UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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THE KROGER CO.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Dear Fellow Shareholders,
One of the things I love about food retail is that customers are always evolving. As tastes and needs continually shift, accommodating those shifts with agility earn us the privilege of continuing to serve our customers. This is what makes our industry so exciting.
The ways customers shop for food is ever evolving and always changing. Customers used to shop once a week, checking off items from handwritten lists. Today, our customers manage their groceries with a mix of in-person and online shopping, rely on digital technologies to make lists and track spending, and shop for more ready-made meal solutions. Outside our stores, we know customers spend approximately half of their food budgets at restaurants.
What hasn’t changed is our passion to deliver fresh, affordable food to the communities we serve and inspire our customers to discover their love for food. Our business model is built around offering fresh products at competitive prices with no compromise on quality, selection, and convenience. This is a time-tested approach in any operating environment, and we remain committed to it into the future. Every day, we provide our customers with lower prices on the foods they love and more choices to meet their needs and wants.
Our passion for our customers, associates and communities is also on display in our willingness to take on difficult challenges and see them through. We see it in the way our store and supply chain teams respond to natural disasters, always the first to help our communities. We see it in the way our associates worked with the White House, governors, and mayors to ensure America had access to fresh, affordable food during the pandemic. And we see it in our willingness to address one of our food systems most intractable challenges – that more than 40% of the food produced goes to waste each year while one in eight Americans struggle with hunger – through our Zero Hunger | Zero Waste impact plan.
Kroger has the fortitude to take on these challenges because we know that when we take care of our customers, associates and communities, our shareholders will benefit.
We continue delivering value for our shareholders. On a three-year basis, Kroger’s adjusted net earnings per diluted share has grown at a compounded annual growth rate of 24.5% which has helped support a total shareholder return of 78.2% over the same period.
This incredible outcome is the result of our dedicated and thriving associates delivering a full, fresh and friendly experience for more than 11 million customers every day. It’s no wonder Kroger was recently included in a list of America’s Most Trustworthy Companies. From our manufacturing facilities and fulfillment centers to our store and office teams, we appreciate everything our associates do to embody Our Purpose: To Feed the Human Spirit.
Our associates are driving consistent execution of our go-to-market strategy in every interaction, everyday positioning the company for sustainable, long-term growth.
Kroger is building momentum and has the people, the plan, and the operational discipline to win today and in the future.
* * *
Update on proposed merger with Albertsons Co.
In October 2022, we announced our definitive merger agreement with Albertsons Companies, Inc. We are incredibly impressed with the Albertsons team and their commitment to their associates, culture, customers, and communities.
Lower prices. More Choices.
We believe bringing our highly complementary organizations together will provide customers with lower prices and more choices. Our proposed merger will mean more value for our customers, with lower prices and more food choices to discover. And we will begin on day one post-close, with $500 million already committed to bringing down prices.
Empower our associates’ success
Our associates are responsible for our success, and we are committed to investing in theirs. The proposed combination will secure the long-term future of union jobs while creating a more competitive alternative to larger, non-union retailers. We have already committed $1 billion to continue raising associate wages and comprehensive, industry-leading benefits.
It is vital that we support our associates as they explore what their individual career paths will be. So many of our associates come to Kroger to experience their first job. In 2022, approximately 20% of our new hires were 18 years old or younger. It is amazing that Kroger introduces so many young people to a fulfilling career in the grocery industry. We demonstrate how our associates can choose from many different paths and how a foundation in amazing customer service supports associates’ long-term goals, no matter where associates choose to build their careers.
At Kroger, associates get to help families discover healthier answers to the question, “what’s for dinner tonight;” create technology that makes customers’ shopping trips simpler; make healthcare more accessible for their neighbors – and even dream up a job that has yet to be created. The career opportunities are truly endless.
Build healthier communities free of hunger
The proposed merger will also allow our organization to invest in our communities in ways we simply cannot do on our own. I am so proud of what we have accomplished in our Zero Hunger | Zero Waste work and am impressed by the Albertsons team’s commitment to supporting their communities as outlined in their Recipe for Change plan. We know that when families eat together, it supports their children’s success across all aspects of their lives. I cannot wait to see how our combined efforts will connect people with the meals they need to thrive.
We look forward to continue working cooperatively with regulators and remain on track for a projected closure of the merger in early 2024.
2022 in Review
As the pandemic continued to fade and inflation caused ongoing economic uncertainty, our associates showed up for our customers. Last year, Kroger associates did everything we could to minimize the impact of inflation and help stretch tight food budgets so families could access fresh, affordable food, with zero compromise on convenience or selection. Our Leading with Fresh and Accelerating with Digital strategy and key focus areas of Fresh, Our Brands, seamless and personalization give us the flexibility to navigate a changing operating environment – all while providing value to our customers and our associates. We will continue to consider a five- to ten-year time horizon as we make key decisions.
During the year, we:
● | Achieved positive identical sales without fuel of 5.6% |
● | Increased associate wages, resulting in an average hourly wage of $18 and rate of more than $23 with comprehensive benefits |
● | Exceeded $1 billion in cost savings for the fifth consecutive year |
● | Announced 14 additional Kroger Delivery locations across the U.S. |
The subsequent sections will highlight progress we made across our business in 2022 and ways we intend to continue building on our momentum moving forward.
Leading with Fresh
For us, Fresh for EveryoneTM is more than a brand promise. It’s a commitment to bringing fresh, affordable foods to more people in more neighborhoods. Fresh foods are central to families living healthy, thriving lives. And our customers prioritize fresh when they shop with Kroger – with more than more than 90% of customers purchasing fresh foods. Many companies claim they are focused on fresh – we have demonstrated success in creating fresher shopping experiences, and our customers are rewarding us for it.
In the last year, we continued to put our focus on fresh, both with our in-store and e-commerce experiences. The End-to-End Fresh initiative is at the center of how we are changing the way we bring fresh to life in our stores. Today, we have more than 1,400 stores implementing this initiative in their produce departments, driving higher produce and overall store sales. We look forward to exploring how we can expand this work in other fresh departments in 2023 and beyond.
We are also working closely with our technology and supply chain teams to understand ways we can add days of freshness to our products. From optimizing delivery routes to simplifying associate tasks, we want to ensure our customers can buy food at its peak of freshness and trust those items will remain fresh in their homes.
Freshness is also important when we think about innovation in Our Brands. In 2022, we launched a simplified opening-price-point brand known as Smart Way™. This new concept is easily identifiable for customers who want to stretch their budgets. It joins Kroger’s carefully curated, extensive Our Brands portfolio, which includes the company’s namesake Kroger brand, Simple Truth®, Private Selection®, Home Chef® and Heritage Farm®, among others.
In addition to the Smart Way brand introduction, we launched more than 680 new, unique Our Brands products last year. We engage with food trends throughout the year to understand what our customers are craving and ensure we have those items on our shelves. We aim to bring every customer the high-quality, affordable products they love – from pantry staples and fresh foods to ready-to-heat, restaurant-quality meals.
Accelerating with Digital
We continue to invest in our seamless ecosystem – bringing our customers the products they love when and where they want them. We see customers shift the ways they interact with us based on their individual needs, which aligns with our vision of a truly seamless shopping experience.
Our goal remains to be there for our customers – however they need us in a particular moment.
When it fits their day’s plans, customers may choose to shop in our stores. Sometimes, they find a Kroger Delivery order easier during a busy weekend. Or when nothing looks good in the refrigerator or the last paper towel comes off the roll, we’re here with Kroger Delivery Now, delivering in as little as 30 minutes. We remain well-positioned to achieve double-digit digital growth in the next three years.
Our brick-and-mortar stores and automated fulfillment centers work together to ensure our customers have access to the fresh foods and pantry staples they want when they need them most.
Our efforts to bring a truly personalized shopping experience to life are creating value for our customers. We serve the right promotions at the right time, directly to the customers who would be most interested in the offer. From providing suggestions to start a basket to offering a new item, we are providing customers real value. In 2022 alone, customers saved $1.4 billion through a combination of paper and digital coupons.
Last year, we also launched Boost by Kroger, the retail industry’s most-affordable membership program. We are already exceeding internal expectations in both incremental engagement and household spend. We look forward to evolving our membership program to appeal to more customers and create additional value.
The Accelerating with Digital piece of our strategy continues to drive our profit flywheel. We are improving margins by reducing digital cost-to-serve, all while growing our alternative profit streams.
Investing in Our Associates
Our associates are at the heart of everything we do. I am always impressed at the ways they create memorable food moments for our customers every day. I regularly think back to my time working in a Kroger store when I began my career more than 40 years ago. I learned how to run a successful store, how to create real community with my customers and coworkers, and how important our stores are to the neighborhoods they serve.
Kroger provides opportunities for people seeking their first job, a new beginning, or a new challenge to discover a fulfilling career path. And we continue to invest in our associates. Earlier this year we committed nearly $800 million to raise wages and benefits, create new training opportunities, and improve healthcare options in 2023.
This investment builds on our $1.9 billion in incremental investments in wages and comprehensive benefits Kroger has made since 2018. As a result, we raised our average hourly rate to $18, or $23.50 an hour with comprehensive benefits.
We understand we must support our associates’ holistic well-being. To accomplish this goal, Kroger creates programs that power our associates’ growth, including a world-class educational benefit program offering associates up to $21,000 toward continuing education opportunities – whatever that may mean to our associates. In 2022 alone, more than 5,000 people engaged with this program. We provide affordable, accessible healthcare options, which includes free counseling. Also in 2022, we introduced a first-of-its-kind free financial coaching services to all our hourly associates. We remain committed to helping our associates thrive in their careers and at home, ensuring Kroger remains an employer of choice.
Environmental Sustainability and Social Impact
Kroger is committed to responsible sourcing practices, respecting human rights, and advancing animal welfare. Our comprehensive programs hold our suppliers accountable to meet our high standards and support our continual improvement. We rely on deep knowledge from our category sourcing leaders, data insights and input from our investors, industry groups, NGOs, and subject-matter experts.
In 2022, we published our greenhouse gas (GHG) reduction goal roadmap. We are diligently working to reduce absolute Scope 1 and 2 GHG emissions from our operations by 30% by 2030 against a 2018 baseline. This goal was developed using climate science, supporting a well-below 2ºC climate scenario according to the absolute contraction method.
Kroger made considerable progress against our Framework for Action: Diversity, Equity & Inclusion plan. Launched in 2020, this action plan is accelerating change across the entire company. Since its introduction, we successfully provided unconscious bias training to all leaders and nearly half a million associates. We are working with 53 Historically Black Colleges and Universities, and institutions serving Hispanic, Asian American and Pacific Islander, and Native American students. And we are taking strong steps to achieve our goal of increasing our spend with diverse suppliers to $10 billion annually by 2030.
We are growing the many ways we participate in our communities – both big and small. In 2022, we celebrated the fifth anniversary of our Zero Hunger | Zero Waste impact plan. Since its inception, we directed more than $1.65 billion in food and funds to help end hunger, which includes more than 2.3 billion meals. We remain on track to donate 3 billion meals to our neighbors by 2025.
One accomplishment I am so proud of is our stores’ work to achieve 100% execution of our food rescue program in participating Kroger stores. Flawless execution is an ideal for which we always strive. It is inspirational to see the way our store teams embrace our mission of providing healthy food to their communities.
Looking to the Future
I am optimistic for what 2023 and beyond will mean for Kroger, our customers, our associates, and our communities. We are committed to providing the freshest food to our customers, with zero compromise on value, convenience, or selection. We are investing in the business to continuously optimize our approach to freshness – and our customers are taking notice. Our teams are always looking for new opportunities to bring fresh Our Brands items to our customers, both capitalizing on food trends and creating experiences that can only come from Kroger.
Customers continue to expect the convenience our digital experience offers. We are working toward innovative ways to ensure grocery shopping fits easily into our customers’ days – whether they are looking for a need-it-now item, a weekly stock-up shop, or the perfect ingredient to make a special meal more memorable. And we do more than make it convenient – we make the shopping experience personal. We know our customers, and we earn their trust daily by providing engaging offers on the foods they love.
And our amazing associates bring it all to life. In addition to creating a full, fresh, and friendly shopping experience for every customer, every time, our associates are committed to making their communities a better place to live. This year, we are recognizing 50 outstanding associates who raised significant funds for our Zero Hunger | Zero Waste Foundation. These dollars support our nonprofit partners across America who are working to create communities free from hunger and waste. Congratulations to each of these “Zero Heroes” for making measurable change for your neighbors.
I would like to thank our customers, associates, and shareholders for your ongoing support for Kroger. I look forward to everything we will do together in the year ahead.
With gratitude,
Rodney McMullen
Chairman and CEO, The Kroger Co.
Safe Harbor Statement
This letter contains “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 about future performance of Kroger, including with respect to Kroger’s ability to achieve sustainable net earnings growth, strategic capital deployment, strong and attractive total shareholder return, strong free cash flow and ability to increase the dividend, ability to achieve certain operational goals, as well as ESG targets, goals, and commitments outlined in this proxy statement, or elsewhere among other statements. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. These statements are indicated by words such as “will,” “aim,” “model,” “driving,” “goal,” “plan,” “continue,” “on track,” “committed” and “believe,” as well as similar words or phrases. These statements are subject to known and unknown risks, uncertainties and other important factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements, including the specific risk factors identified in “Risk Factors” in Kroger’s most recent Annual Report on Form 10-K and any subsequent filings with the Securities and Exchange Commission. Kroger assumes no obligation to update the information contained herein, unless required to do so by applicable law.
Zero Hunger | Zero Waste: Associate Fundraising Heroes
The Kroger Co. Zero Hunger | Zero Waste Foundation is a nonprofit public charity designed to help align philanthropy with the company’s Zero Hunger | Zero Waste social and environmental impact plan. We invite customers of the Kroger Family of Companies to join our journey by rounding up their purchase to the nearest dollar at checkout to benefit the Zero Hunger | Zero Waste Foundation.
Cashiers across the country are leading the way in activating donations through Round Up. Dollars raised are directed to nonprofit partners that help end hunger and waste in our communities. These are our 2022 Zero Heroes:
Atlanta Division Dianne Perkins Rachel Dickens Betalhem Tolla | Fred Meyer Division Pat Sears | Mid-Atlantic Division Dee Dee Hamby | ||
Central Division Jess Warburton Rebekah Lehman Sheri Fornter | Fry’s Division Melissa Horowitz Barbara Stockton | Nashville Division Linda Whitfield |
Cincinnati-Dayton Division Jen Tudor | Houston Division Mashuny Squierdo | Ralphs Division Marquett Valencia Debra Sutton Pedro Daniel | ||
Columbus Division Colleen Burrows | King Soopers Division Dan Cahill | Roundy’s Division Nancy Johnson | ||
Dallas Division Julie Olinick Tonja Buckley | Louisville Division Laury Shulhafer Robin Adams | QFC Division Amber Brask | ||
Delta Division Laura Sparks Mae Watson | Mariano’s Division Vikki Hornbaker | Smith’s Division | ||
Dillons Division Pam Meyer Joan Rogers | Michigan Division Tracey Regits | Food 4 Less Jimmy Hu Maricruz Chico Mayra Sanguino Rufina Kniefel | ||
Food 4 Less - MW Tamara Primm Rohel Terrazas |
Proxy Summary
This summary highlights information contained elsewhere in this Proxy Statement. It does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting.
Overview of Voting Matters and Board Recommendations
Proposals | Board Recommendation |
No. 1 – Election of Directors | FOR Each Director Nominee recommended by |
No. 2 Advisory Vote to Approve Executive Compensation | FOR |
No. 3 Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation | ONE YEAR |
No. 4 Ratification of Independent Auditors | FOR |
Nos. 5 – 9 Shareholder Proposals | AGAINST Each Proposal |
Corporate Governance Highlights
Kroger is committed to strong corporate governance. We believe that strong governance builds trust and promotes the long-term interests of our shareholders. Highlights of our corporate governance practices include the following:
Board Governance Practices
✓ | Strong Board oversight of enterprise risk. |
✓ | Strong experienced independent Lead Director with clearly defined role and responsibilities. |
✓ | Commitment to Board refreshment and diversity. |
✓ | 5 of 11 director nominees are women. |
✓ | The chairs of the Audit, Finance, and Public Responsibilities Committees are women. |
✓ | Annual evaluation of the Chairman and CEO by the independent directors, led by the independent Lead Director. |
✓ | All director nominees are independent, except for the CEO. |
✓ | All five Board Committees are fully independent. |
✓ | Annual Board and Committee self-assessments conducted by independent Lead Director or an independent third party. |
✓ | Regular executive sessions of the independent directors, at the Board and Committee level. |
✓ | High degree of Board interaction with management to ensure successful oversight and succession planning. |
✓ | Balanced tenure. |
✓ | Robust shareholder engagement program. |
✓ | Robust code of ethics. |
Environmental, Social, & Governance (ESG) Practices
✓ | Long-standing Board Committee dedicated to ESG oversight — Public Responsibilities Committee — formed in 1977. |
o | Amended the Committee Charter in 2021 to more specifically reflect the Committee’s focused and prioritized approach to material ESG topics related to environmental issues, sustainability, and social impact |
✓ | Annual ESG report, sharing progress on our goals for Zero Hunger | Zero Waste, Just & Inclusive Economy, Food Waste, Operational Waste, Water, Packaging, Climate Impact, and Responsible Sourcing. |
o | The 2022 ESG report represented the 16th year of describing our progress and initiatives regarding sustainability and other ESG matters |
✓ | Committed to transparency in our disclosure, informed by frameworks consistent with shareholder expectations: |
o | SASB’s Food Retailers and Distributors Standard |
o | GRI Global Sustainability Reporting Standards |
o | Task Force on Climate-related Financial Disclosures (TCFD) framework |
✓ | Established formal Diversity, Equity & Inclusion (DE&I) Framework for Action to: |
o | Create a more inclusive culture |
o | Develop diverse talent |
o | Advance diverse partnerships |
o | Advance equitable communities |
o | Listen deeply and report progress |
✓ | Specifically include diverse candidates in every external executive officer and Board director search. |
✓ | Disclose EEO-1 data annually. |
Shareholder Rights
✓ | Annual director election. |
✓ | Simple majority standard for uncontested director elections and plurality in contested elections. |
✓ | No poison pill. |
✓ | Shareholders have the right to call a special meeting. |
✓ | Robust, long-standing shareholder engagement program with regular engagements, including with independent directors, to better understand shareholders’ perspectives and concerns on a broad array of topics, such as corporate governance and ESG matters. |
✓ | Adopted proxy access for director nominees, enabling a shareholder, or group of up to 20 shareholders, holding 3% of the Company’s common shares for at least three years to nominate candidates for the greater of two seats or 20% of Board nominees. |
Compensation Governance
✓ | Robust clawback and recoupment policy. |
✓ | Pay program tied to performance and business strategy. |
✓ | Majority of pay is long-term and at-risk with no guaranteed bonuses or salary increases. |
✓ | Stock ownership guidelines align executive and director interests with those of shareholders. |
✓ | Prohibition on all hedging, pledging, and short sales of Kroger securities by directors and executive officers. |
✓ | No tax gross-up payments to executives. |
Environmental, Social, & Governance Strategy
Kroger’s Environmental, Social & Governance Strategy is called Thriving Together. This strategy reflects the evolution of the Company’s long history of operating responsibly, advancing economic opportunity and sustainability in our own operations and supply chain, and giving back meaningfully to our communities.
Our ESG objective is to achieve positive and lasting change through a shared-value framework that benefits people and our planet and creates more resilient systems for the future. The centerpiece of Kroger’s ESG strategy is our Zero Hunger | Zero Waste social and environmental impact plan. Introduced five years ago, Zero Hunger | Zero Waste is an industry-leading platform for collective action and systems change at global, national, and local levels.
Our ESG strategy aims to address material topics of importance to our business and key stakeholders, including our associates, customers, shareholders, and others. Key ESG topics — informed by a structured materiality assessment and engagement with our shareholders and other stakeholders — align to three strategic pillars: People, Planet and Systems. Please see more details here in Kroger’s annual ESG Report: https://www.thekrogerco.com/wp-content/uploads/2022/08/Kroger-Co-2022-ESG-Report.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement.
Director Nominee Highlights
2023 Director Nominee Snapshot
Diversity and Tenure
Skills and Experience
Key Attributes and Skills of All Kroger Director Nominees
● | Intellectual and analytical skills | ● | Business and professional achievements | |
● | High integrity and business ethics | ● | Ability to represent the interests of all shareholders | |
● | Strength of character and judgement | ● | Knowledge of corporate governance matters | |
● | Ability to devote significant time to Board duties | ● | Understanding of the advisory and proactive oversight responsibility of our Board | |
● | Desire and ability to continually build expertise in emerging areas of strategic focus for our Company | ● | Comprehension of their his or her as a public company director and the fiduciary duties owed to shareholders | |
● | Demonstrated focus on promoting equality | ● | Ability to work cooperatively with other members of the board |
Nora Aufreiter | Kevin Brown | Elaine Chao | Anne Gates | Karen Hoguet | Rodney McMullen | Clyde Moore | Ronald Sargent | Amanda Sourry | Mark Sutton | Ashok Vemuri | Total (of 11) | ||||||||||||||
Business Management | • | • | • | • | • | • | • | • | • | • | • | 11 | |||||||||||||
Retail | • | • | • | • | • | • | 6 | ||||||||||||||||||
Consumer | • | • | • | • | • | • | • | • | 8 | ||||||||||||||||
Financial Expertise | • | • | • | • | • | • | • | • | • | • | • | 11 | |||||||||||||
Risk Management | • | • | • | • | • | • | • | • | • | • | 10 | ||||||||||||||
Operations & Technology | • | • | • | • | • | • | • | • | • | • | 10 | ||||||||||||||
ESG | • | • | • | • | • | • | • | • | • | • | • | 11 | |||||||||||||
Manufacturing | • | • | • | • | 4 |
2022 Compensation Highlights
Executive Compensation Philosophy
Executive Summary
We delivered exceptional performance in 2022. Kroger achieved exceptional results in 2022 as we executed on our Leading with Fresh and Accelerating with Digital strategy, building on record years in 2020 and 2021. We are delivering a fresh, affordable, and seamless shopping experience for our customers, with zero compromise on quality, selection, or convenience. We are delivering on our financial commitments through our strong, resilient Value Creation Model. In 2022, we achieved financial performance results of ID sales, without fuel, of 5.6%, and adjusted FIFO operating profit, including fuel, of $5.1 billion1. | ||
Our executive compensation program aligns with long-term shareholder value creation. 91% of our CEO’s target total direct compensation and, on average, 84% of the other NEOs’ compensation is at risk and performance-based, tied to achievement of performance targets that are important to our shareholders or our long-term share price performance. | ||
The annual performance incentive was earned above target reflecting our 2022 performance. The annual incentive program, based on a grid of identical sales, excluding fuel, and adjusted FIFO operating profit, including fuel, paid out at 192.40% of target. In light of macroeconomic conditions, including inflation, as well as the Compensation Committee’s desire to create ongoing alignment with shareholders and reward sustained performance beyond 2022, the Compensation Committee determined to structure the payout to the NEOs as follows: 150% in cash and the remaining 42.4% in restricted stock vesting in one year. | ||
The long-term performance incentive payout reflects alignment with performance over fiscal years 2020, 2021, and 2022. Long-term performance unit equity awards granted in 2020 and tied to commitments made to our investors and other stakeholders regarding long-term sales growth, adjusted FIFO operating profit growth, free cash flow generation, our commitment to Fresh, and Relative Total Shareholder Return were earned at 93.75% of target. |
1 See pages 27 – 33 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on March 28, 2023, for a reconciliation of GAAP operating profit to adjusted FIFO operating profit.
We prioritized investment in our people. We strive to create a culture of opportunity for nearly 430,000 associates and take seriously our role as a leading employer in the United States. In 2022, we invested more than ever in our associates by continuing to raise our average hourly wage to $18, or over $23, including industry-leading benefits. | ||
In response to our shareholder feedback, we incorporated an ESG metric focused on diversity and inclusion into our 2022 individual performance management program. Our core values of Diversity, Equity & Inclusion are incorporated into compensation decisions made for our associates who supervise a team of others, which range from store department leaders through our NEOs. These performance goals are factored into compensation decisions for these leaders, including salary increases and the amount of the annual grant of equity awards. |
Summary of Key Compensation Practices
To achieve our objectives, the Compensation Committee seeks to ensure that compensation is competitive and that there is a direct link between pay and performance. To do so, it is guided by the following principles:
Names Executive Officers (NEOs) for 2022
For the 2022 fiscal year ended January 28, 2023, the NEOs were
Name | Title | |
W. Rodney McMullen | Chairman and Chief Executive Officer | |
Gary Millerchip | Senior Vice President and Chief Financial Officer | |
Stuart W. Aitken | Senior Vice President and Chief Merchandising & Marketing Officer | |
Yael Cosset | Senior Vice President and Chief Information Officer | |
Timothy A. Massa | Senior Vice President and Chief People Officer |
Notice of 20192023 Annual Meeting of Shareholders
Fellow Kroger Shareholders:
It is our pleasure
We are pleased to invite you to join our Board of Directors, senior leadership, and other Kroger associates at The Kroger Co.us for Kroger’s 2023 Annual Meeting of Shareholders.Shareholders on June 22, 2023 at 11:00 a.m. eastern time. The 2023 Annual Meeting of Shareholders will once again be a completely virtual meeting conducted via webcast. We believe this is the most effective approach for enabling the highest possible attendance.
You will be able to participate in the virtual meeting online, vote your shares electronically, and submit questions during the meeting by visiting www.virtualshareholdermeeting.com/KR2023.
When: | |||
Where: | |||
Items of Business: | 1. | To elect 11 director nominees | |
2. | To approve our executive compensation, on an advisory basis. | ||
3. | To select the frequency of future advisory votes on executive compensation, on an advisory basis. | ||
4. | |||
To ratify the selection of our independent auditor for fiscal year 2023. | |||
To vote on | |||
To transact other business as may properly come before the meeting. | |||
Who can Vote: | Holders of Kroger common shares at the close of business on the record date |
How to Vote: | |||
1. | |||
2. | By telephone, | ||
3. | By mail, postage-paid envelope provided with this proxy statement. | ||
4. | |||
5. | By attending and voting electronically during the virtual Annual Meeting at www.virtualshareholdermeeting.com/KR2023. |
Attending the Meeting: | Shareholders holding shares at the close of business on the record date may attend the virtual meeting. | |
Our Board of Directors unanimously recommends that you vote “FOR ALL” of Kroger’s director nominees on the proxy card, “FOR” the management proposals 2 and 4, “FOR” one year for management proposal 3, and “AGAINST” the shareholder proposals 5 through 9.
We appreciate your continued confidence in Kroger, and we look forward to seeing you at theyour participation in our virtual meeting.
May 12, 2023 Cincinnati, Ohio | By Order of the Board of Directors, Christine S. Wheatley, Secretary |
Proxy Statement
May 14, 201912, 2023
We are providing this notice, proxy statement, and annual report to the shareholders of The Kroger Co. (“Kroger”, “we”, “us”, “our”) in connection with the solicitation of proxies by the Board of Directors of Kroger (the “Board”) for use at the Annual Meeting of Shareholders to be held on June 27, 2019,22, 2023 at 11:00 a.m. eastern time, at the Music Hall Ballroom, Music Hall, 1241 Elm St., Cincinnati, Ohio 45202, and at any adjournments thereof. The Annual Meeting will be held virtually and can be accessed online at www.virtualshareholdermeeting.com/KR2023. There is no physical location for the 2023 Annual Meeting of Shareholders.
