Kroger 2013 Annual Report Download - page 33

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31
HE D G I N G P O L I C Y
After฀considering฀best฀practices฀related฀to฀ownership฀of฀company฀shares,฀the฀Board฀adopted฀a฀policy฀
regarding฀hedging,฀pledging,฀and฀short฀sales฀of฀Kroger฀securities.฀Kroger฀directors฀and฀officers฀are฀prohibited฀
from engaging, directly or indirectly, in hedging transactions in, or short sales of, Kroger securities. In
addition, they are precluded from pledging Kroger securities as collateral for a loan, except to the extent that
shares฀so฀pledged฀are฀in฀excess฀of฀the฀number฀of฀shares฀the฀individual฀is฀required฀to฀maintain฀in฀accordance฀
with฀Kroger’s฀share฀ownership฀guidelines฀more฀particularly฀described฀earlier฀in฀this฀compensation฀discussion฀
and analysis.
SE C T I O N 1 6 2 ( M) O F T H E I N T E R N A L R E V E N U E C O D E
Tax฀laws฀place฀a฀deductibility฀limit฀of฀$1,000,000฀on฀some฀types฀of฀compensation฀for฀the฀CEO฀and฀the฀
next฀four฀most฀highly฀compensated฀officers฀reported฀in฀this฀proxy฀because฀they฀are฀among฀the฀four฀highest฀
compensated฀officers฀(“covered฀employees”).฀In฀Kroger’s฀case,฀this฀group฀of฀individuals฀is฀not฀identical฀to฀the฀
group฀of฀named฀executive฀officers.฀Compensation฀that฀is฀deemed฀to฀be฀“performance-based”฀is฀excluded฀for฀
purposes฀of฀the฀calculation฀and฀is฀tax฀deductible.฀Awards฀under฀Kroger’s฀long-term฀incentive฀plans,฀when฀
payable฀upon฀achievement฀of฀stated฀performance฀criteria,฀should฀be฀considered฀performance-based฀and฀the฀
compensation฀paid฀under฀those฀plans฀should฀be฀tax฀deductible.฀Generally,฀compensation฀expense฀related฀to฀
stock฀options฀awarded฀to฀the฀CEO฀and฀the฀next฀four฀most฀highly฀compensated฀officers฀should฀be฀deductible.฀
On฀ the฀ other฀ hand,฀ Kroger’s฀ awards฀ of฀ restricted฀ stock฀ that฀ vest฀ solely฀ upon฀ the฀ passage฀ of฀ time฀ are฀ not฀
performance-based.฀ As฀ a฀ result,฀ compensation฀ expense฀ for฀ those฀ awards฀ to฀ the฀ covered฀ employees฀ is฀ not฀
deductible,฀to฀the฀extent฀that฀the฀related฀compensation฀expense,฀plus฀any฀other฀expense฀for฀compensation฀
that฀is฀not฀performance-based,฀exceeds฀$1,000,000.
Kroger’s฀bonus฀plans฀rely฀on฀performance฀criteria,฀and฀have฀been฀approved฀by฀shareholders.฀As฀a฀result,฀
bonuses฀paid฀under฀the฀plans฀to฀the฀covered฀employees฀will฀be฀deductible฀by฀Kroger.฀
Kroger’s policy is, primarily, to design and administer compensation plans that support the achievement
of฀long-term฀strategic฀objectives฀and฀enhance฀shareholder฀value.฀Where฀it฀is฀material฀and฀supports฀Kroger’s฀
compensation philosophy, the Committee also will attempt to maximize the amount of compensation expense
that฀is฀deductible฀by฀Kroger.
CO M P E N S A T I O N C O M M I T T E E R E P O R T
The Compensation Committee has reviewed and discussed with management of the Company the
Compensation฀Discussion฀and฀Analysis฀contained฀in฀this฀proxy฀statement.฀Based฀on฀its฀review฀and฀discussions฀
with฀management,฀the฀Compensation฀Committee฀has฀recommended฀to฀the฀Company’s฀Board฀of฀Directors฀that฀
the฀Compensation฀Discussion฀and฀Analysis฀be฀included฀in฀the฀Company’s฀proxy฀statement฀and฀incorporated฀
by฀reference฀into฀its฀annual฀report฀on฀Form฀10-K.
Compensation Committee:
Clyde฀R.฀Moore,฀Chair
Jorge฀P.฀Montoya
Susan฀M.฀Phillips
James฀A.฀Runde