Kroger 2015 Annual Report Download - page 40

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Covered individuals are expected to achieve the target level within five years of appointment to their
position. If the requirements are not met, individuals, including the NEOs, must hold 100% of common
shares issued pursuant to performance units earned,shares received upon the exercise of stock options
and upon the vesting of restricted stock, except those necessary to pay the exercise price of the options
and/or applicable taxes, and must retain all Kroger shares unless the disposition is approved in advance
by the CEO, or by the Board or Compensation Committee for the CEO.
Executive Compensation Recoupment Policy (Clawback)
If a material error of facts results in the payment to an executive officer at the level of Group Vice
President or higher of an annual cash bonus or a long-term cash bonus in an amount higher than
otherwise would have been paid, as determined by the Compensation Committee, then the officer, upon
demand from the Compensation Committee, will reimburse Kroger for the amounts that would not have
been paid if the error had not occurred. This recoupment policy applies to those amounts paid by Kroger
within 36 months prior to the detection and public disclosure of the error. In enforcing the policy, the
Compensation Committee will take into consideration all factors that it deems appropriate, including:
• The materiality of the amount of payment involved;
• The extent to which other benefits were reduced in other years as a result of the achievement of
performance levels based on the error;
• Individual officer culpability, if any; and
• Other factors that should offset the amount of overpayment.
Compensation Policies as They Relate to Risk Management
As part of the Compensation Committee’s review of our compensation practices, the Compensation
Committee considers and analyzes the extent to which risks arise from such practices and their
impact on Kroger’s business. As discussed in this discussion and analysis, our policies and practices
for compensating employees are designed to, among other things, attract and retain high quality and
engaged employees. In this process, the Compensation Committee also focuses on minimizing risk
through the implementation of certain practices and policies, such as the executive compensation
recoupment policy, which is described above under “Executive Compensation Recoupment Policy
(Clawback)”. Accordingly, we do not believe that our compensation practices and policies create risks that
are reasonably likely to have a material adverse effect on Kroger.
Prohibition on Hedging and Pledging
After considering best practices related to ownership of company shares, the Board has 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, the policy was further revised as of April 1, 2016, to preclude Kroger officers and
directors from pledging Kroger securities.
Section 162(m) of the Internal Revenue Code
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 (other than the chief financial officer) 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 NEOs. 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,