Our principal executive offices are located at 1014 Vine Street, Cincinnati, Ohio 45202-1100. Our telephone number is 513-762-4000. This notice, proxy statement, and annual report, and the accompanying proxy card wereare first furnishedbeing sent or given to shareholders on or about May 14, 2019.12, 2023.
Questions and Answers about the Annual Meeting
Why are you holding a virtual meeting?
We believe a virtual meeting is the most effective approach for enabling the highest possible attendance. Based on our experience with virtual meetings during the COVID-19 pandemic, we believe this facilitates shareholder attendance and participation, and has allowed a greater number of questions from a broader group of shareholders to be asked and answered at the Meeting than in an in-person format. It also reduces our costs and in a small way the carbon footprint of our activities. Therefore, our 2023 Annual Meeting is being held on a virtual-only basis with no physical location. Our goal for the Annual Meeting is to enable the broadest number of shareholders to participate in the meeting, while providing substantially the same access and exchange with Management and the Board as an in-person meeting. We believe that we are observing best practices for virtual shareholder meetings, including by providing a support line for technical assistance and addressing as many shareholder questions as time allows.
Who can vote?
You can vote if, as of the close of business on May 1, 2019,April 24, 2023, the record date, you were a shareholder of record of Kroger common shares.
Who is asking for my vote, and who pays for this proxy solicitation?
Your proxy is being solicited by Kroger’s Board of Directors. Kroger is paying the cost of solicitation. We have hired D.F. King & Co., Inc., 48 Wall Street, New York, New York, a proxy solicitation firm, to assist us in soliciting proxies and we will pay them a fee estimated not to exceed $17,500, plus reasonable expenses for base solicitation fees.the solicitation.
We also will reimburse banks, brokers, nominees, and other fiduciaries for postage and reasonable expenses incurred by them in forwarding the proxy material to beneficial owners of our common shares.
Proxies may be solicited personally, by telephone, electronically via the Internet, or by mail.
Who are the members of the Proxy Committee?
Anne Gates, W. Rodney McMullen, and Ronald L. Sargent, all Kroger Directors, are the members of the Proxy Committee for our 20192023 Annual Meeting.
What is the difference between a “shareholder of record” and a “beneficial shareholder” of shares held in street name?
You are the “shareholder of record” for any Kroger common shares that you own directly in your name in an account with Kroger’s stock transfer agent, EQ Shareowner Services.
You are a “beneficial shareholder” of shares held in street name if your Kroger common shares are held in an account with a broker, bank, or other nominee as custodian on your behalf. The broker, bank, or other nominee is considered the shareholder of record of these shares. As the beneficial owner, you have the right to instruct the broker, bank, or other nominee on how to vote your Kroger common shares.
How do I vote my shares held in street name?
If your shares are held by a bank, broker, or other holder of record, you will receive voting instructions from the holder of record. Your broker is required to vote your shares in accordance with your instructions. In most cases, you may vote by telephone or over the internet as instructed.
How do I vote my proxy?
You can vote your proxy in one of the following ways:
1. |
2. | By telephone, you can vote by |
3. | By mail, you can vote by |
4. | |
5. |
How can I participate and ask questions at the Annual Meeting?
We are committed to ensuring that our shareholders have substantially the same opportunities to participate in the virtual Annual Meeting as they would at an in-person meeting. In order to submit a question at the Annual Meeting, you will need your 16-digit control number that is printed on the Notice or proxy card that you received in the mail, or via email if you have elected to receive material electronically. You may log in 15 minutes before the start of the Annual Meeting and submit questions online. You will be able to submit questions during the Annual Meeting as well. We encourage you to submit any question that is relevant to the business of the meeting. Questions asked during the Annual Meeting will be read and addressed during the meeting. Shareholders are encouraged to log into the webcast at least 15 minutes prior to the start of the meeting to test their Internet connectivity. You may also submit questions in advance of the meeting via the internet at www.proxyvote.com when you vote your shares.
What documentation must I provide to be admitted to the virtual Annual Meeting and how do I attend?
If your shares are registered in your name, you will need to attendprovide your sixteen-digit control number included on your Notice or your proxy card (if you receive a printed copy of the meetingproxy materials) in personorder to be able to participate in Cincinnati?
Shareholders holding shares at the close of business on the record date may attend the meeting. If you own your shares through a brokerage firmare not registered in your name (if, for instance, your shares are held in “street name” for you by your broker, bank or other institution), you must bringfollow the instructions printed on your brokerage statementVoting Instruction Form. In order to show you ownedparticipate in the shares asAnnual Meeting, please log on to www.virtualshareholdermeeting.com/KR2023 at least 15 minutes prior to the start of the record dateAnnual Meeting to provide time to register and valid photo identification, such as a driver’s license or passport.download the required software, if needed. The webcast replay will be available at www.virtualshareholdermeeting.com/KR2023 until the 2024 Annual Meeting of Shareholders. If you ownaccess the meeting but do not enter your control number, you will be able to listen to the proceedings, but you will not be able to vote or otherwise participate.
What if I have technical or other “IT” problems logging into or participating in the Annual Meeting webcast?
We have provided a toll-free technical support “help line” that can be accessed by any shareholder who is having challenges logging into or participating in the virtual Annual Meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support line number that will be posted on the virtual Annual Meeting login page.
What documentation must I provide to vote online at the Annual Meeting?
If you are a shareholder of record and provide your sixteen-digit control number when you access the meeting, you may vote all shares registered in your name during the Annual Meeting webcast. If you are not a shareholder of record as to any of your shares directly, you should bring the notice(i.e., instead of meeting that was mailed to you,being registered in your name, all or the topa portion of your proxy card,shares are registered in “street name” and valid photo identification.held by your broker, bank or other institution for your benefit), you must follow the instructions printed on your Voting Instruction Form.
How do I submit a question at the Annual Meeting?
If you would like to submit a question during the Annual Meeting, once you have logged into the webcast at www.virtualshareholdermeeting.com/KR2023, simply type your question in the “ask a question” box and click “submit”. You may also submit questions in advance of the meeting via the internet at www.proxyvote.com when you vote your shares.
When should I submit my question at the Annual Meeting?
Each year at the Annual Meeting, we hold a question-and-answer session following the formal business portion of the meeting during which shareholders may submit questions to us. We reserveanticipate having such a question-and-answer session at the right2023 Annual Meeting. You can submit a question up to exclude any person who cannot provide15 minutes prior to the required items.start of the Annual Meeting and up until the time we indicate that the question-and-answer session is concluded. However, we encourage you to submit your questions before or during the formal business portion of the meeting and our prepared statements, in advance of the question-and-answer session, in order to ensure that there is adequate time to address questions in an orderly manner. You may also submit questions in advance of the meeting via the internet at www.proxyvote.com when you vote your shares.
Can I change or revoke my proxy?
The common shares represented by each proxy will be voted in the manner you specified unless your proxy is revoked before it is exercised. You may change or revoke your proxy by providing written notice to Kroger’s Secretary at 1014 Vine Street, Cincinnati, Ohio 45202, in person at the meeting, or by executing and sending us a subsequent proxy.proxy, or by voting your shares while logged in and participating in the 2023 Annual Meeting of Shareholders.
How many shares are outstanding?
As of the close of business on May 1, 2019,April 24, 2023, the record date, our outstanding voting securities consisted of 806,682,213717,648,391 common shares.
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How many votes per share?
Each common share outstanding on the record date will be entitled to one vote on each of the 11 director nominees and one vote on each other proposal. Shareholders may not cumulate votes in the election of directors.
What voting instructions can I provide?
You may instruct the proxies to vote “For” or “Against” each proposal (except for Proposal 3), or you may instruct the proxies to “Abstain” from voting. For Proposal 3, you may instruct the proxies to vote for “One,” “Two,” or “Three” years.
What happens if proxy cards or voting instruction forms are returned without instructions?
If you are a registered shareholder and you return your proxy card without instructions, the Proxy Committee will vote in accordance with the recommendations of the Board.
If you hold shares in street name and do not provide your broker with specific voting instructions on proposals 1, 2, 3, and 5 – 4 and 6 and 7,9, which are considered non-routine matters, your broker does not have the authority to vote on those proposals. This is generally referred to as a “broker non-vote.” Proposal 5,4, ratification of auditors, is usually considered a routine matter and, therefore, your broker may vote your shares according to your broker’s discretion.
The vote required, including the effect of broker non-votes and abstentions for each of the matters presented for shareholder vote, is set forth below.
What are the voting requirements and voting recommendation for each of the proposals?
Proposals | Board Recommendation | Voting Approval Standard | Effect of Abstention | Effect of broker non-vote |
No. 1 – Election of Directors | FOR Each Director Nominee recommended by your Board | More votes “FOR” than “AGAINST” since it is an uncontested election | No Effect | No Effect |
No. 2 Advisory Vote to Approve Executive Compensation | FOR | Affirmative vote of the majority of shares participating in the voting (1) | No Effect | No Effect |
No. 3 Advisory Vote | ONE YEAR | The | No Effect | No Effect |
No. 4 Ratification of Independent Auditors | FOR | Affirmative vote of the majority of shares participating in the voting | No Effect | No Effect |
Affirmative vote of the majority of shares participating in the voting | No Effect |
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on June |
The Notice of www.proxyvote.com. |
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Kroger’s Corporate Governance Practices
Kroger is committed to strong corporate governance. We believe that strong governance builds trust and promotes the long-term interests of our shareholders. Highlights of our corporate governance practices include the following:
Board Governance Practices
Strong Board oversight of enterprise risk. |
✓ | Commitment to Board refreshment and diversity. |
✓ | 5 of 11 director nominees are |
Annual evaluation of the Chairman and CEO by the independent directors, led by the independent Lead Director. |
All director nominees are independent, except for the CEO. |
✓ | All five Board Committees are fully independent. |
✓ | Annual Board and |
Regular executive sessions of the independent directors, at the Board and |
High degree of Board interaction with management to ensure successful oversight and succession planning. |
Shareholder Rights
✓ | Robust shareholder engagement program. |
✓ | Robust code of ethics. |
Environmental, Social, & Governance (ESG) Practices
✓ | Long-standing Board Committee dedicated to ESG oversight — Public Responsibilities Committee — formed in 1977. |
o | Amended the Committee Charter in 2021 to more specifically reflect the Committee’s focused and prioritized approach to material ESG topics related to environmental issues, sustainability, and social impact |
✓ | Annual ESG report, sharing progress on our goals for Zero Hunger | Zero Waste, Just & Inclusive Economy, Food Waste, Operational Waste, Water, Packaging, Climate Impact, and Responsible Sourcing. |
o | The 2022 ESG report represented the 16th year of describing our progress and initiatives regarding sustainability and other ESG matters |
✓ | Committed to transparency in our disclosure, informed by frameworks consistent with shareholder expectations: |
o | SASB’s Food Retailers and Distributors Standard |
o | GRI Global Sustainability Reporting Standards |
o | Task Force on Climate-related Financial Disclosures (TCFD) framework |
✓ | Established formal Diversity, Equity & Inclusion (DE&I) Framework for Action to: |
o | Create a |
o | Develop diverse talent |
o | Advance diverse partnerships |
o | Advance equitable communities |
o | Listen deeply and report progress |
✓ | Specifically include diverse candidates in every external executive officer and Board director search. |
✓ | Disclose EEO-1 data annually. |
Shareholder Rights
✓ | Annual director election. |
✓ | Simple majority standard for |
No poison |
Shareholders have the right to call a special meeting. |
Adopted proxy access for director nominees, enabling a shareholder, or group of up to 20 shareholders, holding 3% of the Company’s common shares for at least three years to nominate candidates for the greater of two seats or 20% of |
Compensation Governance
Robust clawback and recoupment policy. |
✓ | Pay program tied to performance and business strategy. |
Majority of pay is long-term and at-risk with no guaranteed bonuses or salary increases. |
Stock ownership guidelines align executive and director interests with those of shareholders. |
Prohibition on all hedging, pledging, and short sales of Kroger securities by directors and executive officers. |
No tax gross-up payments to executives. |
Environmental, Social, & Governance Strategy
Kroger’s Environmental, Social & Governance Strategy is called Thriving Together. This strategy reflects the evolution of the Company’s long history of operating responsibly, advancing economic opportunity and sustainability in our own operations and supply chain, and giving back meaningfully to our communities.
Our ESG objective is to achieve positive and lasting change through a shared-value framework that benefits people and our planet and creates more resilient systems for the future. The centerpiece of Kroger’s ESG strategy is our Zero Hunger | Zero Waste social and environmental impact plan. Introduced five years ago, Zero Hunger | Zero Waste is an industry-leading platform for collective action and systems change at global, national, and local levels.
Our ESG strategy aims to address material topics of importance to our business and key stakeholders, including our associates, customers, shareholders, and others. Key ESG topics — informed by a structured materiality assessment and engagement with our shareholders and other stakeholders — align to three strategic pillars: People, Planet and Systems. Please see more details here in Kroger’s annual ESG Report: https://www.thekrogerco.com/wp-content/uploads/2022/08/Kroger-Co-2022-ESG-Report.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement.
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People — Our Aspiration: Help billions live healthier, more sustainable lifestyles
Food Access, Health, & Nutrition
Kroger’s brand promise, Fresh for Everyone, reflects our belief that everyone should have access to affordable, fresh food. We are committed to food and product safety and to improving food access, food security, and health and nutrition for all. Protecting our associates’ and customers’ health and safety and enhancing our shopping experience are also key focus areas.
• | Kroger associates have rescued more than 575 million pounds of wholesome surplus food to help end hunger since introducing Zero Hunger | Zero Waste. |
• | In the same period, Kroger directed a total of $1.2 billion in charitable giving for hunger relief in our communities. |
• | With food and funds combined, Kroger directed 2.8 billion meals to our communities since 2017, well ahead of our goal of 3 billion meals by 2025. |
Just & Inclusive Economy
We offer access to employment, benefits, and more, providing good jobs for individuals ages 15 to 95 with a wide range of experience, skills, and career aspirations. In 2020, Kroger introduced our Framework for Action: Diversity, Equity, & Inclusion, a 10-point plan with short- and long-term steps to accelerate and promote greater change in the workplace and communities we serve.
• | Since 2020, Kroger has trained 661,000 leaders and associates in diversity, equity, & inclusion, including Unconscious Bias training. |
• | We achieved nearly $4 billion in diverse supplier spend annually, on track to our goal of $10 billion annually by 2030. |
• | Kroger achieved a perfect score of 100 on the Human Rights Campaign Corporate Equality Index for the fourth consecutive year and was listed among the Best Places to Work for Disability Inclusion by the Disability Equality Index. |
• | The Kroger Co. Foundation established a $5 million Racial Equity Fund and subsequently increased funding to $10M to support organizations driving change at national and local levels. To date, the fund has directed a total of $5.7 million in grants to nonprofit organizations advancing meaningful change in our communities. |
Planet — Our Aspiration: Protect and restore natural resources for a brighter future
Climate Impact
Kroger is committed to reducing the impact of our business on the climate and assessing the potential future risk of a changing climate to our business operations. We support the transition to a lower-carbon economy by investing in energy efficiency and renewable energy and by reducing greenhouse gas (GHG) emissions and food waste.
• | Kroger’s current commitment is to reduce Scope 1 and 2 GHG emissions by 30% by 2030 using a 2018 baseline. Reflecting updated guidance from the Intergovernmental Panel on Climate Change and the Science Based Targets initiative (SBTi), Kroger is in the process of resetting this target to be more ambitious and align to a 1.5⁰C scenario. |
• | In addition, Kroger is conducting analysis to inform a new Scope 3 target to reduce GHG emissions in our value chain. We expect to complete the goal-setting process in early 2024. To align with SBTi guidance, Kroger is also setting a new Forest, Land, and Agriculture (FLAG) target to further reduce emissions in land-intensive sectors like food and agricultural production. |
• | Reducing food waste is another way Kroger is helping reduce climate impacts. In 2021, we reduced retail food waste generated and improved retail food waste diversion from landfill to 48.8% through our Zero Hunger | Zero Waste plan, on the path to achieving 95%+ diversion by 2025. |
Resource Conservation
As a responsible business, we conserve natural resources to help safeguard people and our planet. Our current goal is to divert 90% or more of waste from landfills company-wide by 2025 and to identify alternative methods of waste management.
• | We have a comprehensive set of sustainable packaging goals that include seeking to achieve 100% recyclable, reusable, or compostable packaging for Our Brands products by 2030. In 2022, we completed an Our Brands packaging footprint and baseline to inform our roadmap to 2030. |
• | Kroger partnered with TerraCycle to launch a first-of-its-kind recycling program for flexible plastic packaging across the Our Brands portfolio. Now, Kroger customers can collect flexible snack and chip bags, pouches, pet food packaging, and more — items typically not eligible for curbside recycling — for easy and free mail-in recycling. |
• | In 2022, Kroger also conducted a six-month pilot with the innovative Loop reusable consumer product packaging platform at 25 Fred Meyer stores in the Portland, Oregon, area. We plan to publish a report outlining what may be needed to achieve commercial scale with reusable packaging in the future. |
• | To support more sustainable agriculture, Kroger offers an expanding selection of natural, organic, free-from, and plant-based products, including our popular Simple Truth® product line. The company also is in the process of developing a sustainable agriculture commitment for its fresh produce supply chain. |
Systems — Our Aspiration: Build more responsible and inclusive global systems
Business Integration
Kroger is committed to strong corporate and ESG governance. Business and functional leaders are engaged in our ESG strategy and accountable for results. Operationalizing ESG is a journey; however, we believe our centralized structure, vertical integration and commitment to responsible sourcing enables our progress.
• | We are committed to Board refreshment and diversity, with five of 11 directors being women, including the chairs of the Audit, Finance, and Public Responsibilities Committees. |
• | The Public Responsibilities Committee meets three times a year to discuss progress related to the company’s ESG strategy and key topics. In 2022, areas of focused engagement included Kroger’s GHG emissions reduction roadmap and approach to responsible sourcing. |
• | A core ESG team leads internal cross-functional working groups focused on policy, issues management and strategy implementation for key ESG topics, including food and product access and affordability, climate impacts, sustainable packaging, and supply chain accountability. |
Responsible & Resilient Systems
Kroger is part of – and dependent on – an interconnected global food system and consumer goods supply chain. A renewed focus on these natural systems and the policies and practices governing them will help protect our planet and workers whose livelihoods depend on a resilient and responsible supply chain.
• | Kroger continues to advance its commitment to align our human rights practice with the UN Guiding Principles on Business and Human Rights and develop a comprehensive human rights due diligence framework. In the past year, Kroger conducted two human rights impact assessments in different sectors of our global supply chain. |
• | We continue to offer a wide assortment of Fair Trade Certified products in the Our Brands assortment to support communities around the world. |
• | Kroger continues to transition the foundation of our animal welfare policy to the Five Domains of Animal Welfare, an internationally respected approach that emphasizes current animal science and outcome-based standards. We are working with our suppliers to measure and report progress toward our goals. |
• | Our long-standing commitment to seafood sustainability includes partnerships and programs aimed at improving marine ecosystems through conservation and fishery improvement practices. |
• | Kroger’s No-Deforestation Commitment for Our Brands aims to address deforestation impacts in higher-risk supply chains, such as palm oil, pulp and paper, soy, and beef. |
Proposals to Shareholders
Item No. 1. Election of Directors
You are being asked to elect 11 director nominees for a one-year term. The Board of Directors recommends that you vote FOR the election of all director nominees.
FOR | The Board of Directors unanimously recommends that you vote “FOR ALL” of Kroger’s director nominees. |
As of the date of this proxy statement, Kroger’s Board of Directors consists of 1211 members. All nominees, if elected at the 20192023 Annual Meeting, will serve until the annual meeting in 2020,2024 or until theirhis or her successors have been elected by the shareholders or by the Board pursuant to Kroger’s Regulations, and qualified. As previously disclosed, Mr. Robert D. BeyerEach of our director nominees identified in this proxy statement has informedconsented to being named as a nominee in our proxy materials and has accepted the Board that he is retiring from the Board effectivenomination and agreed to serve as of June 27, 2019 and will not stand for re-election.a director if elected by Kroger’s shareholders.
Kroger’s Articles of Incorporation provide that the vote required for election of a director nominee by the shareholders, except in a contested election or when cumulative voting is in effect, is the affirmative vote of a majority of the votes cast for or against the election of a nominee.
The Committee memberships stated below are those in effect as of the date of this proxy statement. The experience, qualifications, attributes, and skills that led the Corporate Governance Committee and the Board to conclude that the following individuals should serve as directors are set forth opposite each individual’s name. The committee memberships stated below are those in effect asIn addition, all of our Director Nominees demonstrate the datefollowing qualities:
Key Attributes and Skills of this proxy statement.All Kroger Director Nominees
●Intellectual and analytical skills | ●Business and professional achievements |
●High integrity and business ethics | ●Ability to represent the interests of all shareholders |
●Strength of character and judgement | ●Knowledge of corporate governance matters |
●Ability to devote significant time to Board duties | ●Understanding of the advisory and proactive oversight responsibility of our Board |
●Desire and ability to continually build expertise in emerging areas of strategic focus for our Company | ●Comprehension of their his or her as a public company director and the fiduciary duties owed to shareholders |
●Demonstrated focus on promoting equality | ●Ability to work cooperatively with other members of the board |
Board Nominees for Directors for Terms of Office Continuing until 20202024
Nora A. Aufreiter | Ms. Aufreiter is Director Emeritus of McKinsey & Company, a global management consulting firm. She retired in June 2014 after more than 27 years with McKinsey, most recently as a director and senior partner. During that time, she worked extensively in the U.S., Canada, and internationally with major retailers, financial institutions, and other consumer-facing companies. Before joining McKinsey, Ms. Aufreiter spent three years in financial services working in corporate finance and investment banking. She is a member of the Board of Directors of The Bank of Nova Ms. Aufreiter has over 30 years of broad business experience in a variety of retail sectors. Her vast experience in leading McKinsey’s North American Retail Practice, North American Branding service line and the Consumer Digital and Omnichannel service line is of particular value to the Board. In addition, during her tenure with McKinsey, the firm advised consulting clients on a variety of matters, including ESG topics and setting and achieving sustainability goals which is of value to the Board and the Public Responsibilities Committee. Ms. Aufreiter has served on our Public Responsibilities Committee for eight years, the last three as chair. In 2021, she led the Board’s review of ESG accountability to clarify committee oversight of ESG topics and led the revision of the Committee’s charter to reflect the Committee’s increasing focus on material environmental sustainability and social impact topics. She also brings to the Board valuable insight on commercial real estate. | |||
Age 63 | Director Since 2014 | |||
Committees: Qualifications: |
1 Denotes Chair of Committee
Kevin M. Brown Mr. Brown is the Executive Vice President and Chief Supply Chain Officer at Dell Technologies, a leading global technology company. His previous roles at Dell include senior leadership roles in procurement, product quality, and manufacturing. Mr. Brown joined Dell in 1998 and has held roles of increasing responsibility throughout his career, including Chief Procurement Officer and Vice President, ODM Fulfillment & Supply Chain Strategy before being named Chief Supply Chain Officer in 2013. Before Dell, he spent 10 years in the shipbuilding industry, directing U.S. Department of Defense projects. Mr. Brown currently serves on the National Committee of the Council on Foreign Relations and on the Boards of the Congressional Black Caucus Foundation and the Howard University Center for Supply Chain Excellence. He is also a member of the Executive Leadership Council. Mr. Brown is a global leader with over twenty years of leadership experience and supply chain innovation experience. His efforts led Dell to be recognized as having one of the most efficient, sustainable, and innovative supply chains. Mr. Brown has established himself as an authority on sustainable business practices. His combined deep global supply chain and procurement expertise and track record of sustainability and resilience leadership, as well as his experience in circular economic business practices, are of value to the Board in his role as director and member of the Public Responsibilities Committee. His deep expertise in all matters related to supply chain, supply chain resilience, and risk and crisis management are of particular value to the Board. | |||
Age 60 | Director Since 2021 | ||
Committees: Qualifications: |
Elaine L. Chao Ms. Chao served as the 18th U.S. Secretary of Transportation from January 2017 until January 2021. Prior thereto, she served as the 24th U.S. Secretary of Labor from January 2001 until January 2009, and was the first woman of Asian American & Pacific Islander heritage to serve in a President’s cabinet in history. Previously, Ms. Chao was President and CEO of United Way of America, Director of the Peace Corps and a banker with Citicorp and BankAmerica Capital Markets Group. She earned her M.B.A. from Harvard Business School and has served on a number of Fortune 500 and nonprofit boards. She currently serves on the Board of Directors of ChargePoint Holdings, Inc. and Embark Technology, Inc., both of which are new economy technology companies in the mobile sector focusing on sustainable and environmentally friendly transportation. In the past five years, she also served as a director of and Hyliion Holdings Corp. Recognized for her extensive record of accomplishments and public service, she is also the recipient of 38 honorary doctorate degrees. In her capacity as a director on numerous public boards while out of government, she has advocated for innovation and business transformations. She has also been a director on many private and nonprofit boards, including Harvard Business School Board of Dean’s Advisors and Global Advisory Board, Los Angeles Organizing Committee for the Olympic and Paraolympic Games 2028, and a trustee of the Kennedy Center for the Performing Arts. Ms. Chao brings to the Board extensive experience in the public, private and non-profit sectors. In her two cabinet positions, she led high-profile organizations, navigating complex regulatory and public policy environments, and she provides the Board with valuable insight on strategy, logistics, transportation, and workforce issues. Under her leadership, the Department of Labor set up a record number of health and safety partnerships with labor unions. While she was Director of the Peace Corps, she launched the first Peace Corps programs in the newly independent Baltic states and the former republics of the former Soviet Union, including Ukraine. This experience leading social impact at scale is of value to the Board in her role as an independent director and member of the Public Responsibilities Committee. Ms. Chao’s leadership and governance expertise gained from her government service, nonprofits, and public company boards is of value to the Board. | |||
Age 70 | Director Since 2021 | ||
Committees: Qualifications: |
Anne Gates | Ms. Gates was President of MGA Entertainment, Inc., a privately-held developer, manufacturer, and marketer of toy and entertainment products for children, from 2014 until her retirement in 2017. Ms. Gates held roles of increasing responsibility with The Walt Disney Company from 1992-2012. Her roles included Ms. Gates has over 25 years of experience in the retail and consumer products industry. She brings to Kroger financial expertise gained while serving as President of MGA and CFO of a division of The Walt Disney Company. Ms. Gates has a broad business background in finance, marketing, strategy and business development, including international business. As the chair of the Corporate Governance and ESG Committee at Raymond James Financial, Inc., she oversees their code of ethics, Board composition, including diversity, environmental policies and programs, sustainability targets and ESG reporting which are aligned with SASB, shareholder proposals, and shareholder engagements efforts, including social justice, community relations and charitable giving. Ms. Gates is also Chair of the Tapestry Governance Committee, which also includes oversight of ESG responsibilities. These experiences are of particular value to the Board in her role as an independent director and member of the Corporate Governance Committee. Her | |||
Age 63 | Director Since 2015 | |||
Committees: Qualifications: |
*1 Denotes Chair of Committee Chair
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Karen M. Hoguet Ms. Ms. Hoguet has over 35 years of broad financial and operational leadership experience within the omnichannel retail sector. She has a | |||
Age 66 | Director Since 2019 | ||
Committees: Qualifications: |
W. Rodney McMullen | Mr. McMullen was elected Chairman of the Board in January 2015 and Chief Executive Officer of Kroger in January 2014. He served as Kroger’s President and Chief Operating Officer from August 2009 to December 2013. Prior to that, Mr. McMullen was elected to various roles at Kroger including Vice Chairman in 2003, Executive Vice President, Strategy, Planning, and Finance in 1999, Senior Vice President in 1997, Group Vice President and Chief Financial Officer in June 1995, and Vice President, Planning and Capital Management in 1989. He is a director of VF Corporation. In the past five years, he also served as a director of Cincinnati Financial Mr. McMullen has broad experience in the supermarket business, having spent his career spanning over 40 years with Kroger. He has a strong background in finance, operations, and strategic partnerships, having served in a variety of roles with Kroger, including as our CFO, COO, and Vice Chairman. His previous service as chair of Cincinnati Financial Corporation’s | |||
Age 62 | Director Since 2003 | |||
Qualifications: ESG |
*1 Denotes Chair of Committee Chair
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Clyde R. Moore | Mr. Moore was Mr. Moore has over 30 years of general management experience in public and private companies. He has | |||
Age 69 | Director Since | 1997 | ||
Committees: Qualifications: |
Ronald L. Sargent | Mr. Sargent was Chairman and Chief Executive Officer of Staples, Inc., a business products retailer, where he was employed from 1989 until his retirement in Mr. Sargent has over 35 years of retail experience, first with Kroger and then with increasing levels of responsibility and leadership at Staples, Inc. His efforts helped carve out a new market niche for the international retailer. In his role as Chair of the Wells Fargo Human Resources Committee, he oversees human capital management, including diversity, equity, and inclusion, human capital risk, and culture and ethics. In his role as a member of the Five Below Nominating and Corporate Governance Committee, he oversees social and environmental governance, including corporate citizenship. These committee experiences are of value to the Board in his role as a member of the Public Responsibilities Committee and Lead Director of the Board. His understanding of retail operations, consumer insights, and e-commerce are also of | |||
Age 67 | Director Since 2006 | |||
Committees: Qualifications: |
1 Denotes Chair of Committee
J. Amanda Sourry Knox (Amanda Sourry) Ms. Sourry was Ms. Sourry has over thirty years of experience in the CPG and | |||
Age 59 | Director Since 2021 | ||
Committees: Finance Qualifications: |
* Denotes Committee Chair
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Mark S. Sutton | Mr. Sutton is Chairman and Chief Executive Officer of International Paper, a leading global producer of renewable fiber-based packaging, pulp, and paper products. Prior to becoming CEO in 2014, he served as President and Chief Operating Officer with responsibility for running Mr. Sutton has over | |||
Age 61 | Director Since 2017 | |||
Committees: Qualifications: |
Ashok Vemuri | Mr. Vemuri Mr. Vemuri brings to the Board a proven track record of leading technology services companies through growth and corporate transformations. His experience as CEO of global technology companies | |||
Age 55 | Director Since 2019 | |||
Committees: Qualifications: |
YOUR VOTE IS EXTREMELY IMPORTANT. The Board of Directors Recommendsunanimously recommends a Vote For Each Director Nominee.vote “FOR ALL” of Kroger’s director nominees.
