฀Kroger฀to฀ensure฀that฀the฀chief฀executive฀officer฀is฀not฀compensated฀
disproportionately. The Committee has assured itself that the compensation of Kroger’s CEO and that of
the other named executive officers bears a reasonable relationship to the compensation levels of other
executive฀positions฀at฀Kroger฀taking฀into฀consideration฀performance฀and฀differences฀in฀responsibilities.
•฀ Recommended฀share฀ownership฀guidelines,฀adopted฀by฀the฀Board฀of฀Directors.฀These฀guidelines฀require฀
non-employee฀directors,฀officers฀and฀some฀other฀key฀executives฀to฀acquire฀and฀hold฀a฀minimum฀dollar฀
value of Kroger shares. The guidelines require the CEO to acquire and maintain ownership of Kroger
shares equal to five times his base salary; the Chief Operating Officer at four times his base salary;
Executive Vice Presidents, Senior Vice Presidents and non-employee directors at three times their base
salaries฀ or฀ annual฀base฀cash฀retainers;฀ and฀ other฀officers฀and฀key฀ executives฀ at฀two฀times฀ their฀ base฀
salaries. Covered individuals are expected to achieve the target level within five years of appointment to
their position.