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20
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฀to฀motivate฀these฀employees฀to฀achieve฀our฀business฀and฀financial฀
goals.฀We฀believe฀our฀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 2013 reflects these principles. Total compensation
for฀the฀year฀is฀an฀indicator฀of฀how฀well฀Kroger฀performed฀compared฀to฀our฀business฀plan,฀reflecting฀how฀our฀
compensation฀program฀responds฀to฀business฀challenges฀and฀the฀marketplace.฀We฀continue฀to฀deliver฀sales฀
growth and positive earnings results.
•฀ A฀key฀metric,฀identical฀supermarket฀sales,฀excluding฀the฀53rd฀week฀in฀2012฀and฀fuel,฀increased฀3.6%฀from฀
2012.฀Through฀fiscal฀2013,฀we฀have฀achieved฀41฀consecutive฀quarters฀of฀positive฀identical฀sales฀growth.
•฀ Net฀earnings฀per฀diluted฀share฀were฀$2.90,฀and฀even฀after฀taking฀into฀account฀several฀ items฀that฀ we฀
believe฀are฀ necessary฀ to฀ make฀these฀ results฀ comparable฀to฀fiscal฀2012,฀our฀ results฀ still฀ exceeded฀our฀
guidance range.
•฀ In฀September฀2013,฀the฀Board฀of฀Directors฀raised฀the฀quarterly฀cash฀dividend฀by฀10%,฀to฀$0.165฀per฀share.
•฀ Kroger’s฀stock฀price฀increased฀29.4%฀in฀fiscal฀year฀2013.฀
The฀ Committee฀ believes฀ our฀ management฀ produced฀ outstanding฀ results฀ in฀ 2013,฀ 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฀104.949%฀of฀bonus฀potentials.฀The฀strong฀link฀between฀pay฀and฀performance฀is฀illustrated฀by฀a฀comparison฀
of฀the฀2012฀annual฀cash฀bonus,฀with฀an฀85.881%฀payout.฀In฀2012,฀we฀performed฀well฀but฀did฀not฀achieve฀all฀
of฀our฀business฀plan฀objectives.฀In฀2013,฀all฀of฀our฀business฀plan฀goals฀were฀exceeded฀(with฀the฀exception฀of฀
our฀sales฀goal,฀which฀fell฀slightly฀short),฀resulting฀in฀an฀annual฀bonus฀payout฀that฀exceeded฀100%฀of฀potentials.
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;฀
•฀ adopted฀the฀recommendation฀of฀shareholders฀that฀they฀be฀permitted฀annually,฀on฀an฀advisory฀basis,฀to฀
vote฀on฀executive฀compensation;฀and
•฀ adopted฀a฀policy฀prohibiting฀hedging฀and฀short฀sales,฀and฀restricting฀pledging,฀of฀Kroger฀common฀shares฀
by฀our฀officers฀and฀directors.฀