Board DiversitySuccession Planning and Succession PlanningRefreshment Mechanisms
Our director nominees reflect a wide array of experience, skills, and backgrounds. Each director is individually qualified to make unique and substantial contributions to Kroger. Collectively, our directors’ diverse viewpoints and independent-mindedness enhance the quality and effectiveness of Board deliberations and decision making. Our Board is a dynamic group of new and experienced members, providing an appropriate balance of institutional knowledge and fresh perspectives about Kroger due to the varied length of tenure on the Board. This blend of qualifications, attributes, and tenure results in highly effective board leadership.
The Corporate Governance Committee considers racial, ethnic, and gender diversity to be important elements in promoting full, open, and balanced deliberations of issues presented to the Board. The Corporate Governance Committee considers director candidates who help the Board reflect the diversity of our shareholders, associates, customers, and the communities in which we operate. Some consideration is also given to the geographic location of director candidates in order to provide a reasonable distribution of members from Kroger’s operating areas.
Board succession planning is an ongoing, year-round process. The Corporate Governance Committee recognizes the importance of thoughtful Board refreshment and engages in a continuing process of identifying attributes sought for future Board members. The Corporate Governance Committee takes into account the Board
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and committeeCommittee evaluations regarding the specific qualities, skills, and experiences that would contribute to overall Board and committeeCommittee effectiveness, as well as the future needs of the Board and its committeesCommittees in light of Kroger’s current and long-term business strategies, and the skills and qualifications of directors who are expected to retire in the future.future including as a result of our Board retirement policy, which requires directors to retire at the annual meeting following their 72nd birthday.
Outside Board Service
No director who is an officer of the Company may serve as a director of another company without the approval of the Corporate Governance Committee. Directors who are not officers of the Company may not serve as a director of another company if in so doing such service would interfere with the director’s ability to properly perform his or her responsibilities on behalf of the Company and its shareholders, as determined by the Corporate Governance Committee. None of our current directors serve on more than three public company Boards, including Kroger’s Board.
Board Diversity
Our director nominees reflect a wide array of experience, skills, and backgrounds. Each director is individually qualified to make unique and substantial contributions to Kroger. Collectively, our directors’ diverse viewpoints and independent-mindedness enhance the quality and effectiveness of Board deliberations and decision-making. Our Board is a dynamic group of new and experienced members, which reflects an appropriate balance of institutional knowledge and fresh perspectives about Kroger due to the varied length of tenure on the Board. We believe this blend of qualifications, attributes, and tenure enables highly effective Board leadership.
The Corporate Governance Committee considers racial, ethnic, and gender diversity to be important elements in promoting full, open, and balanced deliberations of issues presented to the Board. When evaluating potential nominees to our Board, the Corporate Governance Committee considers director candidates who would help the Board reflect the diversity of our shareholders, associates, customers, and the communities in which we operate, including by considering their geographic locations to align directors’ physical locations with Kroger’s operating areas where possible. In connection with the use of a third-party search firm to identify candidates for Board positions, the Corporate Governance Committee instructs the third-party search firm to include in its initial list qualified female and racially/ethnically diverse candidates. Four of our 11 director nominees self-identify as racially/ethnically diverse: Mr. Brown and Ms. Gates self-identify as Black/African American and Ms. Chao and Mr. Vemuri self-identify as Asian. Five of our 11 directors are women.
The Corporate Governance Committee believes that it has been successful in its efforts to promote gender and ethnic diversity on our Board. Further, the Board aims to foster a diverse and inclusive culture throughout the Company and believes that the Board nominees are well suited to do so. The Corporate Governance Committee and Board believe that our director nominees for election at our 2019 annual meeting2023 Annual Meeting bring to our Board a variety of different experiences, skills, and qualifications that contribute to a well-functioning diverse Board that effectively oversees the Company’s strategy and management. The charts below show the diversity of our director nominees and the skills and experience that we consider important for our directors in light of our current business, strategy, and structure:
Nora Aufreiter | Kevin Brown | Elaine Chao | Anne Gates | Karen Hoguet | Rodney McMullen | Clyde Moore | Ronald Sargent | Amanda Sourry | Mark Sutton | Ashok Vemuri | Total (of 11) | ||||||||||||||
Business Management | • | • | • | • | • | • | 11 | ||||||||||||||||||
Retail | • | • | • | • | 6 | ||||||||||||||||||||
Consumer | • | • | • | • | 8 | ||||||||||||||||||||
Financial Expertise | • | • | • | • | • | 11 | |||||||||||||||||||
Risk Management | • | • | • | • | • | • | 10 | ||||||||||||||||||
Operations & Technology | • | • | • | • | • | • | 10 | ||||||||||||||||||
• | • | • | • | • | • | • | 11 | ||||||||||||||||||
Manufacturing | • | • | • | • | 4 |
Information Concerning the Board of Directors
Board Leadership Structure and Independent Lead Independent Director
The Board is currently composed of eleven independent non-employee directors and one management director, Mr. McMullen, the Chairman and CEO.
Kroger has a governance structure in which independent directors exercise meaningful and vigorousrigorous oversight.
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As provided The Board’s leadership structure, in Kroger’s Guidelines on Issues ofparticular, is designed with those principles in mind and to allow the Board to evaluate its needs and determine, from time to time, who should lead the Board. Our Corporate Governance Guidelines (the “Guidelines”)( provide the “Guidelines”),flexibility for the Board hasto modify our leadership structure in the future as appropriate. We believe that Kroger is well-served by this flexible leadership structure.
In order to promote thoughtful oversight, independence, and overall effectiveness, the Board’s leadership includes Mr. McMullen, our Chairman and CEO, and an independent Lead Director designated one ofby the Board among the independent directors as Lead Director.directors. The Lead Director works with the Chairman to share governance responsibilities, facilitate the development of Kroger’s strategy, and grow shareholder value. The Lead Director serves a variety of roles, consistent with current best practices, including:
● | reviewing and approving Board meeting agendas, materials, and schedules to confirm that the appropriate topics are reviewed, with sufficient information provided to directors on each topic and appropriate time is allocated to each; |
● | serving as the principal liaison between the Chairman, management, and the independent directors; |
● | presiding at the executive sessions of independent directors and at all other meetings of the Board at which the Chairman is not present; |
● | calling meetings of independent directors at any time; and |
● | serving as the Board’s representative for any consultation and direct communication, following a request, with major shareholders. |
The independent Lead Director carries out these responsibilities in numerous ways, including:including by:
● | facilitating communication and collegiality among the Board members; |
● | soliciting direct feedback from independent directors; |
● | overseeing the succession planning process, including meeting with a wide range of associates including corporate and division management associates; |
● | meeting with the CEO frequently to discuss strategy; |
● | serving as a sounding Board and advisor to the CEO; |
● | leading annual CEO evaluation process; and |
● | discussing Company matters with other directors between meetings. |
Unless otherwise determined by the independent members of the Board, the Chair of the Corporate Governance Committee is designated as the Lead Director. Ronald L. Sargent, an independent director and the Chair of the Corporate Governance Committee, was recently appointed as our Board’s independent Lead Director in June 2018. Mr. Sargent is an effective Lead Director for Kroger due to, among other things:things, his:
● | independence; |
● | deep strategic and operational understanding of Kroger obtained while serving as a Kroger director; |
● | insight into corporate governance; |
● | experience as the CEO of an international ecommerce and brick and mortar retailer; |
● | experience on the Boards of other large publicly traded companies; and |
● | engagement and commitment to carrying out the role and responsibilities of the Lead Director. |
With respect to the roles of Chairman and CEO, the Guidelines provide that the Board will determine whether it is in the best interests of Kroger and ourits shareholders for the roles to be combined. The Board exercises this judgment as it deems appropriate in light of prevailing circumstances. Upon retirement of our former Chairman, David B. Dillon, on December 31, 2014, the Board determined that it is in the best interests of Kroger and our shareholders for one person to serve as the Chairman and CEO, as was the case from 2004 through 2013, with another individual serving as independent Lead Director. The Board believes that this leadership structure improves the Board’s ability to focus on key policy and operational issues and helps the Company operate in the long-term interest of shareholders. Additionally, this structure provides an effective balance between strong Company leadership and appropriate safeguards and oversight by independent directors. Our CEO’s strong background in finance, operations, and strategic partnerships is particularly important to the Board given Kroger’s current growth strategy. Our CEO’s consistent leadership, deep industry expertise, and extensive knowledge of the Company are also especially critical in the midst of the rapidly evolving retail and digital landscape. The Board believes that the structure of the Chairman and independent Lead Director position should continue to be considered as part of the succession planning process.
Annual Board Evaluation Process
The Board and each of its committeesCommittees conduct an annual evaluation to determine whether the Board is functioning effectively both at the Board and at the committeeCommittee levels. As part of this annual evaluation, the Board assesses whether the current leadership structure and function continues to be appropriate for Kroger and its shareholders, including in consideration of director succession planning.
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shareholders. The Guidelines provideEvery year, the flexibility forBoard’s goal is to increase the effectiveness of the Board to modify our leadership structure inand the future as appropriate. We believe that Kroger, like many U.S. companies, is well-served byresults of these evaluations are used for this flexible leadership structure.
purpose. The Board recognizes that a robust evaluation process is an essential component of strong corporate governance practices and ensuring Board effectiveness. The Corporate Governance Committee oversees an annual evaluation process led by either the Lead Independent Director (who also serves as Chair of the Corporate Governance Committee).or an independent third party.
Each director completes a detailed written annual evaluation of the Board and the committeesCommittees on which he or she serves and the Lead Director or an independent third-party conducts interviews with each of the directors. These Board evaluations are designed to assessThis year, the skills, qualifications, and experience represented onannual evaluation was conducted by the Board and its committees, and to determine whether the Board and its committees are functioning effectively. The process also evaluates the relationship between management and the Board, including the level of access to management, responsiveness of management, and the effectiveness of the Board’s evaluation of management performance. Lead Director.
Topics covered include, among others:
● | The effectiveness of the Board and Board Committees and the active participation of all directors |
● | The Board and Committees’ skills and experience and whether additional skills or experience are needed |
● | The effectiveness of Board and Committee meetings, including the frequency of the meetings |
● | Board interaction with management, including the level of access to management, and the responsiveness of management |
● | The effectiveness of the Board’s evaluation of management performance |
● | Additional subject matters the Board would like to see presented at their meetings or Committee meetings |
● | Board’s governance procedures |
● | The culture of the Board to promote participation in a meaningful and constructive way |
The results of this Board evaluation are discussed by the full Board and each committee,Committee, as applicable, and changes to the Board’s and its committees’Committees’ practices are implemented as appropriate.
Over the past several years, this evaluation process has contributed to various enhancements in the way the Board and the Committees operate, including increased focus on continuous Board refreshment and diversity of its members as well as ensuring that Board and Committee agendas are appropriately focused on strategic priorities and provide adequate time for director discussion and input.
Director Onboarding and Engagement
All directors are expected to invest the time and energy required to gain an in-depth understanding of our business and operations in order to enhance their strategic value to our Board. We develop tailored onboarding plans for each new director. We arrange meetings for each new director with appropriate officers and associates in order to familiarize him or her with the Company’s strategic plans, financial statements, and key policies and practices. We also provide training on fiduciary obligations of board members and corporate governance topics, as well as committee-specific onboarding. From time to time, the Company will provide Board members with presentations from experts within and outside of the Company on topics relevant to the Board’s responsibilities. Any member of the Board may attend accredited third-party training and the expenses will be paid by the Company. Board meetings are periodically held at a location away from our home office in a geography in which we operate. In connection with these Board meetings, our directors learn more about the local business environment through meetings with our regional business leaders and visits to our stores, competitors’ stores, manufacturing facilities, distribution facilities, and/or customer fulfillment centers.
Committees of the Board of Directors
To assist the Board in undertaking its responsibilities, and to allow deeper engagement in certain areas of company oversight, the Board has established five standing committees:Committees: Audit, Compensation and Talent Development (“Compensation”), Corporate Governance, Financial Policy,Finance, and Public Responsibilities. All committeesCommittees are composed exclusively of independent directors, as determined under the New York Stock Exchange (“NYSE”)NYSE listing standards. Each Committee has the responsibilities set forth in its respective charter, each of which has been approved by the Board. The current charter of each Board committeeCommittee is available on our website at ir.kroger.com under Investors –— Governance – Guidelines on Issues— Corporate Governance Guidelines.
The current membership, 2022 meetings, and responsibilities of Corporate Governance.each Committee are summarized below.
Name of Committee, Number of Meetings, and Current Members | Primary Committee | |
Audit Committee Meetings in Members: Anne Gates, Chair Ashok Vemuri | ● Oversees the Company’s financial reporting and accounting matters, including review of the Company’s financial statements and the audit thereof, the Company’s financial reporting and accounting process, and the Company’s systems of internal control over financial reporting | |
● Selects, evaluates, and oversees the compensation and work of the independent registered public accounting firm and reviews its performance, qualifications, and independence | ||
● Oversees and evaluates the Company’s internal audit function, including review of its audit plan, policies and procedures, and significant findings | ||
● Oversees enterprise risk assessment and risk management, including review of cybersecurity risks ●Reviews significant legal | ||
● Reviews and monitors the Company’s operational and third-party compliance programs ●Reviews Ethics Hotline reports and discusses material matters ● Reviews and approves related party transactions ● Conducts executive sessions with independent registered public accounting firm and Vice President, Internal Audit at each meeting ●Conducts executive sessions with the |
Name of Committee, Number of Meetings, and Current Members | Primary Committee Responsibilities | |
Compensation Committee Meetings in Members: Clyde R. Moore, Chair Mark S. Sutton | ● Recommends for approval by the independent directors the compensation of the CEO and approves the compensation of | |
officers ● Administers the Company’s executive compensation policies and programs, including determining grants of equity awards under the plans | ||
● Reviews annual incentive plans and long-term incentive plan metrics and plan design ● Reviews emerging legislation and governance issues and retail compensation trends ● Reviews the Company’s executive compensation peer group ● Reviews CEO pay analysis ● Reviews Human Capital Management, including Diversity, Equity, & Inclusion ● Has sole authority to retain and direct the | ||
● Assists the full Board with senior management succession planning |
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● Conducts executive sessions with Senior Vice President and | ||
Corporate Governance Committee Meetings in Members: Ronald L. Sargent, Chair | ● Oversees the Company’s corporate governance policies and procedures | |
● Develops criteria for selecting and retaining directors, including identifying and recommending qualified candidates to be director nominees | ||
● Designates membership and Chairs of Board | ||
Committees ● Oversees and administers Board evaluation process ● Reviews the Board’s performance | ||
● Establishes and reviews the practices and procedures by which the Board performs its functions ● Reviews director independence, financial literacy, and designation of financial expertise ● Administers director nomination process ● Interviews and nominates candidates for director election ● Reviews compliance with share ownership guidelines ● Reviews and participates in shareholder engagement ● Reviews and establishes independent director compensation ● Oversees the annual CEO evaluation process conducted by the full Board |
Name of Committee, Number of Meetings, and Current Members | Primary Committee Responsibilities | |
Finance Committee Meetings in Members: Karen M. Hoguet, Chair | ● Oversees the Company’s financial affairs and | |
● Reviews the Company’s annual and long-term financial ● Approves and recommends for ● Reviews the Company’s dividend policy and share buybacks ● Reviews strategic transactions, capital structure, including potential issuance of | ||
financing transactions ● Monitors the investment management of assets held in pension and | ||
● Oversees the Company’s policies and procedures on hedging, swaps, risk management, and other derivative transactions ● Oversees the Company’s engagement and relationships with, and standing in, the financial community | ||
Public Responsibilities Committee Meetings in 2022: 3 Members: Nora A. Aufreiter, Chair | ● Reviews the practices of the Company affecting its ● Examines and reviews the Company’s practices related to environmental sustainability, ✓ climate impacts ✓ packaging ✓ food and ✓ food access ✓ responsible sourcing ✓ supplier diversity ✓ people safety, food safety, and ● Examines and | |
● Reviews the Company’s community engagement and ● Reviews the Company’s advocacy and public policy ● Reviews the Company’s communications and Corporate Brand stewardship ● Assesses the Company’s effort in evaluating and responding to changing public expectations and public issues |
Director Nominee Selection Process
The Corporate Governance Committee is responsible for recommending to the Board a slate of nominees for election at each annual meeting of shareholders. The Corporate Governance Committee recruits candidates for Board membership through its own efforts and through recommendations from other directors and shareholders. In addition, the Corporate Governance Committee has retained an independent search firm to assist in identifying and recruiting director candidates who meet the criteria established by the Corporate Governance Committee.
These criteria are:
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The Corporate Governance Committee also considers the specific experience and abilities of director candidates in light of our current business, strategy and structure, and the current or expected needs of the Board in its identification and recruitment of director candidates.
The Guidelines on Issues of Corporate Governance includes a policy that a director’s normal retirement occurs at the Annual Meeting of Shareholders following the year in which the director reaches the age of 72. However, the Board believes that it is important to monitor the Board’s composition, skills, diversity, and needs in the context of the Company’s overall strategy, and, therefore, may elect to waive the policy in circumstances it deems necessary. Two directors will have reached their normal retirement date at the Annual Meeting, Jorge P. Montoya and James A. Runde. Upon review of the matter, the Corporate Governance Committee recommended, and the Board approved, waiving the retirement date for Mr. Montoya and Mr. Runde and nominating these directors for re-election at the Annual Meeting for an additional one-year term. The Corporate Governance Committee and the Board believe that Mr. Montoya’s and Mr. Runde’s experience as directors and their knowledge of the Company’s business and strategy, particularly in light of the transition of the grocery industry will continue to be of value to the Board. Also, in light of Mr. Beyer, a long-tenured director, retiring from the Board, and the addition of four new directors since 2014, the Corporate Governance and Board believe it provides necessary continuity for Mr. Montoya and Mr. Runde to remain on the Board for an additional year.
Shareholder Engagement
Maintaining ongoing relationships with our shareholders, and understanding our shareholders’ views, is a priority for both our Board and management team. We have a longstanding history of engaging with our shareholders and through our investor relations team’sprogram and our year-round governance outreach program. Atprogram, including participation for our independent directors. In 2022, under the direction of ourthe Board, we expanded our shareholderrequested engagement program in 2016 to include outreach to our largest shareholders’ governance teams. In 2018, we requested meetings with 34 shareholders representing nearly 50%48% of our outstanding shares during proxy season and off season engagement and ultimately engagedsubsequently met with 18 shareholders representing over a third41% of our outstanding shares.shares (many of those shareholders we met with more than once). Some investors we contacted either did not respond or confirmed that a discussion was not needed at that time.
We conduct shareholder outreach throughout the year to engage with shareholders on issues that are important to them and us. During these engagements some of which included the participation of our Lead Director, we discussed and solicited feedback on a range of topics, which informed Board discussions and decisions, including but not limited to:
Business Strategy
● | Kroger’s growth strategy, priorities, and value drivers |
● | Our strong value creation model and recent performance |
ESG Practices & Disclosures
● | Discussions with socially conscious investors and NGOs helped inform our new ESG strategy and long-term commitments |
● | Thriving Together, Kroger’s ESG strategy, including long-term environmental sustainability, social impact, and responsible sourcing commitments, progress updates, and steps being taken to achieve our ambitious goals |
● | Board oversight of ESG strategy and updated Committee responsibilities |
● | Kroger’s ESG reporting and disclosures, including our alignment with the TCFD, SASB, and GRI reporting frameworks |
● | The centerpiece of our ESG strategy is Zero Hunger | Zero Waste, an industry-leading platform for collective action and systems change to end hunger in our communities and eliminate waste across our company |
Human Capital Management
● | Our DE&I Framework for Action and steps we are taking to ensure our workforce reflects the communities we serve |
● | Our focus on our associates’ well-being, including increasing our average hourly associate wage, comprehensive benefits, and opportunities for internal progression and leadership development training |
● | Workforce diversity reporting, including EEO-1 demographic disclosure |
● | Robust Board oversight of human rights in our supply chain |
Compensation Structure
● | Overview of compensation program design and alignment of pay and performance |
● | Consideration of short- and long-term metrics, including financial and non-financial metrics, such as ESG metrics |
● | The balance of equity and cash compensation, as well as fixed versus at risk compensation |
Board and Board Oversight
● | Our Board’s approach to board refreshment considering diversity, balance of tenure, and alignment of board skills and experience with Kroger’s current and long-term business strategies |
● | Board and Committee responsibilities for oversight of ESG priorities, and approach to risk management |
Discussions with socially conscious investors and NGOs helped inform our ESG strategy corporate governance, executive compensation and sustainability. In addition,long-term commitments. Overall shareholders expressed appreciation for the opportunity to have an ongoing discussion and were complementary of Kroger’s ESG practices. Specifically, shareholders recognized the actions we attended industry eventstook to further engage with shareholdersformalize our ESG strategy, Thriving Together, and subject matter experts.how our Board oversees this strategy, including our ESG targets and initiatives. These conversations provided valuable insights into our shareholders’ evolving perspectives, and their feedback waswhich were shared with and considered by, our full Board.
Board’s Response to Shareholder Proposals
Accountability to our shareholders continues to be an important component of our success. We actively engage with our shareholder proponents. Every year, following our Annual Shareholders’ Meeting, our Corporate Governance Committee considers the voting outcomes for shareholder proposals. In addition, our Corporate Governance Committee and other Committees, as appropriate, consider proposed courses of action in light of the voting outcomes for shareholder proposals under their oversight, as well as feedback provided directly from our shareholders.
Director Nominee Selection Process
The Corporate Governance Committee is responsible for recommending to the Board a slate of nominees for election at each annual meeting of shareholders. The Corporate Governance Committee recruits candidates for Board membership through its own efforts and through recommendations from other directors and shareholders. In addition, the Corporate Governance Committee retains an independent, third-party search firm to assist in identifying and recruiting director candidates who meet the criteria established by the Corporate Governance Committee.
These criteria are:
● | demonstrated ability in fields considered to be of value to the Board, including business management, retail, consumer, operations, technology, financial, sustainability, manufacturing, public service, education, science, law, and government; |
● | experience in high growth companies and nominees whose business experience can help the Company innovate and derive new value from existing assets; |
● | highest standards of personal character and conduct; |
● | willingness to fulfil the obligations of directors and to make the contribution of which he or she is capable, including regular attendance and participation at Board and Committee meetings, and preparation for all meetings, including review of all meeting materials provided in advance of the meeting; and |
● | ability to understand the perspectives of Kroger’s customers, taking into consideration the diversity of our customers, including regional and geographic differences. |
Additionally, in connection with the use of an independent, third-party search firm to identify director candidates, the Corporate Governance Committee will instruct the firm to include in its initial list qualified female and racially/ethnically diverse candidates.
The Corporate Governance Committee also considers diversity, as discussed in detail under “Board Diversity” above, and the specific experience and abilities of director candidates in light of our current business, strategy, and structure, and the current or expected needs of the Board in its identification and recruitment of director candidates.
The criteria for Board membership applied by the Corporate Governance Committee in its evaluation of potential Board members does not vary based on whether a candidate is recommended by our directors, a third-party search firm, or shareholders.
Candidates Nominated by Shareholders
The Corporate Governance Committee will consider shareholder recommendations for director nominees for election to the Board. If shareholders wish to nominate a person or persons for election to the Board at our 20202024 annual meeting, written notice must be submitted to Kroger’s Secretary, and received at our executive offices, in accordance with Kroger’s Regulations, not later than March 30, 2020.28, 2024. Such notice should include the name, age, business address, and residence address of such person, the principal occupation or employment of such person, the number of Kroger common shares owned of record or beneficially by such person and any other information relating to the person that would be required to be included in a proxy statement relating to the election of directors. The Secretary will forward the information to the Corporate Governance Committee for its consideration. The Corporate Governance Committee will use the same criteria in evaluating candidates submitted by shareholders as it uses in evaluating candidates identified by the Corporate Governance Committee, as described above. See “Director Nominee Selection Process.”
Additionally, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than our nominees must provide notice to Kroger’s Secretary that sets forth the information required by Rule 14a-19 of the Exchange Act no later than April 23, 2024, and must comply with the additional requirements of Rule 14a-19(b).
