Kroger 2012 Annual Report Download - page 28

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The long-term performance based plan adopted in 2010, which measured improvements through fiscal
year฀2012,฀paid฀out฀in฀March฀2013฀and฀was฀calculated฀as฀follows:
Component Baseline Result Improvement Multiplier
Percentage
Earned
Strategic Plan ..................... * * 0 units of improvement 1% 0.00%
Associate Engagement .............. * * 3 units of improvement 2% 6.00%
Operating Costs, as a Percentage of
Sales, Excluding Fuel ............ 27.59 % 26.84% 75 basis point improvement 0.25% 18.75%
Total Earned ...................... 24.75%
* The Strategic Plan and Associate Engagement components were established by the Committee but are
not disclosed as they are competitively sensitive.
Accordingly, each named executive officer received cash in amount equal to 24.75% of that executive’s
long-term cash bonus base, and was issued the number of Kroger common shares equal to 24.75% of the
number of performance units awarded to that executive, along with a cash amount equal to the dividends
paid on that number of common shares during the three year performance period. The cash components of
the 2010 plan payout are report in the “Non-Equity Incentive Plan Compensation” column of the Summary
Compensation Table and footnote 4 to that table, and the common shares issued under the plan are reported
in฀the฀Options฀Exercised฀and฀Stock฀Vested฀Table฀and฀footnote฀2฀to฀that฀table.
At the time of adopting new long-term plans, the Committee has made adjustments to the percentage
payouts for the components of the long-term plans to account for the increasing difficulty of achieving
compounded improvement.
The Committee anticipates adopting a new plan each year, measuring improvement over successive
three-year periods.
Equity Awards
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 2012, Kroger granted 4,068,815
stock฀options฀to฀approximately฀8,031฀employees,฀including฀the฀named฀executive฀officers.฀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. Options are granted only on one of the four dates of Compensation Committee
meetings conducted after 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฀2012,฀Kroger฀awarded฀2,623,742฀shares฀of฀restricted฀stock฀to฀approximately฀18,346฀employees,฀
including the named executive officers, under Kroger’s 2012 long-term incentive plan.
The Committee considers several factors in determining the amount of options, restricted shares, and
performance units awarded to the named executive officers or, in the case of the CEO, recommending to the
independent฀directors฀the฀amount฀awarded.฀These฀factors฀include:
•฀ The฀ compensation฀ consultant’s฀ benchmarking฀ report฀ regarding฀ equity-based฀ and฀ other฀ long-term฀
compensation awarded by our competitors;
•฀ The฀officer’s฀level฀in฀the฀organization฀and฀the฀internal฀relationship฀of฀equity-based฀awards฀within฀Kroger;
•฀ Individual฀performance;฀and
•฀ The฀recommendation฀of฀the฀CEO,฀for฀all฀named฀executive฀officers฀other฀than฀in฀the฀case฀of฀the฀CEO.
The Committee has long recognized that the amount of compensation provided to the named executive
officers through equity-based pay is often below the amount paid by our competitors. Lower equity-based
awards for the named executive officers and other senior management permit a broader base of Kroger
employees to participate in equity awards.