Kroger 2013 Annual Report Download - page 31

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29
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฀2013,฀Kroger฀granted฀4,211,102
stock฀options฀to฀approximately 8,151฀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฀
and฀performance฀units.฀During฀2013,฀Kroger฀awarded฀3,116,214฀shares฀of฀restricted฀stock฀to฀approximately฀
20,214฀employees,฀including฀the฀named฀executive฀officers;฀and฀413,588฀performance฀units฀to฀approximately฀
167฀employees.฀Performance฀units฀provide฀for฀the฀issuance฀of฀Kroger฀common฀shares฀to฀participants,฀after฀
the฀completion฀of฀the฀three฀year฀performance฀period,฀based฀on฀the฀extent฀to฀which฀the฀performance฀goals฀
established฀at฀the฀beginning฀of฀the฀performance฀period฀have฀been฀achieved.฀
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฀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.
Amounts฀of฀equity฀awards฀issued฀and฀outstanding฀for฀the฀named฀executive฀officers฀are฀set฀forth฀in฀the฀
tables฀that฀follow฀this฀discussion฀and฀analysis.
RE T I R E M E N T A N D O T H E R B E N E F I T S
Kroger฀maintains฀a฀defined฀benefit฀and฀several฀defined฀contribution฀retirement฀plans฀for฀its฀employees.฀
The named executive officers participate in one or more of these plans, as well as one or more excess plans
designed฀to฀make฀up฀the฀shortfall฀in฀retirement฀benefits฀created฀by฀limitations฀under฀the฀Internal฀Revenue฀
Code฀ on฀ benefits฀ to฀ highly฀ compensated฀ individuals฀ under฀ qualified฀ plans.฀ Additional฀ details฀ regarding฀
retirement฀benefits฀available฀to฀the฀named฀executive฀officers฀can฀be฀found฀in฀the฀2013฀Pension฀Benefits฀table฀
and the accompanying narrative description that follows this discussion and analysis.
Kroger also maintains an executive deferred compensation plan in which some of the named executive
officers฀participate.฀This฀plan฀is฀a฀nonqualified฀plan฀under฀which฀participants฀can฀elect฀to฀defer฀up฀to฀100%฀
of฀ their฀ cash฀ compensation฀ each฀ year.฀ Compensation฀ deferred฀ bears฀ interest,฀ until฀ paid฀ out,฀ at฀ the฀ rate฀
representing฀Kroger’s฀cost฀of฀ten-year฀debt฀in฀the฀year฀the฀rate฀is฀set,฀as฀determined฀by฀Kroger’s฀CEO,฀and฀
reviewed฀ with฀ the฀ Committee,฀ prior฀ to฀ the฀ beginning฀ of฀ each฀ deferral฀ year.฀ In฀ 2013,฀ that฀ rate฀ was฀ 3.8%.฀
Deferred฀amounts฀are฀paid฀out฀only฀in฀cash,฀in฀accordance฀with฀a฀deferral฀option฀selected฀by฀the฀participant฀
at the time the deferral election is made.
We adopted The Kroger Co. Employee Protection Plan, or KEPP, during fiscal year 1988. That plan was
amended฀and฀restated฀in฀2007.฀All฀of฀our฀management฀employees฀and฀administrative฀support฀personnel฀whose฀
employment฀is฀not฀covered฀by฀a฀collective฀bargaining฀agreement,฀with฀at฀least฀one฀year฀of฀service,฀are฀covered.฀
KEPP฀provides฀for฀severance฀benefits฀and฀extended฀Kroger-paid฀health฀care,฀as฀well฀as฀the฀continuation฀of฀
other฀benefits฀as฀described฀in฀the฀plan,฀when฀an฀employee฀is฀actually฀or฀constructively฀terminated฀without฀