Eligible shareholders have the ability to submit director nominees for inclusion in our proxy statement for the 20202024 annual meeting of shareholders. To be eligible, shareholders must have owned at least 3% of our common shares for at least three years. Up to 20 shareholders will beare able to aggregate for this purpose. Nominations must be submitted to our Corporate Secretary at our principal executive offices no earlier than December 15, 201914, 2023 and no later than January 14, 2020.13, 2024.
Corporate Governance Guidelines
The Board has adopted the Guidelines, on Issues of Corporate Governance, which includes copiesprovide a framework for the Board’s governance and oversight of the current charters for each of the five standing committees of the Board.Company. The Guidelines are available on our website at ir.kroger.com under Investors –— Governance – Guidelines on Issues of Corporate Governance.—Corporate Governance Guidelines. Shareholders may also obtain a copy of the Guidelines, at no cost, by making a written request to Kroger’s Secretary at our executive offices. Certain key principles addressed in the Guidelines are summarized below.
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Independence
The Board has determined that all of the non-employeecurrent independent directors and nominees have no material relationships with Kroger and satisfy the criteria for independence set forth in Rule 303A.02 of the NYSE Listed Company Manual. Therefore, all non-employeeindependent directors and nominees are independent for purposes of the NYSE listing standards. The Board made its determination based on information furnished to the Company by all memberseach of the directors regarding their relationships with Kroger and its management, and other relevant information. The Board considered, among other things, that
● | the value of any business transactions between Kroger and entities with which the directors are affiliated falls below the thresholds identified by the NYSE listing standards, and |
● | no directors had any material relationships with Kroger other than serving on our Board. |
Audit Committee Independence and Expertise
The Board has determined that Anne Gates, Karen M. Hoguet, Ronald L. Sargent, and Mark S. Sutton,Ashok Vemuri, independent directors, who are memberseach of whom is a member of the Audit Committee, are “audit committee“Audit Committee financial experts” as defined by applicable Securities and Exchange Commission (“SEC”) regulations and that all members of the Audit Committee are “financially literate” as that term is used in the NYSE listing standards and are independent in accordance with Rule 10A-3 of the Securities Exchange Act of 1934.
Code of Ethics
The Board has adopted The Kroger Co. Policy on Business Ethics, applicable to all officers, employeesassociates, and directors, including Kroger’s principal executive, financial, and accounting officers. The Policy on Business Ethics is available on our website at ir.kroger.com under Investors –— Governance –— Policy on Business Ethics. Shareholders may also obtain a copy of the Policy on Business Ethics by making a written request to Kroger’s Secretary at our executive offices.
Communications with the Board
The Board has established two separate mechanisms for shareholders and interested parties to communicate with the Board. Any shareholder or interested party who has concerns regarding accounting, improper use of Kroger assets, or ethical improprieties may report these concerns via the toll-free hotline (800-689-4609) or email address (helpline@kroger.com)website (ethicspoint.com) established by the Board’s Audit Committee. The concerns are investigated by Kroger’s Vice President, Chief Ethics and Compliance Officer, and the Vice President of Internal Audit and reported to the Audit Committee as deemed appropriate.
Shareholders or interested parties also may communicate with the Board in writing directed to Kroger’s Secretary at our executive offices. Communications relating to personnel issues, ordinary business operations, or companies seeking to do business with us, will be forwarded to the business unit of Kroger that the Secretary deems appropriate. All otherOther communications will be forwarded to the Chair of the Corporate Governance Committee for further consideration. The Chair of the Corporate Governance Committee will take such action as he or she deems appropriate, which may include referral to the full Corporate Governance Committee or the entire Board.
Executive Officer Succession Planning
The Guidelines provide that the Compensation Committee will review Company policies and programs for talent development and evaluation of executive officers, and will review management succession planning. In connection with the use of a third-party search firm to identify external candidates for executive officer positions, including the chief executive officer, the Board and/or the Company, as the case may be, will instruct the third-party search firm to include in its initial list qualified female and racially/ethnically diverse candidates.
Attendance
The Board held five14 meetings in fiscal year 2018.2022. During fiscal 2018,2022, all incumbent directors attended at least 75% of the aggregate number of meetings of the Board and committeesCommittees on which that director served. Members of the Board are expected to use their best efforts to attend all annual meetings of shareholders. All 11 of the then currentBoard members attended last year’s virtual annual meeting.
Independent Compensation Consultants
The Compensation Committee directly engages a compensation consultant to advise the Compensation Committee in the design of Kroger’s executive compensation. The Committee retained Korn Ferry Hay Group, Inc.(US) (“Korn Ferry”) beginning in December 2017. Retained by – and reporting directly to – the Compensation Committee, Korn Ferry provided the Committee with assistance in evaluating Kroger’s executive compensation programs and policies.
In fiscal 2018,2022, Kroger paid Korn Ferry $366,831$402,007 for work performed for the Compensation Committee. Kroger, on management’s recommendation, retained Korn Ferry to provide other services for Kroger in fiscal 2018.2022 for which Kroger paid $69,500. These other services primarily related to consulting on administrative managementsalary surveys, benchmarking, integrated reporting, and digital and technology compensation structure redesign.operational finance review. The Compensation Committee expressly approved Korn Ferry performing these
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additional services. After taking into consideration the NYSE’s independence standards and the SEC rules, the Compensation Committee determined that Korn Ferry was independent, and their work has not raised any conflict of interest.
The Compensation Committee may engage an additional compensation consultant from time to time as it deems advisable.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employeeassociate of Kroger during fiscal 2018,2022, and no member of the Compensation Committee is a former officer of Kroger or was a party to any related person transaction involving Kroger required to be disclosed under Item 404 of Regulation S-K. During fiscal 2018,2022, none of our executive officers served on the boardBoard of directors or on the compensation committeeCommittee of any other entity that has or had executive officers serving as a member of Kroger’s Board of Directors or Compensation Committee of the Board.
Board
The Board’s Role in Risk Oversight of Enterprise Risk
While risk management is primarily the responsibility of Kroger’s management team, the Board is responsible for strategic planning and overall supervision of our risk management activities. The Board’s oversight of the material risks faced by Kroger occurs at both the full Board level and at the committee level.Committee level, each of which may engage advisors and experts from time to time to provide advice and counsel on risk-related matters.
We believe that our approach to risk oversight optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions, and approach emerging risks in a proactive manner for Kroger. We also believe that our risk oversight structure complements our current Board leadership structure, as it allows our independent directors, through the five fully independent Board Committees, and in executive sessions of independent directors led by the Lead Director, to exercise effective oversight of the actions of management’s identification of risk and implementation of effective risk management policies and controls.
The Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks, including newly identified and evolving high priority risks. When new risks are identified, management conducts, and either the full Board or the appropriate Board committee reviews and discusses, an enterprise risk assessment related to such new risks which may include human capital, supply chain, associate and customer health and safety, legal, regulatory, and other risks. Management and the Board then discuss the relative severity of each category of risk as necessary. well as mitigating actions and considerations relating to disclosures of material risks.
At each Board meeting, the Chairman and CEO addresses matters of particular importance or concern, including any significant areas of risk, such as newly identified risks, that require Board attention. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail Kroger’s short- and long-term strategies, including consideration of significant risks facing Kroger – either immediately or longer term – and their potential impact. The independent directors, in executive sessions led by the Lead Director, address matters of particular concern, including significant areas of risk, that warrant further discussion or consideration outside the presence of Kroger employees. At the committee level, reports are given by management subject matter experts to each committeeCommittee on risks within the scope of their charters. Each Committee reports to the full Board at each meeting, including any areas of risk discussed by the Committee.
The Audit Committee has oversight responsibility not only for financial reporting of Kroger’s major financial exposures and the steps management has taken to monitor and control those exposures, but also for the effectiveness of management’s processes that monitor and manage key business risks facing Kroger, as well as the major areas of risk exposure, and management’s efforts to monitor and control the major areas of risk exposure including cybersecurity risk.exposure. The Audit Committee incorporates its risk oversight function into its regular reports to the Board and also discusses with management its policies with respect to risk assessment and risk management.
Management provides regular updates throughout the year to the respective Board committees regarding management of the risks they oversee. For example, our
Our Vice President, Chief Ethics and Compliance Officer provides regular updates to the Audit Committee on our compliance risks and actions taken to mitigate that risk;risk. In addition, the Audit Committee is charged with oversight of data privacy and cybersecurity risks. Protection of our Executive Vice Presidentcustomers’ data is a fundamental priority for our Board and management team. Our Chief Information Officer and our Chief Information Security Officer provide regular updates at each quarterly Committee meeting on our cybersecurity risks and actions taken to mitigate that risk to the Audit Committee. The Audit Committee reports on risk toand meet with the full Board at each regular meetingleast annually. The Chief Information Security Officer reports on compliance and regulatory issues, continuously evolving threats and mitigating actions, and presents a NIST Cybersecurity Framework Scorecard to the Audit Committee. In overseeing cybersecurity risks, the Audit Committee focuses on thematic issues within an aggregated strategic lens and uses a risk-based approach. Oversight of cybersecurity risk incorporates strategy metrics, third party assessments, and internal audit and controls. Finally, an independent third party also regularly reports to the Audit Committee/Board on cybersecurity and outside counsel advises the Board about best practices for cybersecurity oversight by the Board, and the evolution of that oversight over time. Management also reports on strategic key risk indicators, ongoing initiatives, and significant incidents and their impact.
Board Oversight of Environmental, Sustainability, and Governance
We are aligned with the desire of our customers, associates, and shareholders to engage in our communities and reduce our impacts on the environment while continuing to create positive economic value over the long-term. Given the breadth of topics and their importance to us, all of our Board Committees have direct oversight of environmental, social, and governance topics. ESG topics our Board Committees oversee are as follows:
Audit | ● Legal & Regulatory ● Ethics ● Operational and Third-Party Compliance ● Data Privacy & Cyber Security ● Financial Integrity |
Compensation & Talent Development | ● Human Capital Management ● Talent Development ● Executive Compensation ● Diversity, Equity & Inclusion |
Corporate Governance | ● Board recruitment/diversity ● Board succession ● Shareholder engagement program ● Shareholder advisory votes & shareholder proposals ● Independent director compensation |
Finance | ● Capital spending to ensure consistency with ESG strategy and goals |
Public Responsibilities | ● Environmental Sustainability ✓ Climate Impacts ✓ Packaging ✓ Food Waste (Zero Waste) ● Social Impact ✓ Food Access and Affordability (Zero Hunger) ✓ Local Communities ✓ Philanthropy ✓ Responsible Sourcing ⮚ Human Rights ⮚ Animal Welfare ● Safety ✓ Food ✓ People ✓ Pharmacy ● Advocacy & Public Policy ✓ Government Relations ✓ Political action (KroPAC) ● Communications & Brand Stewardship ✓ Associate & External Communications ● Stakeholder Relations |
Our commitment to ESG matters is not new. Our Public Responsibilities Committee was established in 1977. For the past 16 years, our Company has prepared and produced an annual report describing our progress and initiatives regarding sustainability and other ESG matters. For the most recent information regarding our ESG initiatives and related matters, please visit https://www.thekrogerco.com/esgreport/. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement.
In addition, our full Board oversees issues related to diversity and inclusion within the Kroger workplace. Diversity and inclusion have been deeply rooted in Kroger’s values for decades. We are committed to fostering an environment of inclusion in the workplace, marketplace, and workforce where the diversity of cultures, backgrounds, experiences, perspectives, and ideas are valued and appreciated. Kroger’s corporate team and retail divisions have strategic collaborations with universities, educational institutions, and community organizations to improve how we attract candidates from all backgrounds and ethnicities for jobs at all levels. Diversity and inclusion will continue to be a key ingredient in feeding Kroger’s innovation, long-term sustainability, and the human spirit.
The Kroger family of companies provides inclusion training to all management and all hourly associates. Most work locations (stores, plants, distribution centers, and offices) have an inclusion-focused team, called Our Promise team. The teams work on projects that reflect Kroger’s values, offer leaders valuable feedback and suggestions on improving diversity and inclusion, and facilitate communication to champion business priorities.
Our Commitment to Diversity, Equity, & Inclusion
Kroger’s Chief People Officer leads Human Resources & Labor Relations, which includes our Diversity, Equity & Inclusion team. This function — with human resources professionals in place across our lines of business and retail divisions — advocates for and fosters an associate experience that reflects our Values. It also monitors and measures progress toward goals and identifies potential opportunities for improvement.
Kroger publicly affirmed our commitment with our Framework for Action: Diversity, Equity, & Inclusion, a 10-point plan outlining short- and longer-term steps developed with associates and leaders to promote greater change in the workplace and the communities we serve. This framework outlines five focus areas: Create More Inclusive Culture, Develop Diverse Talent, Advance Diverse Partnerships, Advance Equitable Communities, and Deeply Listen and Report Progress. More details about the plan are available here: https://www.thekrogerco.com/community/standing-together/. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement.
Enabling Connections
As part of the Board.
We believe thatframework, we committed to provide inclusion training for our approachassociates. More than 661,000 leaders and associates have completed diversity and inclusion training since 2020. In 2020, Kroger formed an internal Diversity, Equity, & Inclusion Advisory Council comprised of leaders from across the organization. The Council works closely with our executive leadership team and other business leaders to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions,identify opportunities and approach emerging risks in a proactive manneraction steps for Kroger.improvement. We also believe that our risk structure complements our current Board leadership structure, as it allows our independent directors, through the five fully independent Board committees,created an Associate Influencer Group to facilitate representation and in executive sessions of independent directors led by the Lead Director, to exercise effective oversightinput from all levels of the actionscompany.
Kroger also operates 15 internal Associate Resource Groups (ARGs), or affinity groups, some of management, led by Mr. McMullen as Chairmanwhich also have local chapters. These groups enable stronger connections across our family of companies, lift up shared experiences, promote personal and CEO,professional growth, and influence business decisions. Kroger leaders sponsor and personally engage with the ARGs.
Workplace Equity
Kroger strives to attract, retain, and develop diverse leaders and associates who reflect the communities we serve. We offer accessible employment for a wide range of people across the country. Because of our unique business model, we help unlock economic opportunity for more than 430,000 people of all ages and aspirations, from those wanting an entry-level part-time job to graduate-degree specialists across corporate functions.
Kroger strategically invests in identifying risksour associates’ growth and implementing effective risk management policiesmovement across levels, lines of business, and controls.geographies. Our goal is to shift the demographic representation of women and people of color at company-wide and local levels to reflect our changing country, communities, and neighborhoods. The Diversity, Equity, & Inclusion Advisory Council helps define aspirations for our workforce of the future.
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Community Engagement
As part of our Framework for Action, the Company also pledged to invest in advancing equitable communities. Kroger directed a total of $10 million to establish and advance The Kroger Co. Foundation’s Racial Equity Fund in 2020. To date, the Foundation has directed $5.7 million in grants to organizations driving positive change at national and local levels.
In 2022, the Foundation directed $1 million to The Asian American Foundation to support the Asian-American community. As part of its continuing relationship with the Thurgood Marshall College Fund, the Foundation also hosted its second annual Zero Hunger | Zero Waste Innovation Challenge. During the three-day business pitch competition with 36 students from Historically Black Colleges and Universities across the U.S., the Foundation awarded a total of $75,000 in scholarships. In collaboration with Proctor & Gamble, the Foundation also introduced the Game Changers Scholarship program and awarded $25,000 in scholarships to five diverse female students in the Greater Cincinnati area.
Director Compensation
2018
2022 Director Compensation
The following table describes the 2018fiscal year 2022 compensation for non-employeeindependent directors. Mr. McMullen does not receive compensation for his Board service.
Name | Fees Earned or Paid in Cash | Stock Awards(1) | Option Awards(2) | Change in Pension Value And Nonqualified Deferred Compensation Earnings(3) | Total | ||||||||||
Nora A. Aufreiter | $ | 87,692 | $ | 175,621 | — | $ | 0 | $ | 263,313 | ||||||
Robert D. Beyer | $ | 104,005 | $ | 175,621 | $ | 11,117 | $ | 290,743 | |||||||
Anne Gates | $ | 112,400 | $ | 175,621 | — | $ | 288,021 | ||||||||
Susan J. Kropf | $ | 87,692 | $ | 175,621 | — | $ | 263,313 | ||||||||
Jorge P. Montoya | $ | 102,647 | $ | 175,621 | — | $ | 278,268 | ||||||||
Clyde R. Moore | $ | 107,636 | $ | 175,621 | $ | 10,311 | $ | 293,568 | |||||||
James A. Runde | $ | 102,647 | $ | 175,621 | — | $ | 278,268 | ||||||||
Ronald L. Sargent | $ | 136,752 | $ | 175,621 | $ | 3,688 | $ | 316,061 | |||||||
Bobby S. Shackouls | $ | 97,663 | $ | 175,621 | — | — | $ | 273,284 | |||||||
Mark S. Sutton | $ | 97,663 | $ | 175,621 | — | — | $ | 273,284 | |||||||
Ashok Vemuri(4) | $ | 8,036 | $ | 87,508 | — | — | $ | 95,544 |
Name | Fees Earned or Paid in Cash | Stock Awards(1) | Change in Pension Value and Nonqualified Deferred Compensation(2) | Total | ||||||||||||
Nora A. Aufreiter | $ | 114,691 | $ | 186,382 | $ | 0 | $ | 301,073 | ||||||||
Kevin M. Brown | $ | 109,704 | $ | 186,382 | $ | 0 | $ | 296,086 | ||||||||
Elaine L. Chao | $ | 99,731 | $ | 186,382 | $ | 0 | $ | 286,113 | ||||||||
Anne Gates | $ | 134,637 | $ | 186,382 | $ | 0 | $ | 321,019 | ||||||||
Karen M. Hoguet | $ | 124,664 | $ | 186,382 | $ | 0 | $ | 311,046 | ||||||||
Clyde R. Moore | $ | 119,677 | $ | 186,382 | — | $ | 306,059 | |||||||||
Ronald L. Sargent | $ | 162,063 | $ | 186,382 | $ | 5,282 | $ | 353,727 | ||||||||
Amanda Sourry | $ | 99,731 | $ | 186,382 | $ | 0 | $ | 286,113 | ||||||||
Mark S. Sutton | $ | 99,731 | $ | 186,382 | $ | 0 | $ | 286,113 | ||||||||
Ashok Vemuri | $ | 109,704 | $ | 186,382 | $ | 0 | $ | 296,086 |
(1) | Amounts reported in the Stock Awards column represent the aggregate grant date fair value of the annual incentive share award, computed in accordance with FASB ASC Topic 718. On July |
The |
Annual Compensation
Each non-employeeindependent director receives an annual cash retainer of $90,000.$100,000. The Lead Director receives an additional annual retainer of $37,500 per year; the members of the Audit Committee each receive an additional annual retainer of $10,000; the Chair of the Audit Committee receives an additional annual retainer of $25,000; the Chair of the Compensation Committee receives an additional annual retainer of $20,000; and the Chair of each of the other committees receiveCommittees receives an additional annual retainer of $15,000,$15,000. Each non-employeeindependent director also receives an annual grant of incentive shares (Kroger common shares) with a value of approximately $175,000.$185,000.
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The Board has determined that compensation of non-employeeindependent directors must be competitive on an ongoing basis to attract and retain directors who meet the qualifications for service on the Board. Non-employeeIndependent director compensation was adjusted in 20182021 and will be reviewed from time to time as the Corporate Governance Committee deems appropriate.
Pension Plan
Non-employee
Independent directors first elected prior to July 17, 1997 receive an unfunded retirement benefit equal to the average cash compensation for the five calendar years preceding retirement. Only Mr. Moore is eligible for this benefit. Benefits begin at the later of actual retirement or age 65.
Nonqualified Deferred Compensation
We also maintain a deferred compensation plan for non-employeeindependent directors. Participants may defer up to 100% of their cash compensation and/or the receipt of all (and not less than all) of the annual award of incentive shares.
Cash Deferrals
Cash deferrals are credited to a participant’s deferred compensation account. Participants may elect from either or both of the following two alternative methods of determining benefits:
● | interest accrues until paid out at the rate of interest determined prior to the beginning of the deferral year to represent Kroger’s cost of ten-year debt; and/or |
● | amounts are credited in “phantom” stock accounts and the amounts in those accounts fluctuate with the price of Kroger common shares. |
In both cases, deferred amounts are paid out only in cash, based on deferral options selected by the participant at the time the deferral elections are made. Participants can elect to have distributions made in a lump sum or in quarterly installments, and may make comparable elections for designated beneficiaries who receive benefits in the event that deferred compensation is not completely paid out upon the death of the participant.
Incentive Share Deferrals
Participants may also defer the receipt of all (and not less than all) of the annual award of incentive shares. Distributions will be made by delivery of Kroger common shares within 30 days after the date which is six months after the participant’s separation of service.
Director Stock Ownership Guidelines
Independent directors are required to own shares equivalent to five times their annual base cash retainer. For more details on the Stock Ownership Guidelines, see page 60.
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Beneficial Ownership of Common Stock
The following table sets forth the common shares beneficially owned as of April 1, 201924, 2023 by Kroger’s directors, the NEOs, and the directors and executive officers as a group. The percentage of ownership is based on 798,332,967723,532,073 of Kroger common shares outstanding on April 1, 2019.24, 2023. Shares reported as beneficially owned include shares held indirectly through Kroger’s defined contribution plans and other shares held indirectly, as well as shares subject to stock options exercisable on or before May 31, 2019.June 23, 2023. Except as otherwise noted, each beneficial owner listed in the table has sole voting and investment power with regard to the common shares beneficially owned by such owner. Unless otherwise indicated, the address of each of the beneficial owners listed below is c/o The Kroger Co., Corporate Secretary, 1014 Vine Street, Cincinnati, OH 45202.
Name | Amount and Nature of Beneficial Ownership(1) (a) | Options Exercisable on or before May 31, 2019 – included in column (a) (b) | ||||
Nora A. Aufreiter(2) | 25,879 | — | ||||
Robert D. Beyer(2) | 185,998 | 52,000 | ||||
Robert W. Clark | 413,471 | 217,807 | ||||
Michael J. Donnelly | 710,584 | 370,667 | ||||
Anne Gates(2) | 20,548 | — | ||||
Christopher T. Hjelm | 618,933 | 352,504 | ||||
Susan J. Kropf | 140,171 | 52,000 | ||||
W. Rodney McMullen | 4,269,645 | 1,481,750 | ||||
Jorge P. Montoya(3) | 109,079 | 52,000 | ||||
Clyde R. Moore | 158,571 | 52,000 | ||||
James A. Runde | 164,613 | 52,000 | ||||
Ronald L. Sargent(2) | 171,921 | 52,000 | ||||
J. Michael Schlotman | 872,796 | 587,159 | ||||
Bobby S. Shackouls(2) | 87,906 | 7,800 | ||||
Mark S. Sutton(2) | 16,041 | — | ||||
Ashok Vemuri | 3,048 | — | ||||
Directors and executive officers as a group (29 persons, including those named above) | 10,677,615 | 4,457,326 |
Name | Amount and Nature of Beneficial Ownership(1) | Options Exercisable on or before June 23, 2023 – included in column (a) | ||||||
Stuart W. Aitken(2) | 441,766 | 260,420 | ||||||
Nora A. Aufreiter(3) | 48,543 | — | ||||||
Kevin M. Brown | 11,004 | — | ||||||
Elaine L. Chao(3) | 8,036 | |||||||
Yael Cosset | 399,835 | 248,377 | ||||||
Anne Gates(3) | 43,125 | — | ||||||
Karen M. Hoguet(4) | 19,552 | — | ||||||
Timothy A. Massa | 506,660 | 311,704 | ||||||
W. Rodney McMullen | 6,353,306 | 2,772,130 | ||||||
Gary Millerchip | 540,043 | 354,620 | ||||||
Clyde R. Moore | 121,423 | — | ||||||
Ronald L. Sargent(3) | 180,871 | — | ||||||
Amanda Sourry | 11,004 | — | ||||||
Mark S. Sutton(3) | 38,452 | — | ||||||
Ashok Vemuri | 24,900 | — | ||||||
Directors and executive officers as a group (22 persons, including those named above) | 9,988,204 | 4,579,577 |
(1) | No director or officer owned as much as 1% of Kroger common shares. The directors and executive officers as a group beneficially owned |
(2) |
(3) | This amount includes incentive share awards that were deferred under the deferred compensation plan for independent directors in the following amounts: Ms. Aufreiter, |
This amount includes |
The following table sets forth information regarding the beneficial owners of more than five percent of Kroger common shares as of April 1, 201924, 2023 based on reports on Schedule 13G filed with the SEC.
Name | Address | Amount and Nature of Ownership | Percentage of Class | |||||||
Berkshire Hathaway Inc. | 3555 Farnam Street Omaha, NE 68131 | 50,000,000 | (1) | 7.0 | % | |||||
BlackRock, Inc. | 55 East 52nd Street New York, NY 10055 | 65,963,885 | (2) | 9.2 | % | |||||
The Vanguard Group | 100 Vanguard Blvd. Malvern, PA 19355 | 82,426,702 | (3) | 11.51 | % |
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Reflects beneficial ownership by BlackRock Inc., as of December 31, |
(3) | Reflects beneficial ownership by The Vanguard Group as of December 30, 2022, as reported on Amendment No. 8 to Schedule 13G filed with the SEC on February |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and certain persons who own more than 10% of our outstanding common shares, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of those reports.
Based solely on our review of the copies of Forms 3, 4 and 5 received by Kroger, and written representations from certain reporting persons that no Form 5 was required for that person, we believe that during 2018 all filing requirements applicable to our executive officers, directors and 10% beneficial owners were timely satisfied.
Related Person Transactions
The Board has adopted a written policy requiring that any Related Person Transaction may be consummated or continue only if the Audit Committee approves or ratifies the transaction in accordance with the policy. A “Related Person Transaction” is one (a) involving Kroger, (b) in which one of our directors, nominees for director, executive officers, or greater than five percent shareholders, or their immediate family members, have a direct or indirect material interest; and (c) the amount involved exceeds $120,000 in a fiscal year.
The Audit Committee will approve only those Related Person Transactions that are in, or not inconsistent with, the best interests of Kroger and its shareholders, as determined by the Audit Committee in good faith in accordance with its business judgment. No director may participate in any review, approval, or ratification of any transaction if he or she, or an immediate family member, has a direct or indirect material interest in the transaction.
Where a Related Person Transaction will be ongoing, the Audit Committee may establish guidelines for management to follow in its ongoing dealings with the related person and the Audit Committee will review and assess the relationship on an annual basis to ensure it complies with such guidelines and that the Related Person Transaction remains appropriate.
