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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
Asoneofthelargestretailersintheworld,ourexecutivecompensationphilosophyremainstoattract
andretainthebestmanagementtalentandtomotivatetheseemployeestoachieveourbusinessandfinancial
goals.Webelieveourstrategycreatesvalueforshareholdersinamannerconsistentwithourfocusonourcore
values:honesty,integrity,respect,inclusion,diversity,andsafety.
Toachieveourobjectives,theCompensationCommitteeseekstoensurethatcompensationiscompetitive
andthatthereisadirectlinkbetweenpayandperformance.Todoso,itisguidedbythefollowingprinciples:
• A significant portion of pay should be performance-based, with the percentage of total pay tied to
performanceincreasingproportionallywithanexecutive’slevelofresponsibility;
• Compensation should include incentive-based pay to drive performance, providing superior pay for
superiorperformance,includingbothashort-andlong-termfocus;
• Compensationpoliciesshouldincludeanopportunityfor,andarequirementof,equityownership;and
• Componentsofcompensationshouldbetiedtoanevaluationofbusinessandindividualperformance
measuredagainstmetricsthatalignwithourbusinessstrategy.
This Compensation Discussion and Analysis provides a discussion and analysis of our compensation
programfortheexecutiveofficers.ForthefiscalyearendedJanuary31,2015,thenamedexecutiveofficerswere:
Name Title
W.RodneyMcMullen . . . . . . . . . . . . . . . . . . . ChairmanandChiefExecutiveOfficer
J.MichaelSchlotman . . . . . . . . . . . . . . . . . . . SeniorVicePresidentandChiefFinancialOfficer
MichaelL.Ellis . . . . . . . . . . . . . . . . . . . . . . . . PresidentandChiefOperatingOfficer
KathleenS.Barclay . . . . . . . . . . . . . . . . . . . . . SeniorVicePresidentofHumanResources
MichaelJ.Donnelly . . . . . . . . . . . . . . . . . . . . . SeniorVicePresidentofMerchandising
DavidB.Dillon . . . . . . . . . . . . . . . . . . . . . . . . FormerChairman
The compensation of our named executive officers in fiscal year 2014 reflects the above principles.
TotalcompensationfortheyearisanindicatorofhowwellKrogerperformedcomparedtoourbusinessplan,
reflectinghowourcompensationprogramrespondstobusinesschallengesandthemarketplace.Wecontinue
to deliver sales growth and positive earnings results.
• A key metric, identical supermarket sales, excluding supermarket fuel, increased 5.2% from 2013.
Throughfiscal2014,wehaveachieved45consecutivequartersofpositiveidenticalsalesgrowth.
• Netearningsperdilutedsharewere$3.44whichexceededourguidancerange.
• InSeptember2014,theBoardraisedthequarterlycashdividendby12%,to$0.185pershare.
The Committee believes our management produced outstanding results in 2014, measured against
increasinglyaggressivebusinessplanobjectivesforsales,netearnings,operatingcostsandourstrategicplan.
Thecompensationpaidtoournamedexecutiveofficersreflectedthisfactastheannualperformance-based
cashbonuspaidoutat121.5%ofbonuspotentials.Thestronglinkbetweenpayandperformanceisillustrated
byacomparisonofpastyears’annualcashbonus,suchas2012,2010and2009withpayoutsoflessthan
100%.Inthoseyears,wedidnotachieveallofourbusinessplanobjectives.In2014,allofourbusinessplan
goalswereexceeded(withtheexceptionofasetofmeasuresunderourstrategicplangoal,whichfellshort),
resultinginanannualbonuspayoutthatexceeded100%ofpotentials.
In keeping with our overall compensation philosophy, we endeavor to ensure that our executive
compensationpracticesconformtobestpractices.Inparticular,overthepastseveralyearswehave:
• establishedsignificantstockownershipguidelinelevelstoreinforcethelinkbetweentheinterestsof
ournamedexecutiveofficersandthoseofourshareholders;