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25
PE R F O R M A N C E - B A S E D A N N U A L C A S H B O N U S
A฀large฀percentage฀of฀our฀employees฀at฀all฀levels,฀including฀the฀named฀executive฀officers,฀are฀eligible฀
to฀receive฀a฀performance-based฀annual฀cash฀bonus฀based฀on฀the฀performance฀of฀Kroger฀(in฀the฀case฀of฀the฀
named฀executive฀officers)฀or฀business฀unit฀(in฀the฀case฀of฀employees฀in฀our฀business฀units).฀The฀Committee฀
establishes฀bonus฀potentials฀for฀each฀named฀executive฀officer,฀other฀than฀the฀CEO,฀whose฀bonus฀potential฀is฀
established฀by฀the฀independent฀directors.฀Actual฀payouts,฀which฀can฀exceed฀100%฀of฀the฀potential฀amounts฀
but฀may฀not฀exceed฀200%฀ of฀the฀potential฀ amounts,฀represent฀the฀extent฀to฀ which฀performance฀meets฀or฀
exceeds฀the฀thresholds฀established฀by฀the฀Committee.฀Actual฀payouts฀may฀be฀as฀low฀as฀zero฀if฀performance฀
does฀not฀meet฀the฀thresholds฀established฀by฀the฀Committee.
The฀Committee฀considers฀several฀factors฀in฀making฀its฀determination฀or฀recommendation฀as฀to฀bonus฀
potentials.฀ First,฀ the฀ individual’s฀ level฀ within฀ the฀ organization฀ is฀ a฀ factor฀ in฀ that฀ the฀ Committee฀ believes฀
that฀more฀senior฀executives฀should฀have฀a฀substantial฀part฀of฀their฀compensation฀dependent฀upon฀Kroger’s฀
performance.฀Second,฀the฀individual’s฀salary฀ is฀a฀factor฀so฀that฀a฀substantial฀ portion฀of฀a฀ named฀ executive฀
officer’s฀total฀cash฀compensation฀is฀dependent฀upon฀Kroger’s฀performance.฀Finally,฀the฀Committee฀considers฀
the฀report฀of฀its฀compensation฀consultant฀to฀assess฀the฀bonus฀potential฀of฀the฀named฀executive฀officers฀in฀light฀
of฀total฀compensation฀paid฀to฀comparable฀executive฀positions฀in฀the฀industry.
The฀annual฀cash฀bonus฀potential฀in฀effect฀following฀the฀annual฀review฀of฀compensation฀in฀June฀for฀each฀
named฀executive฀officer฀is฀shown฀below.฀Actual฀bonus฀payouts฀are฀prorated฀to฀reflect฀changes,฀if฀any,฀to฀bonus฀
potentials during the year.
Annual Bonus Potential
2012 2013 2014
W.฀Rodney฀McMullen* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000฀ $1,000,000฀ $1,500,000฀
J.฀Michael฀Schlotman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 550,000฀ $ 550,000฀ $ 550,000฀
Michael฀L.฀Ellis**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — $ 375,000฀ $ 800,000฀
Kathleen฀S.฀Barclay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 550,000฀ $ 550,000฀ $ 550,000฀
Mike฀Donnelly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,000฀ $ 425,000฀ $ 550,000฀
David฀B.฀Dillon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000 $1,500,000 $1,230,000
*฀ Mr.฀ McMullen’s฀ annual฀ bonus฀ potential฀ increased฀ to฀ $1,600,000฀ effective฀ upon฀ his฀ appointment฀ as฀
Chairman฀of฀the฀Board฀on฀January฀1,฀2015.฀
**฀ Mr.฀Ellis฀first฀became฀a฀named฀executive฀officer฀in฀2013.฀
Over฀ time฀the฀ Committee฀ and฀our฀ independent฀directors฀ have฀placed฀an฀ increased฀ emphasis฀ on฀ our฀
strategic฀plan฀by฀making฀the฀targets฀ more฀difficult฀to฀achieve.฀The฀bonus฀plan฀allows฀for฀minimal฀or฀zero฀
bonus฀to฀be฀earned฀ at฀relatively฀low฀levels฀of฀performance฀to฀provide฀incentive฀for฀ achieving฀even฀higher฀
levels of performance.
The฀ amount฀ of฀ bonus฀ that฀ the฀ named฀ executive฀ officers฀ earn฀ each฀ year฀ is฀ based฀ upon฀ Kroger’s฀
performance฀compared฀to฀targets฀established฀by฀the฀Committee฀and฀the฀independent฀directors฀based฀on฀the฀
business฀plan฀adopted฀by฀the฀Board฀of฀Directors.฀In฀2014,฀30%฀of฀the฀bonus฀was฀based฀on฀a฀target฀for฀identical฀
sales฀without฀supermarket฀fuel;฀30%฀was฀based฀on฀a฀target฀for฀EBITDA฀without฀supermarket฀fuel;฀30%฀was฀
based฀on฀implementation฀and฀results฀of฀a฀set฀of฀measures฀under฀our฀strategic฀plan,฀and฀10%฀was฀based฀on฀
a฀target฀for฀total฀operating฀costs฀as฀a฀percentage฀of฀sales,฀excluding฀fuel.฀An฀additional฀5%฀would฀be฀earned฀
if฀Kroger฀achieved฀three฀goals฀with฀respect฀to฀its฀supermarket฀fuel฀operations:฀achievement฀of฀the฀targeted฀
fuel฀EBITDA฀of฀$208.25฀million,฀an฀increase฀in฀total฀gallons฀sold฀of฀3%,฀and฀achievement฀of฀1,325฀fuel฀centers฀
placed฀in฀service.฀The฀fuel฀bonus฀of฀5%฀is฀only฀available฀if฀all฀three฀measures฀are฀met.฀If฀any฀of฀the฀three฀fuel฀
goals฀are฀not฀met,฀there฀is฀no฀payout฀under฀the฀fuel฀measurement.฀Kroger฀exceeded฀the฀three฀goals฀and,฀as฀a฀
result,฀received฀the฀5%฀fuel฀bonus.