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Compensation Discussion and Analysis
Executive Summary
Named Executive Officers
This Compensation Discussion and Analysis provides a discussionan overview of the elements and analysisphilosophy of our executive compensation program foras well as how and why the Compensation Committee and our named executive officersBoard of Directors make specific compensation decisions and policies with respect to our Named Executive Officers (“NEOs”). For
Executive Summary
We delivered exceptional performance in 2022. Kroger achieved exceptional results in 2022 as we executed on our Leading with Fresh and Accelerating with Digital strategy, building on record years in 2020 and 2021. We are delivering a fresh, affordable, and seamless shopping experience for our customers, with zero compromise on quality, selection, or convenience. We are delivering on our financial commitments through our strong, resilient Value Creation Model. In 2022, we achieved financial performance results of ID sales, without fuel, of 5.6%, and adjusted FIFO operating profit, including fuel, of $5.1 billion1. | ||
Our executive compensation program aligns with long-term shareholder value creation. 91% of our CEO’s target total direct compensation and, on average, 84% of the other NEOs’ compensation is at risk and performance-based, tied to achievement of performance targets that are important to our shareholders or our long-term share price performance. | ||
The annual performance incentive was earned above target reflecting our 2022 performance. The annual incentive program, based on a grid of identical sales, excluding fuel, and adjusted FIFO operating profit, including fuel, paid out at 192.40% of target. In light of macroeconomic conditions, including inflation, as well as the Compensation Committee’s desire to create ongoing alignment with shareholders and reward sustained performance beyond 2022, the Compensation Committee determined to structure the payout to the NEOs as follows: 150% in cash and the remaining 42.4% in restricted stock vesting in one year. | ||
The long-term performance incentive payout reflects alignment with performance over fiscal years 2020, 2021, and 2022. Long-term performance unit equity awards granted in 2020 and tied to commitments made to our investors and other stakeholders regarding long-term sales growth, adjusted FIFO operating profit growth, free cash flow generation, our commitment to Fresh, and Relative Total Shareholder Return were earned at 93.75% of target. | ||
We prioritized investment in our people. We strive to create a culture of opportunity for nearly 430,000 associates and take seriously our role as a leading employer in the United States. In 2022, we invested more than ever in our associates by continuing to raise our average hourly wage to $18, or over $23, including industry-leading benefits. | ||
In response to our shareholder feedback, we incorporated an ESG metric focused on diversity and inclusion into our 2022 individual performance management program. Our core values of Diversity, Equity & Inclusion are incorporated into compensation decisions made for our associates who supervise a team of others, which range from store department leaders through our NEOs. These performance goals are factored into compensation decisions for these leaders, including salary increases and the amount of the annual grant of equity awards. |
1 See pages 27 – 33 of our Annual Report on Form 10-K for the 2018 fiscal year ended February 2, 2019,January 28, 2023, filed with the NEOs were:SEC on March 28, 2023, for a reconciliation of GAAP operating profit to adjusted FIFO operating profit.
Our Named Executive Officers for Fiscal 2022
Name | Title | |
W. Rodney McMullen | Chairman and Chief Executive Officer | |
Senior Vice President and Chief Financial Officer | ||
Senior Vice President and Chief | ||
Senior Vice President and Chief Information Officer | ||
Senior Vice President and Chief People Officer |
SummaryFiscal 2022 Financial and Strategic Performance Highlights
Driven by our unwavering purpose to Feed the Human Spirit, Kroger achieved exceptional results in 2022 as we executed on our Leading with Fresh and Accelerating with Digital strategy, building on record years in 2020 and 2021. Our associates are customer-focused, delivering the products customers want, when and how they want them, with zero compromise on quality, convenience, and selection.
In 2022, we achieved financial performance results of KeyID sales, without fuel, of 5.6%, and adjusted FIFO operating profit of $5.1 billion. We have built a digital platform that offers a seamless shopping experience, allowing customers to shift effortlessly between store, pickup and delivery solutions. In 2022, we increased delivery sales, opened new customer fulfilment centers, increased digitally engaged households, and grew loyalty as our customers more deeply engaged with personalized coupons and fuel rewards.
Our associates enable our success, and we are committed to investing in theirs by continuing to improve wages, comprehensive benefits, and career development opportunities. We invested approximately $600 million in incremental wages in 2022, for a total of $1.9 billion in incremental investments since 2018.
Continued strategic efforts to streamline our operations allowed us to achieve cost savings greater than $1 billion for the fifth consecutive year to balance these investments without compromising food affordability for our customers across our communities.
As part of our Zero Hunger | Zero Waste social and environmental impact plan, in 2022, we donated nearly 600 million meals to feed families across America.
Our proven go-to-market strategy enables us to successfully navigate many operating environments. We believe that by delivering value for our customers, investing in our associates and serving our communities, we will continue to achieve attractive and sustainable total returns for our shareholders.
2022 Advisory Vote to Approve Executive Compensation Practicesand Shareholder Engagement
At the 2022 annual meeting, we held our annual advisory vote on executive compensation. Approximately 92% of the votes cast were in favor of the advisory vote. As part of our ongoing dialogue with our shareholders regarding governance matters, in 2022, we requested meetings with 32 shareholders representing 49% of our outstanding shares during proxy season and off-season engagement and 7 shareholders representing 24% of our outstanding shares accepted our invitation to share feedback. Some investors we contacted either did not respond or confirmed that a discussion was not needed at that time.
Conversations in these meetings included discussions about our NEO’s compensation program, with our shareholders providing feedback that they appreciated the pay-for-performance structure of our executive pay program. The Compensation Committee considers both the general and specific feedback received from shareholders, and with the guidance of our independent compensation consultant, incorporates that input into pay design.
During shareholder engagement, we specifically discuss our shareholders’ perspectives on ESG metrics in executive compensation programs. Our investors are all supportive of companies’ decisions to incorporate ESG metrics, but none are prescriptive about how to do so. Our investors share our view that a range of ESG matters are essential to our current and future success, and acknowledge that ESG priorities are embedded into our strategic and operational priorities. Management collects and reports the feedback to the Compensation Committee, and the Committee decided, beginning in 2022, to integrate our core values of Diversity, Equity & Inclusion into compensation decisions made for our associates who supervise a team of others, which range from store department leaders through our NEOs. Specifically, one of several performance goals established for these associates and senior officers relate to improvement in the Diversity, Equity, & Inclusion category score as measured by our annual Associate Insights Survey and active mentorship and development of at least one other associate with a different background. These performance goals are factored into compensation decisions for these associates and senior officers, including salary increases and the amount of the annual grant of equity awards, consistent with our program design as described herein.
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2022 Compensation Program Overview
Summary of Fixed and At-Risk Pay Elements
The fixed and at-risk pay elements of the NEO compensation program are reflected in the following table and charts.
Fiscal Year 2022 CEO Compensation
The Compensation Committee establishes Mr. McMullen’s target direct compensation such that only 9% of his compensation is fixed. The remaining 91% of target compensation is at-risk, meaning that the actual compensation Mr. McMullen receives will depend on the extent to which the Company achieves the performance metrics set by the Compensation Committee, and with respect to all of the equity vehicles, the future value of Kroger common shares.
The table below compares fiscal 2022 to 2021 target direct compensation. Target total direct compensation is a more accurate reflection of how the Compensation Committee benchmarks and establishes CEO compensation than the disclosure provided in the Summary Compensation Table, which includes a combination of actual base salaries and annual incentive compensation earned in the fiscal year, the grant date fair market value of at-risk equity compensation to be earned in future fiscal years, and the actuarial value of future pension benefits.
Increases to Mr. McMullen’s pay elements shown below were based on our independent compensation consultant’s examination of pay levels and the Committee’s intention to achieve median pay levels among our peer group. Target total compensation, which is the sum of target annual compensation and target long term compensation is positioned around market median.
($000s)
Annual | Long-Term | ||||||||||||||||||||||||||||||||||
Year | Salary | Target Annual Incentive | Total Annual | Performance Units | Restricted Stock | Stock Options | Total LTI | Target TDC | Increase | ||||||||||||||||||||||||||
2022 | 1,400 | 2,800 | 4,200 | 5,750 | 3,450 | 2,300 | 11,500 | 15,700 | +5.6% | ||||||||||||||||||||||||||
2021 | 1,355 | 2,500 | 3,855 | 5,500 | 3,300 | 2,200 | 11,000 | 14,855 |
CEO and Named Executive Officer Target Pay Mix
The amounts used in the charts below are based on 2022 target total direct compensation for the amounts reported inCEO and the Summary Compensation Table for 2018, excludingaverage of other NEOs. As illustrated below, 91% of the Change in Pension Value and Nonqualified Deferred Compensation Earnings column.CEO’s target total direct compensation is at-risk. On average, 84% of the other NEOs’ compensation is at risk.
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Realignment of Performance-Based Pay to Restock Kroger for 2018 and Beyond
Restock Kroger
In October 2017, we announced Restock Kroger, our plan to redefine the food and grocery customer experience in America and to create value for our shareholders. We developed the plan because, though we are proud of our long history of success and our strengths, we recognize that what got us here will not get us where we want to be in the future. Restock Kroger has four main drivers:
The three-year Restock Kroger plan is fueled by capital investments, cost savings, and Restock cash flow.1 As a result of our plan, over the three-year time period 2018 – 2020, we expect*Total exceeds 100% due to generate:rounding.
We have prioritized our estimated $9 billion in capital investments to support Restock Kroger over the three-year time period. We are looking first for sales-driving and cost-savings opportunities across both brick-and-mortar and digital platforms; followed by investments in logistics and technology platforms; and finally, capital for storing activity.2
Our Compensation Committee is Focused on Pay for Performance
The Compensation Committee has long maintained a strong pay for performance philosophy. Compensation must align the interests of our NEOs with the interests of our shareholders and must create incentives to achieve the annual business plan targets and longer term company objectives.
We implemented a long-term performance-based bonus program available to Kroger executives at the level of Vice President and above more than ten years ago, and the metrics were tailored to our long-term measures at that time. As our business objectives have shifted, the Compensation Committee is focused on ensuring performance metrics are aligned with our long-term strategy.
Our Long-Term Compensation Program: Align with Restock Kroger
We made new commitments to shareholders on a three-year time horizon under Restock Kroger. We believe that the success of Restock Kroger depends on the focused attention of our leadership team and associates on the goals of Restock Kroger and that it is essential to implement new performance metrics that mirror these new commitments. Accordingly, in 2018, we made changes to our program to align with Restock Kroger.
Our 2018 three-year long-term plan (2018 – 2020) has performance metrics tied entirely to Restock Kroger goals: Restock cash flow and cost savings included in FIFO operating profit growth, with a return on invested capital modifier. We implemented a metric based on the cost savings imbedded in the achievement of operating profit growth, because cost savings is essential to fund the strategic projects that will produce the operating profit growth. We believe it is a more meaningful metric than operating profit growth itself, because it forces us to focus on the savings that we need to support sustainable incremental operating profit growth.
Since we grant a new three-year long-term incentive plan each year, at any one time, there are three outstanding plans. Because the 2016-2018 and 2017-2019 long term plans were mid-cycle, we felt strongly that we should focus on Restock Kroger metrics rather than having competing priorities. As a result, in setting 2018
1 Restock cash flow is an adjusted free cash flow measure calculated as net cash provided by operating activities minus net cash used by investing activities plus or minus adjustments for certain items.
2 For important risk, uncertainties and other factors relating to these forward-looking statements, see the Risk Factors in our Annual Report on Form 10-K that accompanies this proxy statement.
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compensation, the Compensation Committee determined that the metrics of the two mid-cycle plans should be modified to align with Restock Kroger and the payouts for the then current NEOs should be addressed as described below.
For the outstanding 2016 – 2018 long-term plan, fiscal year 2016 and 2017 performance was measured on the pre-existing plan metrics and was applied to two-thirds of the previously granted cash and performance unit bonus target amounts. Fiscal year 2018 performance was measured on the Restock Kroger metrics of Restock cash flow and savings included in FIFO operating profit growth, and was applied to one-third of the previously granted cash and performance unit bonus target amounts.
Similarly, for the outstanding 2017 – 2019 long-term plan, fiscal year 2017 performance will be measured on the pre-existing plan metrics and will be applied to one-third of the previously granted cash and performance unit bonus target amounts. Fiscal year 2018 and 2019 performance will be measured on the Restock Kroger metrics of Restock cash flow and cost savings included in FIFO operating profit growth, and will be applied to two-thirds of the previously granted cash and performance unit bonus target amounts.
With respect to the mid-cycle plans for the then current NEOs, we did not adjust the cash bonus potentials or re-issue previously issued performance unit grants, we did not allow the re-earning of cash and performance units that were not earned in the completed year(s) of the outstanding plans, and we did not change the timing of the payout under the outstanding plans. Mr. Clark, who was not a named executive officer at the time the 2016 plan was modified, was eligible for a different plan as described below. These plan updates are illustrated below.
Our Annual Cash Bonus Program: Based on Meeting Financial Goals
We also redesigned the performance-based annual cash bonus plan to better align with our financial goals of Restock Kroger and to simplify the way we reward our associates. The 2018 annual plan had the following metrics:
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To further support the cost saving focus of Restock Kroger, for any payout under the Kroger Way Plans metric, the Company must have met its cost savings goals for 2018.
Our Compensation Philosophy and Objectives
As one of the largest retailers in the world, our
Our executive compensation philosophy is to attract and retain the best management talent as well as motivate these employeesassociates to achieve our business and financial goals. Kroger’s incentive plans are designed to reward the actions that lead to long-term value creation. We believe our strategy creates value for shareholders in a manner consistent with Kroger’s purpose: To Feed the Human Spirit. The Compensation Committee believes that there is a strong link between our business strategy, the performance metrics in our short-term and long-term incentive programs, and the business results that drive shareholder value.
We believe our strategy creates value for shareholders in a manner consistent with our core purpose: To Feed the Human Spirit.
To achieve our objectives, the Compensation Committee seeks to ensure that compensation is competitive and that there is a direct link between pay and performance. To do so, it is guided by the following principles:
● | Compensation must be designed to attract and retain those individuals who are best suited to be an NEO at Kroger. |
● | A significant portion of pay should be performance-based, with the percentage of total pay tied to performance increasing proportionally with an NEO’s level of responsibility. |
● | Compensation should include incentive-based pay to drive performance, providing superior pay for superior performance, including both a short- and long-term focus. |
● | Compensation policies should include an opportunity for, and a requirement of, significant equity ownership to align the interests of NEOs and shareholders. |
● | Components of compensation should be tied to an evaluation of business and individual performance measured against metrics that directly drive our business strategy and progress toward our corporate ESG priorities. |
● | Compensation plans should provide a direct line of sight to company performance. |
● | Compensation programs should be aligned with market practices. |
● | Compensation programs should serve to both motivate and retain talent. |
Summary of Key Compensation should include incentive-based pay to drive performance, providing superior pay for superior performance, including both a short- and long-term focus.
What we do: | What we do not do: | ||
✓ Alignment of pay and performance ✓ Stock ownership guidelines for executives ✓ Multiple performance metrics under our short- and long-term performance-based plans discourage excessive risk taking and align with our long-term value creation strategy ✓ Double-trigger change in control provisions in all equity awards ✓ Double-trigger change in control provisions in cash severance benefits ✓ All long-term compensation is equity-based ✓ Engagement of an independent compensation consultant ✓ Robust clawback policy ✓ Ban on hedging, pledging, and short sales of Kroger securities ✓ Minimal perquisites | × No employment contracts with executive officers × No special severance or change in control programs applicable only to executive officers × No cash component in long-term incentive plans × No tax gross-up payments for executives × No special executive life insurance benefit × No re-pricing or backdating of stock options without shareholder approval × No guaranteed salary increases or bonuses × No payment of dividends or dividend equivalents until performance units are earned × No evergreen or reload feature; no shares can be added to stock plan without shareholder approval |
Establishing Each Component of equity ownership to align the interests of NEOs and shareholders.
The Compensation Committee has three related objectives regarding compensation:
Components
The Compensation Committee determines the amount of Executive Compensation at Kroger
Compensation for our NEOs is comprised of the following:each NEO’s salary, annual cash incentive plan target, and long-term equity compensation by taking into consideration numerous factors including:
The annualassessment of individual contribution and long-term performance-based compensation awards described herein were made pursuant to our 2014 Long-Term Incentive and Cash Bonus Plan, which was approved by our shareholders in 2014.performance is a qualitative determination, based on the following factors:
● | Leadership; |
● | Contribution to the executive officer group; |
● | Achievement of established performance objectives; |
● | Decision-making abilities; |
● | Performance of the areas or groups directly reporting to the NEO; |
● | Support of company culture; |
● | Strategic thinking; and |
● | Demonstrated commitment to Kroger’s Values: Safety, Honesty, Integrity, Respect, Diversity, and Inclusion, including improvement in the DE&I category score as measured by our annual Associate Insights Survey and active mentorship and development of at least one other associate with a different background. |
At the end of each year, individual performance is evaluated based on the NEO’s performance objectives listed above, and the results of that evaluation are used in the determination of salary increases and the grant amount of all annual equity awards: restricted stock and stock options, which are time-based, and performance units granted under the long-term incentive plan, which are performance- based.
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Elements of Compensation
Annual Compensation –
Salary
Our philosophy with respect to salary is to provide a sufficient and stable source of fixed cash compensation. All of our compensation cannot be at-risk or long-term. Itthat is important to provide a meaningful annual salarycompetitive with the market to attract and retain a high caliber leadership team,team. NEO salaries, effective April 1, 2021 and to have an appropriate level of cash compensation that is not variable.
Salaries for the NEOs (with the exception of the CEO) are established each year by the Compensation Committee, in consultation with the CEO. The CEO’s salary is established by all of the independent directors. Salaries for the NEOsApril 1, 2022 were reviewed in June of 2018.as follows:
The amount of each NEO’s salary is influenced by numerous factors including:
The assessment of individual contribution is a qualitative determination, based on the following factors:
Name | 2021 Base Salary | 2022 Base Salary | ||||||
W. Rodney McMullen | $ | 1,355,000 | $ | 1,400,000 | ||||
Gary Millerchip | $ | 750,000 | $ | 825,000 | ||||
Stuart W. Aitken | $ | 885,000 | $ | 925,000 | ||||
Yael Cosset | $ | 750,000 | $ | 825,000 | ||||
Timothy A. Massa | $ | 800,000 | $ | 850,000 |
2022 Annual Compensation – Performance-Based Annual Cash BonusIncentive Plan
The NEOs participate in a corporate performance-based annual cash bonusincentive plan. The amountvalue of annual cash bonusincentive awards that the NEOs earn each year is based upon Kroger’s overall company performance compared to goals established by the Compensation Committee and the independent directors based on the business plan adopted by the Board of Directors.
A minimum level of performance must be achieved before any payouts arepayout is earned, while a payout of up to 200%210% of target bonusincentive potential can be achieved for superior performance.performance on the corporate plan metrics. There are no guaranteed or minimum payouts; if none of the performance goals are achieved, then none of the bonusincentive amount is earned, and no payout is made.
The annual cash bonusincentive plan is designed to encourage decisions and behavior that drive the annual operating results and the long-term success of the Company. Kroger’s success is based on a combination of factors, and accordingly the Compensation Committee believes that it is important to encourage behavior that supports multiple elements of our business strategy.
Establishing Annual Cash Bonus Potentials
The Compensation Committee establishescorporate annual cash bonus potentials for each NEO, other than the CEO, whose annual cash bonus potential is established by the independent directors. Actual payouts represent the extent to which performance meets or exceeds the goals established by the Compensation Committee. Actual payouts may be as low as zero if performance does not meet the goals established by the Compensation Committee or as high as 200% of the potential bonus amount if the performance far exceeds these pre-established goals.
The Compensation Committee considers multiple factors in making its determination or recommendation as to annual cash bonus potentials:
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2018 Annual Cash Bonus Plan Metrics
The annual cash bonusincentive plan is a broad-based plan used across the Kroger enterprise. Approximately 41,00053,000 associates are eligible to receive bonusincentive payouts based all or in part on the bonusincentive plan described below. The 2018 annual cash bonus plan had the following measurable performance metrics, all of which are interconnected:
NEO target incentive potentials for fiscal years 2021 and 2022, were as follows:
Name | 2021 Target Annual Incentive | 2022 Target Annual Incentive | ||||||
W. Rodney McMullen | $ | 2,500,000 | $ | 2,800,000 | ||||
Gary Millerchip | $ | 825,000 | $ | 850,000 | ||||
Stuart W. Aitken | $ | 825,000 | $ | 850,000 | ||||
Yael Cosset | $ | 825,000 | $ | 850,000 | ||||
Timothy A. Massa | $ | 650,000 | $ | 775,000 |
2022 Annual Incentive Plan Metrics
Metric | Rationale for Use | |||
Sales and Profit Grid, maximum payout of 200% | ||||
ID | ● Identical Sales (“ID | |||
quarters, excluding supermarket fuel sales, plus sales growth at all other customer-facing non-supermarket businesses. ● We believe | ||||
● This financial metric equals gross profit, excluding the LIFO charge, minus OG&A, minus rent, and minus depreciation and amortization. ● Adjusted FIFO Operating Profit, including fuel, is a | ||||
E-commerce Kicker | ● E-commerce sales are key drivers of our overall digital strategy – meeting customers where and how they choose to shop. E-commerce is a key component of our strategic pillar of Seamless. ● Up to an additional 10% is earned if Kroger | |||
e-commerce sales. |
Potential payouts under the plan are based on Company performance on two primary metrics, ID Sales, excluding Fuel, and Adjusted FIFO Operating Profit, including Fuel. The performance objectives are shown in the grids below, with payouts interpolated for actual performance between levels.
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Results of 2018 Annual Cash Bonus Plan
The 2018 goals established by the Compensation Committee the actual 2018 results, and the bonus percentage earned for each of the performance metrics of the 2018 annual cash bonus plan were as follows:
Payout Matrix | ID Supermarket Sales | ||||||
ID Sales and EPS for 2018 Fiscal Year | 1% | 1.65% | 2% | 3% | |||
$ | 1.73 | 0% | 1.3 % | 2% | 4% | ||
EPS | $ | 1.90 | 10% | 50 % | 75% | 100% | |
$ | 2.06 | 50% | 100 % | 125% | 175% | ||
$ | 2.11 | 75% | 125 % | 150% | 200% |
Performance Metrics | Result | Payout Percentage (A) | Weight (B) | Amount Earned (A) x (B) | ||||||
ID Sales/EPS | ID Sales = 1.22% EPS = $2.11 | 91.76 | %1 | 67 | % | 61.48 | % | |||
Kroger Way Plans | (2) | 90 | % | 33 | % | 29.71 | % | |||
Total Earned | 91.18 | % |
ID Sales, excluding Fuel and Adjusted FIFO Operating Profit, including Fuel
ID Sales, excluding Fuel | ||||||||||||||||||||||
0% | 1.5% | 3.0% | 4.5% | 6.0% | ||||||||||||||||||
≥3,934 | 0 | 14 | 20 | 29 | 40 | |||||||||||||||||
Adjusted FIFO Operating Profit, | ≥4,134 | 20 | 65 | 80 | 95 | 115 | ||||||||||||||||
including Fuel ($ in millions) | ≥4,334 | 40 | 85 | 100 | 115 | 160 | ||||||||||||||||
≥4,534 | 70 | 105 | 120 | 135 | 180 | |||||||||||||||||
≥4,734 | 110 | 125 | 140 | 170 | 200 |
2022 Annual Incentive Plan – Actual Results and Payout Percentage
Corporate Plan Metric | 2022 Performance(1) | Payout | ||||||
Identical Sales, excluding fuel | 5.62 | % | ||||||
Adjusted FIFO Operating Profit, including fuel | $ | 5.08B | 192.40 | % | ||||
Ecommerce Total Sales Kicker(2) | 0 | % | ||||||
Total Payout | 192.40 | % |
(1) | See grid above. |
(2) |
Following the close of the 2022 fiscal year, the Compensation Committee reviewed Kroger’s performance against each of the metrics outlined above and determined the extent to which Kroger achieved those objectives. Due to ourOur performance when compared to the goals established by the Compensation Committee theresulted in a payout on the 2018 annual bonus was 91.18%of 192.40% of the participant’s incentive plan target for the NEOs, with the exception of Mr. Aitken.
Mr. Aitken’s annual bonus potential.
In 2018,payout equaled 190.98% of his bonus potential because it included the corporate annual plan described above and a team metric as infollows. The merchandising team metric measured supermarket ID sales excluding pharmacy and fuel, and supermarket selling gross dollars less shrink dollars for all years, thedepartments excluding pharmacy and fuel.
Payout Percentage | Weight | |||||||
Corporate Annual Bonus Plan | 192.40 | % | 60 | % | ||||
Merchandising Team Metric | 188.86 | % | 40 | % | ||||
Total Earned | (192.40% x 0.6) + (188.86% x 0.4%) = 190.98% |
The Compensation Committee retained discretionmaintains the ability to reduce the annual cash bonusincentive payout for all executive officers, including the NEOs, and the independent directors retain that discretion for the CEO’s incentive payout if the Compensation Committee determinedthey determine for any reason that the bonusincentive payouts were not appropriate given their assessment of Company performance – however, noor individual performance. No adjustments were made to the incentive payout amount in 2018 that affected NEO bonuses.2022. The independent directors retained that discretion forannual incentive plan is typically an all-cash plan. While performance was achieved at 192.40%, in light of macroeconomic conditions, including inflation, as well as the CEO’s bonus. TheCompensation Committee’s desire to create ongoing alignment with shareholders and reward sustained performance beyond 2022, the Compensation Committee determined to structure the payout to the NEOs as follows: 150% in cash and the independent directors also retained discretion to adjust the goalsremaining 42.4% (41.0% for each metric under the plan should unanticipated developments arise during theMr. Aitken) in restricted stock vesting in one year.
The actual annual cash bonus percentage payout for 2018 reflects strong performance on adjusted earnings per share and performance below business plan objectives on identical supermarket sales. The strong link between pay and performance is illustrated by a comparison of earned amounts under our annual cash bonus plan in previous years, such as 2009, 2016, and 2017, when payouts were particularly low. In those years, we failed to achieve many of our business plan objectives. A comparison of actual annual cash bonus percentage payouts this year and in prior years demonstrates the variability of annual cash bonus incentive compensation and its strong link to our performance:
Fiscal Year | Annual Cash Bonus Payout Percentage | |||||
2018 | 91.2 | % | ||||
2017 | 3.8 | % | ||||
2016 | 19.9 | % | ||||
2015 | 126.7 | % | ||||
2014 | 121.5 | % | ||||
2013 | 104.9 | % | ||||
2012 | 85.9 | % | ||||
2011 | 138.7 | % | ||||
2010 | 53.9 | % | ||||
2009 | 38.5 | % | ||||
2008 | 104.9 | % |
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As described above, the corporate annual cash bonusincentive payout percentage is applied to each NEO’s bonus potential,incentive plan target which is determined by the Compensation Committee, and the independent directors in the case of the CEO. The actual amounts of performance-based annual cash bonusesincentive paid to the NEOs for 20182022 are reported in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column and footnote 3 to that table.the “Stock Awards” column.
Long-Term Compensation Program
The Compensation Committee believes in the importance of providing an incentive to the NEOs to achieve the long-term goals established by the Board. As such, a majority of NEO compensation is conditioneddependent on the achievement of the Company’s long-term goals and is delivered via four long-term compensation vehicles: long-term cash bonus, performance units, stock options, and restricted stock.those goals. Long-term compensation promotes long-term value creation and discourages the over-emphasis of attaining short-term goals at the expense of long-term growth.
The Compensation Committee considers several factors in determining the target value of long-term compensation awarded to the NEOs or, in the case of the CEO, recommending to the independent directors the amount awarded. These factors include:
Long-term incentives areincentive program is structured to be a combination of performance- and time-based compensation that reflects elements of financial and common sharesshare performance to provide both retention value and alignment with company performance. Long-term cash bonusThe Compensation Committee determined that all long-term compensation would be equity-based as follows: 50% of equity granted under the program would be performance-based and performance unit payouts are contingent on the achievementremaining 50% of certain strategic performance and financial measures and incentivize recipients to promote long-term value creation and enhance shareholder wealth by supporting the Company’s long-term strategic goals. Stock options andequity would be time-based, consisting of 30% in restricted stock are linked to common shares performance creating alignment betweenand 20% in stock options.
