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27
LO N G - T E R M I N C E N T I V E S
The฀Committee฀believes฀in฀the฀importance฀of฀providing฀an฀incentive฀to฀the฀named฀executive฀officers฀
to฀achieve฀the฀long-term฀goals฀established฀by฀the฀Board฀of฀Directors฀by฀conditioning฀a฀significant฀portion฀of฀
compensation on the achievement of those goals.
In฀ 2006,฀ the฀ Committee฀ adopted฀ the฀ first฀ in฀ a฀ series฀ of฀ long-term฀ performance฀ based฀ compensation฀
plans฀designed฀to฀reward฀participants฀for฀their฀contribution฀to฀the฀long-term฀performance฀of฀Kroger.฀These฀
earlier฀plans฀provided฀for฀overlapping฀four฀year฀performance฀periods฀that฀allowed฀for฀the฀earning฀of฀a฀long-
term฀cash฀bonus.฀In฀2010,฀Kroger’s฀long-term฀incentive฀program฀was฀redesigned฀to฀combine฀the฀total฀value฀of฀
our฀long-term฀cash฀bonus฀and฀equity฀programs฀into฀a฀cohesive,฀strategic฀reward฀for฀eligible฀executives฀at฀the฀
Vice฀President฀level฀and฀above.฀Approximately฀fifty฀percent฀of฀the฀plan฀value฀is฀performance-based,฀delivered฀
in cash and performance units, contingent on the achievement of certain strategic performance measures.
The฀other฀fifty฀percent฀of฀the฀value฀is฀time-based฀and฀delivered฀in฀stock฀options฀and฀restricted฀shares.฀Each฀
component฀is฀described฀in฀more฀detail฀below.฀
PE R F O R M A N C E B A S E D L O N G - T E R M C O M P E N S A T I O N
The฀long-term฀incentive฀plan฀adopted฀in฀2010฀(and฀earned฀in฀2012)฀provides฀the฀model฀for฀our฀combined฀
plan฀ structure.฀ Subsequent฀ plans฀ have฀ been฀ adopted฀ each฀ year฀ thereafter.฀ Each฀ of฀ these฀ plans฀ has฀ the฀
following characteristics:
•฀ Performance฀is฀measured฀over฀a฀three฀year฀period.
•฀ Between฀130฀and฀170฀executives,฀including฀the฀named฀executive฀officers,฀participate฀in฀each฀plan.฀
•฀ Awards฀include฀both฀cash฀and฀performance฀units.฀
Ø฀ The฀cash฀bonus฀base฀equals฀the฀executive’s฀salary฀at฀the฀end฀of฀the฀fiscal฀year฀preceding฀the฀plan฀
adoption date (or for those participants entering the plan after the commencement date, as of the
date฀of฀commencing฀participation฀in฀the฀plan).
Ø฀ A฀ fixed฀ number฀ of฀ performance฀ units฀ is฀ awarded฀ to฀ each฀ participant.฀ The฀ awards฀ are฀ paid฀ out฀
in฀ Kroger฀ common฀ shares,฀ along฀ with฀ a฀ cash฀ amount฀ equal฀ to฀ the฀ dividends฀ paid฀ during฀ the฀
performance฀period฀on฀the฀number฀of฀issued฀common฀shares.
•฀ Compensation฀under฀the฀plans฀is฀earned฀based฀on฀our฀performance฀against฀metrics฀established฀by฀the฀
Committee฀at฀the฀beginning฀of฀the฀performance฀period.฀
•฀ The฀payout฀percentage,฀based฀on฀the฀extent฀to฀which฀the฀performance฀metrics฀are฀achieved,฀is฀applied฀
to฀both฀the฀bonus฀base฀and฀the฀number฀of฀performance฀units฀awarded.฀
•฀ Actual฀ payouts฀ cannot฀ exceed฀ 100%฀ of฀ the฀ cash฀ bonus฀ base฀ or฀ 100%฀ of฀ the฀ number฀ of฀ performance฀
units awarded.
•฀ In฀no฀event฀can฀a฀cash฀bonus฀award฀exceed฀$5,000,000.