Each year, NEOs receive grants under the NEOs and our shareholders’ interests. Options have no initial value and recipients only realize benefits if the value of our common shares increases following the date of grant.
A majority of long-term compensation program, which is equity-based (performance units, stock options, and restricted stock) and is tied to the future value of our common shares, further aligning the interests of our NEOs with our shareholders. All four components of long-term compensation are intended to focus executive behaviors on our long-term strategy. Each component is described in more detail below.structured as follows:
● | Performance-Based (50% of NEO long-term target compensation) |
● | Long-term performance-based compensation is provided under a Long-Term Incentive Plan adopted by the Compensation Committee. The Committee adopts a new plan every year, measuring improvement on the Company’s long-term goals over successive three-year periods. Accordingly, at any one time there are three plans outstanding, which are summarized below. |
● | Under the Long-Term Incentive Plans, NEOs receive grants of equity called performance units. A target number of performance units based on level and individual performance is awarded to each participant at the beginning of the three-year performance period. |
● | Payouts under the plan are contingent on the achievement of certain strategic performance and financial measures and incentivize recipients to promote long-term value creation and enhance shareholder wealth by supporting the Company’s long-term strategic goals. |
● | The payout percentage, based on the extent to which the performance metrics are achieved, is applied to the number of performance units awarded. Then, a modifier based on Relative Total Shareholder Return compared to the S&P 500 is applied, which can increase or decrease the payout. |
● | Performance units are paid out in Kroger common shares based on actual performance, along with dividend equivalents for the performance period on the number of issued common shares. |
● | Time-Based (50% of NEO long-term target compensation) |
● | Long-term time-based compensation consists of 20% stock options and 30% restricted stock, which are linked to common share performance, creating alignment between the NEOs’ and our shareholders’ interests. Grants vest ratably over four years. |
● | Stock options have no initial value and recipients only realize benefits if the value of our common shares increases following the date of grant, further aligning the NEOs’ and our shareholders’ interests. |
Amounts of long-term compensation awards issued and outstanding for the NEOs are set forth in the Executive Compensation Tables section.
Summary of Three Long-Term Incentive Plan DesignPlans Outstanding During 2022
In recent years,
With respect to our long-term performance-based compensation, in November 2019, Kroger committed to investors an 8 – 11% Total Shareholder Return (TSR) target over time. The Compensation Committee redesigned plan metrics to align with Kroger’s long-term business plans and growth model that we have adoptedcommunicated to shareholders. These metrics are the key elements in driving Kroger’s TSR.
The Compensation Committee adopts a new Long-Term Incentive Plan each year, which provides for overlapping three-year performance periods. TheAdditional detail regarding each of the three plans is provided below, and a summary of the design of the plans outstanding during 2022 is as follows:
2020 – 2022 LTIP | 2021 – 2023 LTIP | 2022 – 2024 LTIP | |
Performance Units and Dividend Equivalents | Performance units are equity grants which are paid out in Kroger common shares, based on actual performance at the end of the 3-year performance period, along with dividend equivalents for the performance period on the number of issued common shares ultimately earned. | ||
Performance Metrics | ● Total Sales without Fuel + Fuel Gallons; ● Growth in Adjusted FIFO Operating Profit, including Fuel ● Cumulative Adjusted Free Cash Flow; ● Fresh Equity metric; and ● Relative Total Shareholder Return modifier
| ● Total Sales without Fuel + Fuel Gallons; ● Value Creation Metric (iTSR) Percentage ● Fresh Equity metric; and ● Relative Total Shareholder Return modifier | |
Determination of Payout | The payout percentage, based on the extent to which the performance metrics are achieved, is applied to number of performance units awarded. | ||
Maximum Payout | 125% | 187.5% | 187.5% |
Payout Date | March 2023 | March 2024 | March 2025 |
2020-2022 and 2021-2023 Long-Term Incentive Plan – Metrics
Both the 2020 – 2022 and the 2021-2023 Long-Term Incentive Plans adopted in 2016 and 2017, which consist of a performance-based long-term cash bonus and performance units, have the following characteristics:components which support our long-term business plans, each accounting for 25% of the payout calculation:
Metric | Rationale for Use | Weighting | |
Total Sales without Fuel + Fuel Gallons | ● | This metric represents total revenue dollars without fuel + the number of fuel gallons sold over the three-year term of the plan. It represents the important metric of top line growth of the business from all channels. | 25% |
● | This financial metric equals gross profit, excluding the LIFO charge, minus OG&A, minus rent, and minus depreciation and amortization. | ||
Growth in Adjusted FIFO Operating Profit, including Fuel | ● | Adjusted FIFO Operating Profit, including fuel, is a key measure of company success as it tracks our earnings from operations, and it measures our day-to-day operational effectiveness. It is a useful measure to investors because it reflects the revenue and expense that a company can control. It is particularly important to focus on growth of this financial measure over time. | 25% |
Cumulative Adjusted Free Cash Flow | ● | Adjusted Free Cash Flow is an adjusted free cash flow measure calculated as net cash provided by operating activities minus payments for property and equipment, including payments for lease buyout, plus or minus adjustments for certain items. | 25% |
● | It is an important measure for the business because it reflects the cash left over after the company pays for operating expenses and capital expenditures. | ||
Fresh Equity metric | ● | Fresh is a key element of how people decide where to shop. It drives trips and therefore delivers business results. Fresh is the core focus of how we differentiate and drive great engagement with customers and it will be a key driver of our growth. | 25% |
After the calculation of the four metrics above, a modifier based on Relative Total Shareholder Return compared to the participant’s salary atS&P 500 will be applied which can increase or decrease the end of the fiscal year preceding the plan effective date (orpayout, as follows, interpolated for those participants entering the plan after the commencement date, the date of eligibility for the plan).
TSR Relative to S&P 500 | Modifier | |||
25th percentile | 75 | % | ||
50th percentile | 100 | % | ||
75th percentile | 125 | % |
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payout amount. The Compensation Committee anticipates adopting a newmaximum payout under the 2020-2022 Long-Term Incentive Plan each year, measuring improvement over successive three-year periods
2016is 125% and 2017the maximum payout under the 2021-2023 Long Term Incentive Plan is 187.5% as further described below.
2020-2022 Long-Term Incentive Plan Metrics– Results and Payout
The following table summarizesresults and payout of the metrics applied to fiscal years 2016 and 2017 and the payout percentages:
As described above, under “Realignment of Performance-Based Pay to Restock Kroger for 2018 and Beyond” the metrics listed above for the 2016 and 2017 plans will be used to measure performance through 2017 and will be applied to the previously granted cash and performance unit bonus targets on a prorated basis. Performance for 2018 and 2019 will be measured on the Restock Kroger metrics of free cash flow and cost savings included in FIFO operating profit growth and will also be applied to bonus targets on a prorated basis.
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Results of 20162020-2022 Long-Term Incentive Plan are as follows.
Metric | Performance | Goal | Payout Percentage | |||||||||
Total Sales without Fuel + Fuel Gallons | $134.3B | $123.6B | 100 | % | ||||||||
Growth in Adjusted FIFO Operating Profit, including Fuel | $5.1B | $3.47B | 100 | % | ||||||||
Cumulative Adjusted Free Cash Flow | $9.6B | $5.7B | 100 | % | ||||||||
Fresh Equity metric | 43.3 | 45.4 | 0 | % | ||||||||
Payout Before Modifier | 75 | % | ||||||||||
Relative TSR Modifier | 75th Percentile | >50th Percentile | 125 | % | ||||||||
Total Payout | 93.75 | % |
The 2016 Long-Term Incentive Plan, which measured performance over the three-year period from 2016 to 2018, paid out in March 2019. The 2016 plan was modified during 2018 as described above with respect to the then current named executive officers and was calculated in two parts as follows:
Part 1: Fiscal year 2016 and 2017 performance was measured on the existing plan metrics and was applied to two-thirds of the previously granted cash and performance unit bonus target amounts.
Metric | Baseline | Result | Improvement (A) | Payout per Improvement (B) | Percentage Earned (A) x (B) | ||||
Customer 1st Strategy(1) | * | * | No improvement | 4.0 | % | 0.0 | % | ||
Improvement in Associate Engagement(1) | * | * | No improvement | 4.0 | % | 0.0 | % | ||
Reduction in Operating Cost as a Percentage of Sales, without Fuel | 26.16% | 26.95% | No improvement | 0.5 | % | 0.0 | % | ||
Return on Invested Capital | 13.73% | 11.14% | No improvement | 1.0 | % | 0.0 | % | ||
Total | 0.0 | % |
Part 2: Fiscal year 2018 performance was measured on the Restock Kroger metrics of Restock cash flow and savings included in FIFO operating profit growth, with each metric accounting for 50% of the payout. The payout percentage was applied to one-third of the previously granted cash and performance unit bonus target amounts.
Cut in = 50% Payout | Goal = 100% Payout | Result | Payout Percentage | Weight | Payout Amount | |||||||||||||
Savings included in FIFO operating profit growth | $ | 0.950B | $ | 1.016B | $ | 1.100B | 100 | % | 50 | % | 50 | % | ||||||
Cumulative Free Cash Flow | $ | 1.200B | $ | 1.860B | $ | 1.907B | 100 | % | 50 | % | 50 | % | ||||||
Total Payout | 100 | % |
Accordingly, no payout was earned on 2/3rds of the bonus target and 100% payout was earned on 1/3rd of the bonus target, resulting in a 33% overall payout. The then current NEOs received long-term cash bonus payments in an amount equal to 33% of that executive’s long-term cash bonus potential and were issued the number of Kroger common shares equal to 33%93.75% of the number of performance units awarded to that executive, along with a cash amount equal todividend equivalents for the dividends paidthree-year performance period on thatthe number of issued common shares during the three year performance period. Mr. Clark, who was not a named executive officer at the time the 2016 plan was modified, received a 0% payment with respect to 2016 and 2017 performance and received a 100% payout with respect to 2018 performance on the full amount of his bonus target. shares.
The cash payout and dividendsdividend equivalents paid on common shares earned under the 20162020 – 2022 Long-Term Incentive Plan are reported in the “Non-Equity Incentive Plan Compensation” and “All Other Compensation” columnscolumn of the Summary Compensation Table and footnotes 4 andfootnote 5 to that table, respectively, and the common shares issued under the plan are reported in the 20182022 Option Exercises and Stock Vested Table and footnote 2 to that table.
2018-2020
The annual and long-term performance-based compensation awards described herein were made pursuant to our 2019 Long-Term Incentive Plan, Design
Thewhich was approved by our shareholders in June 2019, and the 2019 Amended and Restated Long-Term Incentive Plan, adoptedwhich was approved by our shareholders in 2018, which consistsJune 2022.
Additional Features of a performance-based long-term cash bonusthe 2021-2023 Long-Term Incentive Plan
Going into 2021, there were an extraordinary number and performance units, hasdegree of unknowns that could have impacted our financial results. The Compensation Committee considered, among other factors, the following characteristics:
This approach does not change the timing of the payout. The payout for the three-year plan will be calculated following the close of fiscal year 2023 and, if earned, will be paid out to participants in the form of common shares, and corresponding accrued dividend equivalents, in March of 2024.
For the 2021-2023 Long-Term Incentive Plan, the Compensation Committee aligned the plan with a cash amount equal tomarket practices, increasing the dividends paid during the performance periodmaximum payout potential on the numberfour metrics from 100% to 150%. The highest payout from the four metrics alone equals 100%. However, the payout may exceed 100%, if for years 2 and 3 of issued common shares ultimately earned.the plan: (1) the Total Sales without Fuel + Fuel Gallons metric, the Growth in Adjusted FIFO Operating Profit, including Fuel, metric, and the Cumulative Adjusted Free Cash Flow metric all achieve 100%, and (2) the 2-year compound annual growth rate of Total Sales without Fuel + Fuel Gallons exceeds 3.5%. The plan payout will increase incrementally from 100%, up to 150% maximum if the 2-year compound annual growth rate on the Total Sales without Fuel + Fuel Gallons metric is 5.0%. With the potential application of the relative TSR modifier, the total maximum payout would be 187.5%.
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2022 – 2024 Long-Term Incentive Plan Metrics
The actual2022-2024 Long-Term Incentive Plan metrics have been designed to reflect commitments made to our investors and other stakeholders regarding long-term cash bonussales growth, our Value Creation algorithm (through intrinsic Total Shareholder Return, or iTSR) and number of performance units earned are each determinedour commitment to Fresh as a strategic differentiator. The plan also includes a modifier based on our performance againstshareholder return relative to the S&P 500 shareholder return.
Metric | Rationale for Use | Weighting | |
Total Sales without Fuel + Fuel Gallons | ● | This metric represents total revenue dollars without fuel + the number of fuel gallons sold over the three-year term of the plan. It represents the important metric of top line growth of the business from all channels. | 25% |
Value Creation Metric (iTSR) Percentage | ● | This financial metric equals Adjusted Earnings per diluted share (EPS) growth plus Dividend Yield. | 50% |
Fresh Equity metric | ● | Fresh is a key element of how people decide where to shop. It drives trips and therefore delivers business results. Fresh is the core focus of how we differentiate and drive great engagement with customers and it will be a key driver of our growth. | 25% |
The highest payout from the three metrics established byalone equals 100%. However, the Compensation Committee (the independent directors,payout may exceed 100% if: (1) both the Total Sales without Fuel + Fuel Gallons metric and the iTSR metric achieve 100%, and (2) the 3-year compound annual growth rate of Total Sales without Fuel + Fuel Gallons exceeds 3.5%. The plan payout will increase incrementally from 100%, up to 150% maximum if the 3-year compound annual growth rate on the Total Sales without Fuel + Fuel Gallons metric is 5.0%.
After the calculation described above, a modifier based on Relative Total Shareholder Return compared to the S&P 500 will be applied, as follows, interpolated for actual results between the CEO) at the beginning of the performance period.
TSR Relative to S&P 500 | Modifier | |||
25th percentile | 75 | % | ||
50th percentile | 100 | % | ||
75th percentile | 125 | % |
The payout percentage, based onas modified by the extent to which the performance metrics are achieved, isRelative TSR modifier, will be applied to both the long-term cash bonus potential and the number of performance units awarded.
Each of the following plan components account for 50% of the potential payout.
After the calculation of the two metrics above, a Return on Invested Capital multiplier is applied, as follows:
Stock Options and Restricted Stock
Stock options and restricted stock continue to play an important role in rewarding NEOs for the achievement of long-term business objectives and providing incentives for the creation of shareholder value. Awards based on Kroger’s common shares are granted annually to the NEOs and a large number of other employees.NEOs. Kroger historically has distributed time-based equity awards widely, aligning the interests of employeesassociates with your interest asinterests of shareholders.
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 Board meetings conducted after Kroger’s public release of its quarterly earnings results.
The Compensation Committee determines the vesting schedule for stock options and restricted stock. During 2018,2022, the Compensation Committee granted to the NEOs stock options and restricted stock, each with a four-year ratable vesting schedule, withschedule.
Restricted stock awards are reported in the exception of a restricted stock grant awarded to Mr. Clark, which vests 25% on each“Stock Awards” column of the first two anniversariesSummary Compensation Table and footnote 1 to the table and the 2022 Grants of Plan Based Awards Table. Stock option awards are reported in the “Option Awards” column of the grant dateSummary Compensation Table and 50% on the third anniversary“All other Option Awards” column of the grant date.
As discussed below under Stock Ownership Guidelines, covered individuals, including the NEOs, must hold 100%2022 Grants of common shares issued pursuant to performance units earned, the shares received upon the exercise of stock options or upon the vesting of restricted stock, except those necessary to pay the exercise price of the options and/or applicable taxes, until applicable stock ownership guidelines are met, unless the disposition is approved in advance by the CEO, or by the Board or Compensation Committee for the CEO.Plan Based Awards Table.
Retirement and Other Benefits
Kroger maintains several defined benefit and defined contribution retirement plans for its employees.associates. The NEOs 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 (the “Code”) on benefits to highly compensated individuals under qualified plans. Additional details regarding certain retirement benefits available to the NEOs can be found below in footnote 45 to the Summary Compensation Table and the 20182022 Pension Benefits Table and the accompanying narrative.
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Kroger also maintains an executive deferred compensation plan in which some of the NEOsCEO has elected to participate. This plan is a nonqualified plan under which participants can elect to defer up to 100% of their cash compensation each year. Additional details regarding our nonqualified deferred compensation plans available to the NEOs can be found below in the 20182022 Nonqualified Deferred Compensation Table and the accompanying narrative.
Kroger also maintains The Kroger Co. Employee Protection Plan (“KEPP”), which covers all of our management employeesassociates who are classified as exempt under the federal Fair Labor Standards Act and certain administrative or technical support personnel who are not covered by a collective bargaining agreement, with at least one year of service. KEPP has a double trigger change in control provision, and it 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 employeeassociate is actually or constructively terminated without cause within two years following a “changechange in control”control of Kroger (as defined in KEPP). Participants are entitled to severance pay of up to 24 months’ salary and target annual bonus.incentive target. The actual amount is dependent upon pay level and years of service. KEPP can be amended or terminated by the Board at any time prior to a change in control.
Performance-based long-term cash bonus, performance unit, stock
Stock option and restricted stock grant agreements with award recipients provide that those awards “vest,” with 50% of the long-term cash bonus potential being paid, common shares equal to 50% of the performance units being awarded, options becoming immediately exercisable, and restrictions on restricted stock lapsing upon a change in control as described in the grant agreements.agreements, but only if an associate is actually or constructively terminated without cause within two years following a change in control of Kroger (as defined in the grant agreement, and consistent with KEPP).
None of the NEOs are party to an employment agreement.
Perquisites
Our NEOs receive limited perquisites becauseas the Compensation Committee does not believe that it is necessary for the attraction or retention of management talent to provide executives a substantial amount of compensation in the form of perquisites. In 2018, some NEOs received premiums paid on life insurance policies. Further details on these benefits can be found in footnote 6 to the Summary Compensation Table.
Process for Establishing Executive Compensation
The Compensation Committee of the Board has the primary responsibility for establishing the compensation of our executive officers, including the NEOs, with the exception of the CEO. The Compensation Committee’s role regarding the CEO’s compensation is to make recommendations to the independent members of the Board; those members of the Board establish the CEO’s compensation.
The Compensation Committee directly engaged Korn Ferry as a compensation consultant to advise the Compensation Committee in the design of compensation for executive officers throughand to advise with respect to the 2018unique circumstances of the 2022 compensation planning cycle.
Korn Ferry conducted an annual competitive assessment of executive positions at Kroger for the Compensation Committee. The assessment is one of several bases,factors, as described above, on which the Compensation Committee determines compensation. The consultant assessed:
● | base salary; |
● | target performance-based annual cash incentive; |
● | target annual cash compensation (the sum of salary and annual cash incentive potential); |
● | long-term incentive compensation, comprised of performance units, stock options and restricted stock; and |
● | total direct compensation (the sum of target annual cash compensation and long-term compensation). |
In addition to the factors identified above, the consultant also reviewed actual payout amounts against the targeted amounts.
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The consultant compared these elements against those of other companies in a group of publicly traded companies selected by the Compensation Committee. For 2018,2022, our peer group consisted of:
Albertsons AmerisourceBergen Cardinal Health Costco Wholesale | CVS Health Home Depot | ||
Johnson & Johnson | |||
Lowe’s Procter & Gamble | Sysco Target | ||
Walmart |
The make-up of the compensation peer group is reviewed annually and modified as circumstances warrant. The Compensation Committee modified the peer group in 2016 because of industry consolidation and other competitive forces. Previously, the Compensation Committee used a primary peer group consisting only of food and drug retailers. In addition, the Compensation Committee considered supplemental data from “general industry” companies provided by its independent compensation consultant from “general industry” companies, a representation of major publicly-traded companies of similar size and scope from outside the retail industry.Fortune 40, excluding financial services companies. This data provided reference points, particularly for senior executive positions where competition for talent extends beyond the retail sector. The modified peer group includes a combination of food and drug retailers, other large retailers based on revenue size, and large consumer-facing companies. Median 20182022 revenue for the peer group was $91.47$119.3 billion, compared to our 20182022 revenue of $121.16$148.3 billion.
Considering the size of Kroger in relation to other peer group companies, the Compensation Committee believes that salaries paid to our NEOs should be competitively positioned relative to amounts paid by peer group companies for comparable positions. The Compensation Committee also aims to provide an annual cash bonusincentive potential to our NEOs that, if achieved at superior levels, would cause total cash compensation to be meaningfully abovearound the market median. Actual payouts may be as low as zero if performance does not meet the baselines established by the Compensation Committee.Committee while superior financial performance is rewarded with compensation falling above the median.
The independent members of the Board have the exclusive authority to determine the amount of the CEO’s compensation. In setting total compensation, the independent directors consider the median compensation of the peer group’s CEOs. With respect to the annual bonus,incentive plan, the independent directors make two determinations: (1) they determine the annual cash bonusincentive potential that will be multiplied by the corporate annual cash bonusincentive payout percentage earned that is applicable to the NEOs and (2) the independent directors determine the annual cash bonusincentive amount paid to the CEO by retaining discretion to reduce the annual cash bonusincentive percentage payout the CEO would otherwise receive under the formulaic plan. The independent directors also retain discretion to determine the form of payout, to include a portion in equity in place of cash.
The Compensation Committee performs the same function and exercises the same authority as to the other NEOs. In its annual review of compensation for the NEOs, the Compensation Committee:
● | Conducts an annual review of all components of compensation, quantifying total compensation for the NEOs including a summary for each NEO of salary; performance-based annual cash incentive; and long-term performance-based equity comprised of performance units, stock options and restricted stock. |
● | Considers internal pay equity at Kroger to ensure that the CEO is not compensated disproportionately. The Compensation Committee has determined that the compensation of the CEO and that of the other NEOs bears a reasonable relationship to the compensation levels of other executive positions at Kroger taking into consideration performance and differences in responsibilities. |
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● | Reviews a report from the Compensation Committee’s compensation consultant reflecting a comprehensive review of each element of pay, both annual and long-term and comparing NEO compensation with that of other companies, including both our peer group of competitors and a larger general industry group, to ensure that the Compensation Committee’s objectives of competitiveness are met. |
● | Takes into account a recommendation from the CEO for salary, annual cash incentive potential and long-term compensation awards for each of the senior officers including the other NEOs. The CEO’s recommendation takes into consideration the objectives established by and the reports received by the Compensation Committee as well as his assessment of individual job performance and contribution to our management team. |
The Compensation Committee does not make use of a formula, but both qualitatively and quantitatively considers each of the factors identified above in setting compensation.
Shareholder Engagement & the 2018 Advisory Vote to Approve Executive Compensation
At the 2018 annual meeting, we held our eighth annual advisory vote on executive compensation. Over 90.94% of the votes cast were in favor of the advisory vote in 2018. In 2018, we also requested meetings with shareholders representing nearly 50% of our outstanding shares during the proxy season and off season engagement and ultimately engaged with shareholders representing over a third of our outstanding shares. Conversations with our shareholders in these meetings included discussions of our compensation program, with our shareholders providing feedback that they appreciate the pay for performance nature of our program’s structure. In light of this feedback and the strong support for our executive compensation program at the 2018 annual meeting, the Compensation Committee made no material changes in the structure of our compensation programs for 2018.
Stock Ownership Guidelines
To more closely align the interests of our officers and directors with your interests as shareholders, the Board has adopted stock ownership guidelines. These guidelines require non-employeeindependent directors, executive officers, and other key executives to acquire and hold a minimum dollar value of Kroger common shares as set forth below:
Position | Multiple | |
Chief Executive Officer | 5 times base salary | |
President and Chief Operating Officer | 4 times base salary | |
Executive Vice Presidents and Senior Vice Presidents | 3 times base salary | |
5 times annual base cash retainer |
All covered individuals are expected to achieve the target level within five years of appointment to their positions. Until the requirements are met, covered 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 common 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
Under the 2019 Amended and Restated Long-Term Incentive Plan (the “2019 Plan”), unless an award agreement provides otherwise, if a participant’s employment or service is terminated for cause, or if after termination the Compensation Committee determines either that (i) prior to termination, the participant engaged in an act or omission that would have warranted termination for cause or (ii) after termination, the participant violates any continuing obligation or duty of the participant with respect to Kroger, any gain realized by the participant from the exercise, vesting or payment of any award may be cancelled, forfeited or recouped in the sole discretion of the Committee. Under the 2019 Plan, any gain realized by the participant from the exercise, vesting or payment of any award may also be recouped if, within one year after such exercise, vesting or payment, (i) a participant is terminated for cause, (ii) the Compensation Committee determines that the participant is subject to recoupment pursuant to any Kroger policy, or (iii) after a participant’s termination for any reason, the Compensation Committee determines either that (1) prior to termination the participant engaged in an act or omission that would have warranted termination for cause, or (2) after termination the participant violates any continuing obligation or duty of the participant with respect to Kroger. Unless otherwise defined under 2019 Plan award agreement, “cause” has the meaning as defined in The Kroger Co. Employee Protection Plan, as amended from time to time.
Additionally, if an award based on financial statements that are subsequently restated in a way that would decrease the value of such award, the participant will, to the extent not otherwise prohibited by law, upon the written request of Kroger, forfeit and repay to Kroger the difference between what was received and what should have been received based on the accounting restatement, which will be repaid in accordance with any applicable Kroger policy or applicable law, including Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations adopted thereunder. We intend our policy to comply with the NYSE listing rules regarding recoupment of incentive compensation when those rules become effective. Kroger also has a recoupment policy, which provides that 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 bonusincentive or a long-term cash bonusincentive 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 Compensation 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
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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
The Board adopted a policy prohibiting Kroger directors and executive officers from engaging, directly or indirectly, in the pledging of, hedging transactions in, or short sales of, Kroger securities.
Section 162(m) of the Internal Revenue Code
Prior to the effective date of the Tax Cuts and Jobs Act of 2017, Section 162(m) of the Code generally disallowed a federal tax deduction to public companies for compensation greater than $1 million paid in any tax year to specified executive officers unless the compensation was “qualified performance-based compensation” under that section. Pursuant to the Tax Cuts and Jobs Act of 2017, the exception for “qualified performance-based compensation” under Section 162(m) of the Code was eliminated with respect to all remuneration in excess of $1 million other than qualified performance basedperformance-based compensation pursuant to a written binding contract in effect on November 2, 2017 or earlier which was not modified in any material respect on or after such date (the legislation providing for such transition rule, the “Transition Rule”).
As a result, performance basedperformance-based compensation that the Compensation Committee structured in previous years with the intent of qualifying as performance-based compensation under Section 162(m) that will be paid after January 1, 2018prior to the change in the law may or may not be fully deductible, depending on the application of the Transition Rule. The committee will—consistentIn addition, compensation arrangements structured following the change in law will be subject to the Section 162(m) limitation (without any exception for performance-based compensation). Consistent with its past practice—practice, the Committee will continue to retain flexibility to design compensation programs that are in the best long-term interests of the companyCompany and our shareholders, with deductibility of compensation being one of a variety of considerations taken into account.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with Kroger’s management 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 Board that the Compensation Discussion and Analysis be included in Kroger’s proxy statement and incorporated by reference into its Annual Report on Form 10-K.
Compensation Committee:
Clyde R. Moore, ChairSusan J. KropfJorge P. MontoyaJames A. Runde
Amanda Sourry
Mark Sutton
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Executive Compensation Tables
Summary Compensation Table
The following table and footnotes provide information regarding the compensation of the NEOs for the fiscal years presented.
Name and Principal Position(1) | Fiscal Year | Salary ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||
W. Rodney McMullen | 2018 | $ | 1,311,984 | $ | 4,999,996 | $ | 2,367,858 | $ | 2,692,833 | $ | 335,955 | $ | 329,246 | $ | 12,037,872 | |||||||||
Chairman and Chief | 2017 | 1,318,752 | 5,166,317 | 2,700,116 | 359,806 | 1,690,923 | 298,463 | 11,534,377 | ||||||||||||||||
Executive Officer | 2016 | 1,251,781 | 5,125,034 | 2,699,044 | 719,945 | 3,139,537 | 282,051 | 13,217,392 | ||||||||||||||||
J. Michael Schlotman | 2018 | 907,292 | 2,350,843 | 752,700 | 1,374,160 | 295,994 | 91,133 | 5,772,122 | ||||||||||||||||
Executive Vice President | 2017 | 898,316 | 1,973,228 | 1,040,846 | 207,136 | 873,808 | 242,637 | 5,235,971 | ||||||||||||||||
and Chief Financial Officer | 2016 | 850,360 | 1,973,247 | 1,040,436 | 372,855 | 1,436,752 | 141,427 | 5,815,077 | ||||||||||||||||
Michael J. Donnelly | 2018 | 885,677 | 2,355,780 | 769,118 | 1,344,160 | 205,544 | 133,014 | 5,693,293 | ||||||||||||||||
Executive Vice President | 2017 | 817,967 | 2,230,028 | 780,637 | 183,832 | 1,032,483 | 247,149 | 5,292,096 | ||||||||||||||||
and Chief Operating Officer | 2016 | 757,036 | 1,480,011 | 780,323 | 341,308 | 2,207,236 | 188,569 | 5,754,483 | ||||||||||||||||
Christopher T. Hjelm | 2018 | 751,673 | 2,142,600 | 364,751 | 1,145,133 | 228 | 112,118 | 4,516,503 | ||||||||||||||||
Executive Vice President | 2017 | 744,245 | 1,480,025 | 780,637 | 173,536 | 520 | 190,917 | 3,369,880 | ||||||||||||||||
and Chief Information Officer | 2016 | 706,567 | 1,480,011 | 780,323 | 326,280 | 832 | 151,201 | 3,445,214 | ||||||||||||||||
Robert Clark | 2018 | 473,958 | 2,625,003 | 374,947 | 905,900 | 284,854 | 102,653 | 4,767,315 | ||||||||||||||||
Senior Vice President |
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | |||||||||||||||||||||||||||
W. Rodney McMullen | 2022 | 1,388,495 | 10,367,639 | 2,299,636 | 4,130,769 | 175,750 | 847,554 | 19,209,843 | ||||||||||||||||||||||||||||
Chairman and Chief | 2021 | 1,351,358 | 8,800,023 | 2,199,162 | 4,647,750 | 159,640 | 1,010,797 | 18,168,730 | ||||||||||||||||||||||||||||
Executive Officer | 2020 | 1,341,060 | 769,231 | 10,900,041 | 2,101,581 | 4,888,929 | 1,795,455 | 577,277 | 22,373,574 | |||||||||||||||||||||||||||
Gary Millerchip | 2022 | 809,879 | 3,358,792 | 749,879 | 1,269,231 | 265,342 | 6,453,123 | |||||||||||||||||||||||||||||
Senior Vice President | 2021 | 726,815 | 2,800,022 | 699,735 | 1,498,006 | 261,842 | 5,986,420 | |||||||||||||||||||||||||||||
and Chief Financial Officer | 2020 | 601,050 | 312,426 | 2,498,469 | 540,409 | 1,092,959 | 122,377 | 5,167,690 | ||||||||||||||||||||||||||||
Stuart W. Aitken | 2022 | 915,632 | 3,346,838 | 749,879 | 1,269,231 | 277,694 | 6,559,274 | |||||||||||||||||||||||||||||
Senior Vice President and | 2021 | 878,387 | 2,800,022 | 699,735 | 1,527,013 | 300,214 | 6,205,371 | |||||||||||||||||||||||||||||
Chief Merchandising & Marketing Officer | 2020 | 849,484 | 323,077 | 3,010,038 | 540,409 | 1,586,363 | 177,900 | 6,487,271 | ||||||||||||||||||||||||||||
Yael Cosset | 2022 | 809,879 | 3,358,792 | 749,879 | 1,269,231 | 267,548 | 6,455,329 | |||||||||||||||||||||||||||||
Senior Vice President | 2021 | 739,685 | 2,800,022 | 699,735 | 1,498,006 | 265,342 | 6,002,790 | |||||||||||||||||||||||||||||
and Chief Information Officer | 2020 | 689,567 | 312,426 | 2,998,473 | 540,409 | 1,338,239 | 121,168 | 6,000,282 | ||||||||||||||||||||||||||||
Timothy A. Massa | 2022 | 839,113 | 2,320,484 | 499,919 | 1,133,654 | 208,794 | 5,001,964 | |||||||||||||||||||||||||||||
Senior Vice President and Chief People Officer | 2021 | 780,914 | 1,760,033 | 439,836 | 1,194,114 | 210,350 | 4,385,247 |
(1) | Amounts reflect the grant date fair value of restricted stock and performance units granted each fiscal year, as computed in accordance with FASB ASC Topic 718. |
Name | Restricted Stock | Performance Units | ||||
Mr. McMullen | $ | 2,368,205 | $ | 2,631,791 | ||
Mr. Schlotman | $ | 1,454,505 | $ | 896,338 | ||
Mr. Donnelly | $ | 1,480,788 | $ | 874,992 | ||
Mr. Hjelm | $ | 1,400,004 | $ | 742,596 | ||
Mr. Clark | $ | 1,500,002 | $ | 1,125,001 |
Name | Restricted Stock | Performance Units | ||||||
Mr. McMullen | $ | 4,617,648 | $ | 5,749,991 | ||||
Mr. Millerchip | $ | 1,483,785 | $ | 1,875,007 | ||||
Mr. Aitken | $ | 1,471,831 | $ | 1,875,007 | ||||
Mr. Cosset | $ | 1,483,785 | $ | 1,875,007 | ||||
Mr. Massa | $ | 1,070,498 | $ | 1,249,986 |
The Restricted Stock values include the annual grant of restricted stock in 2022 as well as the grant in 2023, which was granted with respect to a portion of the 2022 Annual Incentive Plan as further described in the Compensation Discussion and Analysis and in the Grants of Plan Based Awards Table.
The grant date fair value of the performance units reflected in the stock awards column and in the table above is computed based on the probable outcome of the performance conditions as of the grant date. This amount is consistent with the estimate of aggregate compensation cost to be recognized by the Company over the three-year performance period of the award determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating the valuations are set forth in Note 1211 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2018.2022.
Assuming that the highest level of performance conditions is achieved, the aggregate fair value of the 20182022 performance unit awards at the grant date is as follows:
Name | Value of Performance Units Assuming Maximum Performance | ||
Mr. McMullen | $ | 3,158,150 | |
Mr. Schlotman | $ | 1,075,605 | |
Mr. Donnelly | $ | 1,049,990 | |
Mr. Hjelm | $ | 891,115 | |
Mr. Clark | $ | 1,200,001 |
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Name | Value of Performance Units Assuming Maximum Performance | |||
Mr. McMullen | $ | 10,781,233 | ||
Mr. Millerchip | $ | 3,515,638 | ||
Mr. Aitken | $ | 3,515,638 | ||
Mr. Cosset | $ | 3,515,638 | ||
Mr. Massa | $ | 2,343,724 |
(2) | These amounts represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The assumptions used in calculating the valuations are set forth in Note |
(3) | Non-equity incentive plan compensation earned for |
Name | Annual Cash Bonus | Long-Term Cash Bonus | ||||
Mr. McMullen | $ | 2,279,500 | $ | 413,333 | ||
Mr. Schlotman | $ | 1,094,160 | $ | 280,000 | ||
Mr. Donnelly | $ | 1,094,160 | $ | 250,000 | ||
Mr. Hjelm | $ | 911,800 | $ | 233,333 | ||
Mr. Clark | $ | 455,900 | $ | 450,000 |
In accordance with the terms of the 2018 performance-based annual cash bonus plan, Kroger paid 91.18% to the NEOs. These amounts were earned with respect to performance in 2018 and paid in March 2019. See “Results of 2018 Annual Cash Bonus Plan” in the CD&A for more information on this plan.
The long-term cash bonus awarded under the 2016 LTIP is a performance-based bonus plan designed to reward participants for improving the long-term performance of the Company. See “Results of 2016 LTIP” in the CD&A for more information on this plan.
(4) |
Name | Change in Pension Value | Preferential Earnings on Nonqualified Deferred Compensation | ||||
Mr. McMullen | $ | 224,954 | $ | 111,001 | ||
Mr. Schlotman | $ | 295,994 | — | |||
Mr. Donnelly | $ | 199,248 | $ | 6,296 | ||
Mr. Hjelm | — | $ | 228 | |||
Mr. Clark | $ | 284,854 | — |
Change in Pension Value. These amounts represent the aggregate change in theThe actuarial present value of Mr. McMullen’s accumulated pension benefits. Pension values may fluctuate significantly from year to year depending on a number of factors, including age, years of service, average annual earnings and the assumptions used to determine the present value, such as the discount rate. The increasebenefits decreased by $4,395,890. This change in the actuarial present value of accumulated pension benefits for 2018 compared to 2017 is not included in the Summary Compensation Table because the value decreased. The value of accrued benefits decreased primarily due to the change in value of the benefit due to aging. The Company froze the compensation and service periods used to calculate pension benefits for active associates who participate in the affected pension plans, including Mr. McMullen’s, as of December 31, 2019. Beginning January 1, 2020, the affected active associates will no longer accrue additional benefits accrued, as applicable.for future service and eligible compensation received under these plans. Please see the 20182022 Pension Benefits section for further information regarding the assumptions used in calculating pension benefits.
Preferential Earnings on Nonqualified Deferred Compensation. Messrs.Mr. McMullen Donnelly and Hjelm participateparticipates in The Kroger Co. Executive Deferred Compensation Plan (the “Deferred Compensation Plan”). and received preferential earnings of $175,750. Under the plan, deferred compensation earns interest at a rate representing Kroger’s cost of ten-year debt, as determined by the CEOCFO, and approved by the Compensation Committee prior to the beginning of each deferral year. For each participant, a separate deferral account is created each year and the interest rate established for that year is applied to that deferral account until the deferred compensation is paid out. If the interest rate established by Kroger for a particular year exceeds 120% of the applicable federal long-term interest rate that corresponds most closely to the plan rate, the amount by which the plan rate exceeds 120% of the corresponding federal rate is deemed to be above-market or preferential. In fifteen of the twenty-four years in which at least one NEO deferred compensation, the rate set under the plan for that year exceeds 120% of the corresponding federal rate. For each of the deferral accounts in which the plan rate is deemed to be above-market, Kroger calculates the amount by which the actual annual earnings on the account exceed what the
36
annual earnings would have been if the account earned interest at 120% of the corresponding federal rate, and discloses those amounts as preferential earnings. Amounts deferred in 2018 earn interest at a rate higher than 120% of the corresponding federal rate; accordingly, there are preferential earnings on these amounts.
(5) | Amounts reported in the “All Other Compensation” column for |
Name | Life Insurance Premiums | Retirement Plan Contributions(a) | Payment of Dividend Equivalents on Earned Performance Units | Dividends Paid on Unvested Restricted Stock | Other(b) | ||||||||||
Mr. McMullen | $ | 94,560 | — | $ | 35,953 | $ | 198,734 | — | |||||||
Mr. Schlotman | — | — | $ | 12,899 | $ | 78,234 | — | ||||||||
Mr. Donnelly | — | $ | 45,534 | $ | 9,675 | $ | 77,805 | — | |||||||
Mr. Hjelm | — | $ | 40,831 | $ | 9,675 | $ | 61,612 | — | |||||||
Mr. Clark | $ | 18,454 | $ | 34,509 | $ | 7,086 | $ | 42,604 | — |
Name | Retirement Plan Contributions(a) | Payment of Dividend Equivalents on Earned Performance Units | Dividends Paid on Unvested Restricted Stock | |||||||||
Mr. McMullen | $ | 195,500 | $ | 405,648 | $ | 246,406 | ||||||
Mr. Millerchip | $ | 89,457 | $ | 104,310 | $ | 71,575 | ||||||
Mr. Aitken | $ | 99,188 | $ | 104,310 | $ | 74,196 | ||||||
Mr. Cosset | $ | 90,407 | $ | 104,310 | $ | 72,831 | ||||||
Mr. Massa | $ | 85,923 | $ | 77,267 | $ | 45,604 |
(a) | Retirement plan contributions.The Company makes automatic and matching contributions to NEOs’ accounts under the applicable defined contribution plan on the same terms and using the same formulas as other participating |
37
20182022 Grants of Plan-Based Awards
The following table provides information about equity and non-equity incentive awards granted to the NEOs in 2018.2022.
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(4) | All Other Option Awards: Number of Securities Underlying Options (#)(5) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | ||||||||||||||||||||
Target ($) | Maximum ($) | Target (#)(3) | Maximum (#)(3) | ||||||||||||||||||||||||
W. Rodney McMullen | $ | 2,500,000 | (1) | $ | 5,000,000 | (1) | |||||||||||||||||||||
$ | 2,631,800 | (2) | $ | 3,158,160 | (2) | ||||||||||||||||||||||
7/13/2018 | 84,428 | $ | 2,368,205 | ||||||||||||||||||||||||
7/13/2018 | 349,293 | $ | 28.05 | $ | 2,367,858 | ||||||||||||||||||||||
7/13/2018 | 93,825 | 112,590 | $ | 2,631,791 | |||||||||||||||||||||||
J. Michael Schlotman | $ | 1,200,000 | (1) | $ | 2,400,000 | (1) | |||||||||||||||||||||
$ | 896,350 | (2) | $ | 1,075,620 | (2) | ||||||||||||||||||||||
7/13/2018 | 51,854 | $ | 1,454,505 | ||||||||||||||||||||||||
7/13/2018 | 111,034 | $ | 28.05 | $ | 752,700 | ||||||||||||||||||||||
7/13/2018 | 31,955 | 38,346 | $ | 896,338 | |||||||||||||||||||||||
Michael J. Donnelly | $ | 1,200,000 | (1) | $ | 2,400,000 | (1) | |||||||||||||||||||||
$ | 875,000 | (2) | $ | 1,050,000 | (2) | ||||||||||||||||||||||
7/13/2018 | 52,791 | $ | 1,480,788 | ||||||||||||||||||||||||
7/13/2018 | 113,456 | $ | 28.05 | $ | 769,118 | ||||||||||||||||||||||
7/13/2018 | 31,194 | 37,433 | $ | 874,992 | |||||||||||||||||||||||
Christopher T. Hjelm | $ | 1,000,000 | (1) | $ | 2,000,000 | (1) | |||||||||||||||||||||
$ | 742,600 | (2) | $ | 891,120 | (2) | ||||||||||||||||||||||
7/13/2018 | 49,911 | $ | 1,400,004 | ||||||||||||||||||||||||
7/13/2018 | 53,806 | $ | 28.05 | $ | 364,751 | ||||||||||||||||||||||
7/13/2018 | 26,474 | 31,769 | $ | 742,596 | |||||||||||||||||||||||
Robert W. Clark | $ | 500,000 | (1) | $ | 1,000,000 | (1) | |||||||||||||||||||||
$ | 1,350,000 | (2) | $ | 1,440,000 | (2) | ||||||||||||||||||||||
7/13/2018 | 53,476 | $ | 1,500,002 | ||||||||||||||||||||||||
7/13/2018 | 55,310 | $ | 28.05 | $ | 374,947 | ||||||||||||||||||||||
7/13/2018 | 40,107 | 42,781 | $ | 1,125,001 |
All Other | ||||||||||||||||||||||||||||||||||
Stock | All Other | |||||||||||||||||||||||||||||||||
Awards: | Option | Grant | ||||||||||||||||||||||||||||||||
Estimated Future | Number | Awards: | Exercise | Date Fair | ||||||||||||||||||||||||||||||
Estimated Possible Payouts | Payouts Under | of | Number of | or Base | Value of | |||||||||||||||||||||||||||||
Under Non-Equity | Equity Incentive | Shares of | Securities | Price of | Stock | |||||||||||||||||||||||||||||
Incentive Plan Awards | Plan Awards | Stock or | Underlying | Option | and | |||||||||||||||||||||||||||||
Target | Maximum | Target | Maximum | Units | Options | Awards | Option | |||||||||||||||||||||||||||
Name | Grant Date | ($)(1) | ($)(1) | (#)(2) | (#)(2) | (#)(3) | (#)(4) | ($/Sh) | Awards | |||||||||||||||||||||||||
W. Rodney McMullen | 2,800,000 | 5,880,000 | ||||||||||||||||||||||||||||||||
3/10/2022 | 60,431 | 3,450,006 | ||||||||||||||||||||||||||||||||
3/10/2022 | 142,858 | $ | 57.09 | 2,299,636 | ||||||||||||||||||||||||||||||
3/10/2022 | 100,718 | 188,846 | 5,749,991 | |||||||||||||||||||||||||||||||
3/9/2023 | 24,712 | 1,167,642 | ||||||||||||||||||||||||||||||||
Gary Millerchip | 850,000 | 1,785,000 | ||||||||||||||||||||||||||||||||
3/10/2022 | 19,706 | 1,125,016 | ||||||||||||||||||||||||||||||||
3/10/2022 | 46,584 | $ | 57.09 | 749,879 | ||||||||||||||||||||||||||||||
3/10/2022 | 32,843 | 61,581 | 1,875,007 | |||||||||||||||||||||||||||||||
3/9/2023 | 7,593 | 358,769 | ||||||||||||||||||||||||||||||||
Stuart W. Aitken | 850,000 | 1,785,000 | ||||||||||||||||||||||||||||||||
3/10/2022 | 19,706 | 1,125,016 | ||||||||||||||||||||||||||||||||
3/10/2022 | 46,584 | $ | 57.09 | 749,879 | ||||||||||||||||||||||||||||||
3/10/2022 | 32,843 | 61,581 | 1,875,007 | |||||||||||||||||||||||||||||||
3/9/2023 | 7,340 | 346,815 | ||||||||||||||||||||||||||||||||
Yael Cosset | 850,000 | 1,785,000 | ||||||||||||||||||||||||||||||||
3/10/2022 | 19,706 | 1,125,016 | ||||||||||||||||||||||||||||||||
3/10/2022 | 46,584 | $ | 57.09 | 749,879 | ||||||||||||||||||||||||||||||
3/10/2022 | 32,843 | 61,581 | 1,875,007 | |||||||||||||||||||||||||||||||
3/9/2023 | 7,593 | 358,769 | ||||||||||||||||||||||||||||||||
Timothy A. Massa | 775,000 | 1,627,500 | ||||||||||||||||||||||||||||||||
3/10/2022 | 13,138 | 750,048 | ||||||||||||||||||||||||||||||||
3/10/2022 | 31,056 | $ | 57.09 | 499,919 | ||||||||||||||||||||||||||||||
3/10/2022 | 21,895 | 41,053 | 1,249,986 | |||||||||||||||||||||||||||||||
3/9/2023 | 6,782 | 320,450 |
(1) | These amounts relate to the |
(2) | These amounts |
38
These amounts represent the number of shares of restricted stock granted in |
These amounts represent the number of stock options granted in |
The Compensation Committee, and the independent members of the Board in the case of the CEO, established the incentive potential amounts for the performance-based annual cash incentive awards (shown in this table as “Target”), and the number of performance units awarded (shown in this table as “Target”), and the bonus potential amounts for the long-term cash incentive awards (shown in this table as “Target”). Amounts are payable to the extent that Kroger’s actual performance meets specific performance metrics established by the Compensation Committee at the beginning of the performance period. There are no guaranteed or minimum payouts; if none of the performance metrics are achieved, then none of the award is earned and no payout is made. As described in the CD&A, actual earnings under the performance-based annual cash incentive plan may exceed the target amount if the Company’s performance exceeds the performance goals, but are limited to 200%210% of the target amount. The potential values for performance units and the long-term cash incentive potentials awarded under the 2018 LTIP2022-2024 Long-Term Incentive Plan are more particularly described in the CD&A.
The annual restricted stock and nonqualified stock options awards granted to the NEOs vest in equal amounts on each of the first four anniversaries of the grant date, so long as the officer remains a Kroger employee. Mr. Clark’s July 13, 2018associate, except for the restricted stock award of 26,738 shares were special awards that vest 25% on eachgranted in March 2023 with respect to a portion of the first two anniversaries of the grant date, and 50%2022 Annual Incentive Plan which vests on the thirdfirst anniversary of the grant date. Any dividends declared on Kroger common shares are payable on unvested restricted stock.
39
20182022 Outstanding Equity Awards at Fiscal Year-End
The following table provides information about outstanding equity-based incentive compensation awards for the NEOs as of the end of 2018.2022. The vesting schedule for each award is described in the footnotes to this table. The market value of unvested restricted stock and unearned performance units is based on the closing price of Kroger’s common shares of $28.07$45.05 on February 1, 2019,January 27, 2023, the last trading day of fiscal 2018.2022.
Option Awards | Stock Awards | |||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||
W. Rodney McMullen | 130,000 | — | $ | 11.17 | 6/25/2019 | 22,500 | (6) | $ | 631,575 | |||||||||||||||
140,000 | — | $ | 10.08 | 6/24/2020 | 34,438 | (7) | $ | 966,675 | ||||||||||||||||
182,880 | — | $ | 12.37 | 6/23/2021 | 60,033 | (8) | $ | 1,685,126 | ||||||||||||||||
194,880 | — | $ | 10.98 | 7/12/2022 | 130,891 | (9) | $ | 3,674,110 | ||||||||||||||||
194,880 | — | $ | 18.88 | 7/15/2023 | 84,428 | (10) | $ | 2,369,894 | ||||||||||||||||
240,000 | 60,000 | (1) | $ | 24.67 | 7/15/2024 | |||||||||||||||||||
141,249 | 94,166 | (2) | $ | 38.33 | 7/15/2025 | 84,492 | (13) | $ | 2,505,197 | |||||||||||||||
143,236 | 214,855 | (3) | $ | 37.48 | 7/13/2026 | 90,916 | (14) | $ | 2,702,036 | |||||||||||||||
114,625 | 458,502 | (4) | $ | 22.92 | 7/13/2027 | |||||||||||||||||||
— | 349,293 | (5) | $ | 28.05 | 7/13/2028 | |||||||||||||||||||
J. Michael Schlotman | 50,000 | — | $ | 10.08 | 6/24/2020 | 6,000 | (6) | $ | 168,420 | |||||||||||||||
91,280 | — | $ | 12.37 | 6/23/2021 | 15,444 | (7) | $ | 433,513 | ||||||||||||||||
109,280 | — | $ | 10.98 | 7/12/2022 | 23,692 | (8) | $ | 665,034 | ||||||||||||||||
109,280 | — | $ | 18.88 | 7/15/2023 | 51,656 | (9) | $ | 1,449,984 | ||||||||||||||||
64,000 | 16,000 | (1) | $ | 24.67 | 7/15/2024 | 51,854 | (10) | $ | 1,455,542 | |||||||||||||||
63,918 | 42,613 | (2) | $ | 38.33 | 7/15/2025 | |||||||||||||||||||
55,215 | 82,823 | (3) | $ | 37.48 | 7/13/2026 | 29,429 | (13) | $ | 872,573 | |||||||||||||||
44,186 | 176,744 | (4) | $ | 22.92 | 7/13/2027 | 30,964 | (14) | $ | 935,075 | |||||||||||||||
— | 111,034 | (5) | $ | 28.05 | 7/13/2028 | |||||||||||||||||||
Michael J. Donnelly | 40,000 | — | $ | 10.08 | 6/24/2020 | 4,500 | (6) | $ | 126,315 | |||||||||||||||
70,720 | — | $ | 12.37 | 6/23/2021 | 11,819 | (7) | $ | 331,759 | ||||||||||||||||
50,720 | — | $ | 10.98 | 7/12/2022 | 17,770 | (8) | $ | 498,804 | ||||||||||||||||
50,720 | — | $ | 18.88 | 7/15/2023 | 38,744 | (9) | $ | 1,087,544 | ||||||||||||||||
48,000 | 12,000 | (1) | $ | 24.67 | 7/15/2024 | 21,203 | (11) | $ | 595,168 | |||||||||||||||
35,957 | 23,972 | (2) | $ | 38.33 | 7/15/2025 | 52,791 | (10) | $ | 1,481,843 | |||||||||||||||
41,411 | 62,117 | (3) | $ | 37.48 | 7/13/2026 | 22,074 | (13) | $ | 654,481 | |||||||||||||||
33,139 | 132,559 | (4) | $ | 22.92 | 7/13/2027 | 30,227 | (14) | $ | 898,346 | |||||||||||||||
— | 113,456 | (5) | $ | 28.05 | 7/13/2028 | |||||||||||||||||||
Christopher T. Hjelm | 16,000 | — | $ | 11.17 | 6/25/2019 | 4,500 | (6) | $ | 126,315 | |||||||||||||||
24,000 | — | $ | 10.08 | 6/24/2020 | 11,584 | (7) | $ | 325,163 | ||||||||||||||||
40,576 | — | $ | 12.37 | 6/23/2021 | 17,770 | (8) | $ | 498,804 | ||||||||||||||||
50,720 | — | $ | 10.98 | 7/12/2022 | 38,744 | (9) | $ | 1,087,544 | ||||||||||||||||
50,720 | — | $ | 18.88 | 7/15/2023 | 49,911 | (10) | $ | 1,401,002 | ||||||||||||||||
48,000 | 12,000 | (1) | $ | 24.67 | 7/15/2024 | |||||||||||||||||||
47,938 | 31,960 | (2) | $ | 38.33 | 7/15/2025 | 22,074 | (13) | $ | 654,481 | |||||||||||||||
41,411 | 62,117 | (3) | $ | 37.48 | 7/13/2026 | 25,653 | (14) | $ | 762,416 | |||||||||||||||
33,139 | 132,559 | (4) | $ | 22.92 | 7/13/2027 | |||||||||||||||||||
— | 53,806 | (5) | $ | 28.05 | 7/13/2028 | |||||||||||||||||||
Robert W. Clark | 21,500 | $ | 10.08 | 6/24/2020 | 2,700 | (6) | $ | 75,789 | ||||||||||||||||
7,000 | $ | 10.94 | 9/16/2020 | 5,213 | (7) | $ | 146,329 | |||||||||||||||||
22,500 | $ | 12.37 | 6/23/2021 | 11,115 | (8) | $ | 311,998 | |||||||||||||||||
10,000 | $ | 11.76 | 12/8/2021 | 24,566 | (9) | $ | 689,568 | |||||||||||||||||
16,000 | $ | 10.98 | 7/12/2022 | 26,738 | (10) | $ | 750,536 | |||||||||||||||||
25,000 | $ | 15.75 | 3/14/2023 | 26,738 | (12) | $ | 750,536 | |||||||||||||||||
30,000 | $ | 18.88 | 7/15/2023 | 12,808 | (15) | $ | 373,467 | |||||||||||||||||
24,000 | 6,000 | (1) | $ | 24.67 | 7/15/2024 | 12,955 | (14) | $ | 385,010 | |||||||||||||||
17,982 | 11,988 | (2) | $ | 38.33 | 7/15/2025 | |||||||||||||||||||
22,811 | 34,219 | (3) | $ | 37.48 | 7/13/2026 | |||||||||||||||||||
21,014 | 84,060 | (4) | $ | 22.92 | 7/13/2027 | |||||||||||||||||||
55,310 | (5) | $ | 28.05 | 7/13/2028 |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||
W. Rodney McMullen | 194,880 | $ | 18.88 | 7/15/2023 | 31,819 | (6) | $ | 1,433,446 | ||||||||||||||||||||||
300,000 | $ | 24.67 | 7/15/2024 | 54,087 | (7) | $ | 2,436,619 | |||||||||||||||||||||||
235,415 | $ | 38.33 | 7/15/2025 | 70,836 | (8) | $ | 3,191,162 | |||||||||||||||||||||||
358,091 | $ | 37.48 | 7/13/2026 | 60,431 | (9) | $ | 2,722,417 | |||||||||||||||||||||||
573,127 | $ | 22.92 | 7/13/2027 | 118,060 | (12) | $ | 5,644,448 | |||||||||||||||||||||||
349,293 | $ | 28.05 | 7/13/2028 | 100,718 | (13) | $ | 4,841,514 | |||||||||||||||||||||||
261,194 | 87,065 | (1) | $ | 24.75 | 3/14/2029 | |||||||||||||||||||||||||
164,577 | 164,577 | (2) | $ | 29.12 | 3/12/2030 | |||||||||||||||||||||||||
65,243 | 195,730 | (3) | $ | 34.94 | 3/11/2031 | |||||||||||||||||||||||||
142,858 | (4) | $ | 57.09 | 3/10/2032 | ||||||||||||||||||||||||||
Gary Millerchip | 9,600 | $ | 24.67 | 7/15/2024 | 6,061 | (6) | $ | 273,048 | ||||||||||||||||||||||
13,992 | $ | 38.33 | 7/15/2025 | 5,945 | (10) | $ | 267,822 | |||||||||||||||||||||||
27,972 | $ | 37.48 | 7/13/2026 | 13,908 | (7) | $ | 626,555 | |||||||||||||||||||||||
34,905 | $ | 22.92 | 7/13/2027 | 22,539 | (8) | $ | 1,015,382 | |||||||||||||||||||||||
30,251 | $ | 28.05 | 7/13/2028 | 19,706 | (9) | $ | 887,755 | |||||||||||||||||||||||
66,335 | 16,584 | (1) | $ | 24.75 | 3/14/2029 | 37,565 | (12) | $ | 1,795,981 | |||||||||||||||||||||
38,337 | 12,779 | (5) | $ | 22.08 | 7/15/2029 | 32,843 | (13) | $ | 1,578,763 | |||||||||||||||||||||
42,320 | 42,320 | (2) | $ | 29.12 | 3/12/2030 | |||||||||||||||||||||||||
20,759 | 62,278 | (3) | $ | 34.94 | 3/11/2031 | |||||||||||||||||||||||||
46,584 | (4) | $ | 57.09 | 3/10/2032 | ||||||||||||||||||||||||||
Stuart W. Aitken | 11,149 | $ | 22.92 | 7/13/2027 | 7,576 | (6) | $ | 341,299 | ||||||||||||||||||||||
33,124 | $ | 28.05 | 7/13/2028 | 13,908 | (7) | $ | 626,555 | |||||||||||||||||||||||
78,773 | 20,730 | (1) | $ | 24.75 | 3/14/2029 | 5,127 | (11) | $ | 230,971 | |||||||||||||||||||||
42,320 | 42,320 | (2) | $ | 29.12 | 3/12/2030 | 22,539 | (8) | $ | 1,015,382 | |||||||||||||||||||||
20,759 | 62,278 | (3) | $ | 34.94 | 3/11/2031 | 19,706 | (9) | $ | 887,755 | |||||||||||||||||||||
46,584 | (4) | $ | 57.09 | 3/10/2032 | 37,565 | (12) | $ | 1,795,981 | ||||||||||||||||||||||
32,843 | (13) | $ | 1,578,763 | |||||||||||||||||||||||||||
Yael Cosset | 10,611 | $ | 28.83 | 3/9/2027 | 6,061 | (6) | $ | 273,048 | ||||||||||||||||||||||
8,704 | $ | 22.92 | 7/13/2027 | 13,908 | (7) | $ | 626,555 | |||||||||||||||||||||||
29,499 | $ | 28.05 | 7/13/2028 | 5,127 | (11) | $ | 230,971 | |||||||||||||||||||||||
66,335 | 16,584 | (1) | $ | 24.75 | 3/14/2029 | 22,539 | (8) | $ | 1,015,382 | |||||||||||||||||||||
42,320 | 42,320 | (2) | $ | 29.12 | 3/12/2030 | 19,706 | (9) | $ | 887,755 | |||||||||||||||||||||
20,759 | 62,278 | (3) | $ | 34.94 | 3/11/2031 | 37,565 | (12) | $ | 1,795,981 | |||||||||||||||||||||
46,584 | (4) | $ | 57.09 | 3/10/2032 | 32,843 | (13) | $ | 1,578,763 | ||||||||||||||||||||||
Timothy A. Massa | 46,000 | $ | 24.67 | 7/15/2024 | 4,546 | (6) | $ | 204,797 | ||||||||||||||||||||||
29,970 | $ | 38.33 | 7/15/2025 | 10,303 | (7) | $ | 464,150 | |||||||||||||||||||||||
25,889 | $ | 37.48 | 7/13/2026 | 14,168 | (8) | $ | 638,268 | |||||||||||||||||||||||
45,065 | $ | 22.92 | 7/13/2027 | 13,138 | (9) | $ | 591,867 | |||||||||||||||||||||||
40,561 | $ | 28.05 | 7/13/2028 | 23,612 | (12) | $ | 1,128,891 | |||||||||||||||||||||||
53,898 | 12,438 | (1) | $ | 24.75 | 3/14/2029 | 21,895 | (13) | $ | 1,052,493 | |||||||||||||||||||||
31,348 | 31,348 | (2) | $ | 29.12 | 3/12/2030 | |||||||||||||||||||||||||
13,048 | 39,147 | (3) | $ | 34.94 | 3/11/2031 | |||||||||||||||||||||||||
31,056 | (4) | $ | 57.09 | 3/10/2032 |
(1) | Stock options vest on |
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(2) | Stock options vest in equal amounts on |
(3) | Stock options vest in equal amounts on |
(4) | Stock options vest in equal amounts on |
(5) | Stock options vest |
(6) | Restricted stock vests on |
(7) | Restricted stock vests in equal amounts on |
(8) | Restricted stock vests in equal amounts on |
(9) | Restricted stock vests in equal amounts on |
(10) | Restricted stock vests |
(11) | Restricted stock vests |
(12) |
Performance units granted under the |
Performance units granted under the |
20182022 Option Exercises and Stock Vested
The following table provides information regarding 20182022 stock options exercised, restricted stock vested, and common shares issued pursuant to performance units earned under long-term incentive plans.
Option Awards(1) | Stock Awards(2) | |||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||
W. Rodney McMullen | 130,000 | $ | 1,528,800 | 163,526 | $ | 4,560,593 | ||||||
J. Michael Schlotman | — | — | 55,948 | $ | 1,543,895 | |||||||
Michael J. Donnelly | — | — | 48,916 | $ | 1,361,803 | |||||||
Christopher T. Hjelm | — | — | 40,731 | $ | 1,124,299 | |||||||
Robert W. Clark | 14,500 | $ | 259,402 | 31,722 | $ | 843,380 |
Option Awards(1) | Stock Awards(2) | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
W. Rodney McMullen | 194,880 | 8,661,442 | 376,876 | 19,160,902 | ||||||||||||
Gary Millerchip | — | — | 87,809 | 4,438,529 | ||||||||||||
Stuart W. Aitken | 101,747 | 2,768,087 | 90,240 | 4,566,794 | ||||||||||||
Yael Cosset | 73,566 | 2,079,679 | 90,012 | 4,550,119 | ||||||||||||
Timothy A. Massa | 16,000 | 627,275 | 65,961 | 3,342,585 |
(1) | Stock options have a ten-year life and expire if not exercised within that ten-year period. The value realized on exercise is the difference between the exercise price of the option and the closing price of Kroger’s common shares on the exercise date. |
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(2) | The Stock Awards columns include vested restricted stock and earned performance units, as follows: |
Vested Restricted Stock | Earned Performance Units | |||||||||||
Name | Number of Shares | Value Realized | Number of Shares | Value Realized | ||||||||
Mr. McMullen | 139,068 | $ | 3,955,257 | 24,458 | $ | 605,336 | ||||||
Mr. Schlotman | 47,173 | $ | 1,326,714 | 8,775 | $ | 217,181 | ||||||
Mr. Donnelly | 42,335 | $ | 1,198,923 | 6,581 | $ | 162,880 | ||||||
Mr. Hjelm | 34,150 | $ | 961,419 | 6,581 | $ | 162,880 | ||||||
Mr. Clark | 18,353 | $ | 512,497 | 13,369 | $ | 330,883 |
Vested Restricted Stock | Earned Performance Units | |||||||||||||||
Name | Number of Shares | Value Realized | Number of Shares | Value Realized | ||||||||||||
W. Rodney McMullen | 207,856 | $ | 11,174,707 | 169,020 | $ | 7,986,195 | ||||||||||
Gary Millerchip | 44,346 | $ | 2,384,902 | 43,463 | $ | 2,053,627 | ||||||||||
Stuart W. Aitken | 46,777 | $ | 2,513,167 | 43,463 | $ | 2,053,627 | ||||||||||
Yael Cosset | 46,549 | $ | 2,496,492 | 43,463 | $ | 2,053,627 | ||||||||||
Timothy A. Massa | 33,766 | $ | 1,821,371 | 32,195 | $ | 1,521,214 |
Restricted stock. The table includes the number of shares acquired upon vesting of restricted stock and the value realized on the vesting of restricted stock, based on the closing price of Kroger common shares on the vesting date.
Performance Units. Participants in the 2016 LTIP, as modified,2020-2022 Long-Term Incentive Plan were awarded performance units that were earned based on performance criteria established by the Compensation Committee as described on page 19 ofin “2020-2022 Long-Term Incentive Plan — Results and Payout” in the CD&A. Actual payouts were based on the level of performance achieved and were paid in common shares. The number of common shares issued, and the value realized based on the closing price of Kroger common shares of $24.75$47.25 on March 14, 2019,9, 2023, the date of deemed delivery of the shares, are reflected in the table above.
2018
2022 Pension Benefits
The following table provides information regarding pension benefits for the NEOs as of the last day of fiscal 2018.2022. Only Mr. McMullen participates in a pension plan.
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments during Last fiscal year ($) | ||||||
W. Rodney McMullen | Pension Plan | 33 | $ | 1,478,015 | — | |||||
Excess Plan | 33 | $ | 14,735,498 | — | ||||||
J. Michael Schlotman | Pension Plan | 33 | $ | 1,601,117 | — | |||||
Excess Plan | 33 | $ | 7,632,275 | — | ||||||
Michael J. Donnelly | Pension Plan | 39 | $ | 841,548 | — | |||||
Excess Plan | 39 | $ | 6,072,232 | — | ||||||
Christopher T. Hjelm | Pension Plan | — | — | (2) | — | (2) | ||||
Robert W. Clark | Pension Plan | 34 | $ | 314,368 | — | |||||
Excess Plan | 34 | $ | 1,521,638 | — |
Name | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments during Last fiscal year ($) | ||||||||||
W. Rodney McMullen | Pension Plan | 34 | 1,610,951 | — | ||||||||||
Excess Plan | 34 | 18,009,437 | — | |||||||||||
Gary Millerchip | Pension Plan | — | — | — | ||||||||||
Excess Plan | — | — | — | |||||||||||
Stuart W. Aitken | Pension Plan | — | — | — | ||||||||||
Excess Plan | — | — | — | |||||||||||
Yael Cosset | Pension Plan | — | — | — | ||||||||||
Excess Plan | — | — | — | |||||||||||
Timothy A. Massa | Pension Plan | — | — | — | ||||||||||
Excess Plan | — | — | — |
(1) | In 2018, the Company froze the service periods used to calculate pension benefits and thus, Mr. McMullen’s number of years of credited service is less than his actual 44 years of service. |
(2) | The discount rate used to determine the present values was |
Pension Plan and Excess Plan
In 2018, Messrs.2022, Mr. McMullen Schlotman, Donnelly, and Clark were participantswas a participant in the Pension Plan, which is a qualified defined benefit pension plan. Messrs.Mr. McMullen Schlotman, Donnelly, and Clark also participateparticipates in the Excess Plan, which is a nonqualified deferred compensation plan as defined in Section 409A of the Code. The purpose of the Excess Plan is to make up the shortfall in retirement benefits caused by the limitations on benefits to highly compensated individuals under the qualified defined benefit pension plans in accordance with the Code.
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Although participants generally receive credited service beginning at age 21, certain participants in the Pension Plan and the Excess Plan who commenced employment prior to 1986, including Messrs.Mr. McMullen, Schlotman and Clark, began to accrue credited service after attaining age 25 and one year of service. The Pension Plan and the Excess Plan generally determine accrued benefits using a cash balance formula but retain benefit formulas applicable under prior plans for certain “grandfathered participants” who were employed by Kroger on December 31, 2000. Each of Messrs.Mr. McMullen Schlotman, Donnelly and Clark areis eligible for these grandfathered benefits.
Grandfathered Participants
Benefits for grandfathered participants are determined using formulas applicable under prior plans, including the Kroger formula covering service to The Kroger Co. and the Dillon formula covering service to Dillon Companies, Inc. As a “grandfathered participants,participant,” Messrs.Mr. McMullen Schlotman, Donnelly, and Clark will receive benefits under the Pension Plan and the Excess Plan, determined as follows:
11∕2% times years of credited service multiplied by the average of the highest five years of total earnings (base salary and annual cash |
normal retirement age is 65; and |
● | unreduced benefits are payable |
In 2018, we announced changes to these company-sponsored pension plans. The Company will freezefroze the compensation and service periods used to calculate pension benefits for active employeesassociates who participate in the affected pension plans, including the NEO participants, as of December 31, 2019. Beginning January 1, 2020, the affected active employees willassociates no longer accrue additional benefits for future service and eligible compensation received under these plans.
In the event of a termination of employment other than death or disability, Messrs. McMullen, Schlotman, and Donnelly currently are eligible for a reduced early retirement benefit, as each has attained age 55. If a “grandfathered participant” becomes disabled while employed by Kroger and after attaining age 55, the participant will receive the full retirement benefit. If a married “grandfathered participant” dies while employed by Kroger, the surviving spouse will receive benefits as though a retirement occurred on such date, based on the greater of: actual benefits payable to the participant if he or she was over age 55, or the benefits that would have been payable to the participant assuming he or she was age 55 on the date of death.
Offsetting Benefits
Messrs. Donnelly and Clark also participate in the Dillon Companies, Inc. Employees’ Profit Sharing Plan (the “Dillon Profit Sharing Plan”), which is a qualified defined contribution plan under which Dillon Companies, Inc. and its participating subsidiaries may choose to make discretionary contributions each year that are allocated to each participant’s account. Participation in the Dillon Profit Sharing Plan was frozen in 2001 and participants are no longer able to make employee contributions, but certain participants, including Messrs. Donnelly and Clark, are still eligible for employer contributions. Participants elect from among a number of investment options and the amounts in their accounts are invested and credited with investment earnings in accordance with their elections. Due to offset formulas contained in the Pension Plan, Messrs. Donnelly and Clark’s accrued benefits under the Dillon Profit Sharing Plan offset a portion of the benefit that would otherwise accrue for him under the Pension Plan for his service with Dillon Companies, Inc. Messrs. Donnelly and Clark also participate in the Dillon Companies, Inc. Excess Benefit Profit Sharing Plan (“Dillon Excess Profit Sharing Plan”) which provides Company contributions in excess of the qualified plan limits. The Dillon Excess Profit Sharing Plan is offset by Messrs. Donnelly and Clark’s benefit from the Excess Plan. The offsets are reflected in the Pension Benefits table above.
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20182022 Nonqualified Deferred Compensation
The following table provides information on nonqualified deferred compensation for the NEOs for 2018. Messrs. Schlotman, Hjelm and Clark do not participate2022. Only Mr. McMullen participates in a nonqualified deferred compensation plan.
Name | Executive Contributions in Last FY | Aggregate Earnings in Last FY(1) | Aggregate Balance at Last FYE(2) | ||||||
W. Rodney McMullen | $ | 131,544 | (3) | $ | 666,069 | $ | 10,563,424 | ||
J. Michael Schlotman | — | — | — | ||||||
Michael J. Donnelly | $ | 91,916 | (4) | $ | 36,245 | $ | 668,829 | ||
Christopher T. Hjelm | — | $ | 12,294 | $ | 272,006 | ||||
Robert Clark | — | — | — |
Name | Executive Contributions in Last FY | Aggregate Earnings in Last FY(1) | Aggregate Balance at Last FYE(2) | |||||||||
W. Rodney McMullen | — | $ | 895,310 | $ | 14,106,653 | |||||||
Gary Millerchip | — | — | — | |||||||||
Stuart W. Aitken | — | — | — | |||||||||
Yael Cosset | — | — | — | |||||||||
Timothy A. Massa | — | — | — |
(1) | These amounts include the aggregate earnings on all accounts for each NEO, including any above-market or preferential earnings. The following amounts earned in |
(2) | The following amounts in the Aggregate Balance column were reported in the Summary Compensation Tables covering fiscal years 2006 – |
Executive Deferred Compensation Plan
Messrs.
Mr. McMullen Donnelly and Hjelm participateparticipates in the Deferred Compensation Plan, which is a nonqualified deferred compensation plan. Participants may elect to defer up to 100% of the amount of their salary that exceeds the sum of the FICA wage base and pre-tax insurance and other Code Section 125 plan deductions, as well as up to 100% of their annual and long-term cash bonusincentive compensation. Kroger does not match any deferral or provide other contributions. Deferral account amounts are credited with interest at the rate representing Kroger’s cost of ten-year debt as determined by Kroger’s CEOCFO and approved by the Compensation Committee prior to the beginning of each deferral year. The interest rate established for deferral amounts for each deferral year will be applied to those deferral amounts for all subsequent years until the deferred compensation is paid out. Amounts deferred in 2018 earn interest at a rate of 3.6%. Participants can elect to receive lump sum distributions or quarterly installments for periods up to ten years. Participants also can elect between lump sum distributions and quarterly installments to be received by designated beneficiaries if the participant dies before distribution of deferred compensation is completed.
Participants may not withdraw amounts from their accounts until they leave Kroger, except that Kroger has discretion to approve an early distribution to a participant upon the occurrence of an unforeseen emergency. Participants who are “specified employees”associates” under Section 409A of the Code, which includes the NEOs, may not receive a post-termination distribution for at least six months following separation. If the employeeassociate dies prior to or during the distribution period, the remainder of the account will be distributed to his or her designated beneficiary in lump sum or quarterly installments, according to the participant’s prior election.
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Potential Payments upon Termination or Change in Control
Kroger does not have employment agreements or other contracts, agreements, plans or arrangements that provide for payments to the NEOs in connection with a termination of employment or a change in control of Kroger. However, KEPP and award agreements for stock options, restricted stock and performance units and the long-term cash bonus plans provide for certain payments and benefits to participants, including the NEOs, in the event of a termination of employment or a change in control of Kroger, as defined in the applicable plan or agreement. Our pension planplans and nonqualified deferred compensation plan also provide for certain payments and benefits to participants in the event of a termination of employment, as described above in the 20182022 Pension Benefits section and the 20182022 Nonqualified Deferred Compensation section, respectively.
The Kroger Co. Employee Protection Plan
KEPP applies to all management employeesassociates who are classified as exempt under the federal Fair Labor Standards Act and to certain administrative or technical support personnel who are not covered by a collective bargaining agreement, with at least one year of service, including the NEOs. KEPP provides severance benefits when a participant’s employment is terminated actually or constructively within two years following a change in control of Kroger, as defined in KEPP. The actual amount of the severance benefit is dependent on pay level and years of service. Exempt employees,associates, including the NEOs, are eligible for the following benefits:
● | a lump sum severance payment equal to up to 24 months of the participant’s annual base salary and target annual incentive potential; |
● | a lump sum payment equal to the participant’s accrued and unpaid vacation, including banked vacation; |
● | continued medical and dental benefits for up to 24 months and continued group term life insurance coverage for up to six months; and |
● | up to $10,000 as reimbursement for eligible outplacement expenses. |
In the event that any payments or benefits received or to be received by an eligible employeeassociate in connection with a change in control or termination of employment (whether pursuant to KEPP or any other plan, arrangement or agreement with Kroger or any person whose actions result in a change in control) would constitute parachute payments within the meaning of Section 280G of the Code and would be subject to the excise tax under Section 4999 of the Code, then such payments and benefits will either be (i) paid in full or (ii) reduced to the minimum extent necessary to ensure that no portion of such payments or benefits will be subject to the excise tax, whichever results in the eligible employeeassociate receiving the greatest aggregate amount on an after-tax basis.
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Long-Term Incentive Awards
The following table describes the treatment of long-term incentive awards following a termination of employment or change in control of Kroger, as defined in the applicable agreement. In each case, the continued vesting, exercisability or eligibility for the incentive awards will end if the participant provides services to a competitor of Kroger.
Triggering Event | Stock Options | Restricted Stock | Performance Units | |
Involuntary Termination | Forfeit all unvested options. Previously vested options remain exercisable for the shorter of one year after termination or the remainder of the original 10-year term | Forfeit all unvested shares | Forfeit all rights to units for which the | |
Voluntary ● Prior to minimum | Forfeit all unvested options. Previously vested options remain exercisable for the shorter of one year after termination or the remainder of the original 10-year term | Forfeit all unvested shares | Forfeit all rights to units for which the | |
Voluntary ● After minimum | Unvested options held greater than term | Unvested shares held greater than | Pro rata portion(2) of units earned based on performance results over the full three-year period | |
Death | Unvested options are immediately vested. All options are exercisable for the remainder of the original 10-year term | Unvested shares immediately vest | Pro rata portion(2) of units earned based on performance results through the end of the fiscal year in which death occurs. Award will be paid following the end of such fiscal | |
Disability | Unvested options are immediately vested. All options are exercisable for remainder of the original 10-year term | Unvested shares immediately vest | Pro rata portion(2) of units earned based on performance results over the full three-year period | |
Change in ● For awards prior to 2019 | Unvested options are immediately vested and exercisable | Unvested shares immediately vest | 50% of the units granted at the beginning of the performance period earned immediately | |
Change in Control(3) ● For awards in March 2019 and thereafter | Unvested options only vest and become exercisable upon an actual or constructive termination of employment within two years following a change in control | Unvested shares only vest upon an actual or constructive termination of employment within two years following a change in control | 50% of the |
(1) | The minimum age requirement is age 62 for stock options and restricted stock and age 55 for performance |
(2) | The prorated amount is equal to the number of weeks of active employment during the performance period divided by the total number of weeks in the performance period. |
(3) | These benefits are payable upon an actual or constructive termination of employment within two years after a change in control, |
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Quantification of Payments upon Termination or Change in Control
The following table provides information regarding certain potential payments that would have been made to the NEOs if the triggering event occurred on the last day of the fiscal year, February 2, 2019,January 28, 2023, given compensation, age and service levels as of that date and, where applicable, based on the closing market price per Kroger common share on the last trading day of the fiscal year ($28.0745.05 on February 1, 2019)January 27, 2023). Amounts actually received upon the occurrence of a triggering event will vary based on factors such as the timing during the year of such event, the market price of Kroger common shares, and the officer’s age, length of service and compensation level.
Name | Involuntary Termination | Voluntary Termination/ Retirement | Death | Disability | Change in Control without Termination | Change in Control with Termination | ||||||||||||
W. Rodney McMullen | ||||||||||||||||||
Accrued and Banked Vacation | $ | 653,934 | $ | 653,934 | $ | 653,934 | $ | 653,934 | $ | 653,934 | $ | 653,934 | ||||||
Severance | — | — | — | — | — | 7,631,808 | ||||||||||||
Continued Health and Welfare Benefits(1) | — | — | — | — | — | 25,337 | ||||||||||||
Stock Options(2) | — | — | 3,718,393 | 3,718,393 | 3,718,393 | 3,718,393 | ||||||||||||
Restricted Stock(3) | — | — | 9,327,380 | 9,327,380 | 9,327,380 | 9,327,380 | ||||||||||||
Performance Units(4) | — | 1,511,079 | 1,511,079 | 1,511,079 | 3,051,377 | 3,051,377 | ||||||||||||
Long-Term Cash Bonus(5) | — | 1,415,406 | 1,415,406 | 1,415,406 | 1,935,900 | 1,935,900 | ||||||||||||
Executive Group Life Insurance | — | — | 1,973,850 | — | — | — | ||||||||||||
J. Michael Schlotman | ||||||||||||||||||
Accrued and Banked Vacation | $ | 445,773 | $ | 445,773 | $ | 445,773 | $ | 445,773 | $ | 445,773 | $ | 445,773 | ||||||
Severance | — | — | — | — | — | 4,246,512 | ||||||||||||
Continued Health and Welfare Benefits(1) | — | — | — | — | — | 25,313 | ||||||||||||
Stock Options(2) | — | — | 966,932 | 966,932 | 966,932 | 966,932 | ||||||||||||
Restricted Stock(3) | — | — | 4,172,493 | 4,172,493 | 4,172,493 | 4,172,493 | ||||||||||||
Performance Units(4) | — | 526,083 | 526,083 | 526,083 | 1,052,639 | 1,052,639 | ||||||||||||
Long-Term Cash Bonus(5) | — | 663,997 | 663,997 | 663,997 | 855,120 | 855,120 | ||||||||||||
Executive Group Life Insurance | — | — | 1,384,875 | — | — | — | ||||||||||||
Michael J. Donnelly | ||||||||||||||||||
Accrued and Banked Vacation | $ | 173,813 | $ | 173,813 | $ | 173,813 | $ | 173,813 | $ | 173,813 | $ | 173,813 | ||||||
Severance | — | — | — | — | — | 4,202,520 | ||||||||||||
Continued Health and Welfare Benefits(1) | — | — | — | — | — | 12,229 | ||||||||||||
Stock Options(2) | — | — | 725,808 | 725,808 | 725,808 | 725,808 | ||||||||||||
Restricted Stock(3) | — | — | 4,121,434 | 4,121,434 | 4,121,434 | 4,121,434 | ||||||||||||
Performance Units(4) | — | 396,927 | 396,927 | 396,927 | 890,956 | 890,956 | ||||||||||||
Long-Term Cash Bonus(5) | — | 591,401 | 591,401 | 591,401 | 761,250 | 761,250 | ||||||||||||
Executive Group Life Insurance | — | — | 1,351,875 | — | — | — | ||||||||||||
Christopher T. Hjelm | ||||||||||||||||||
Accrued and Banked Vacation | $ | 5,884 | $ | 5,884 | $ | 5,884 | $ | 5,884 | $ | 5,884 | $ | 5,884 | ||||||
Severance | — | — | — | — | — | 3,529,800 | ||||||||||||
Continued Health and Welfare Benefits(1) | — | — | — | — | — | 55,345 | ||||||||||||
Stock Options(2) | — | — | 724,615 | 724,615 | 724,615 | 724,615 | ||||||||||||
Restricted Stock(3) | — | — | 3,438,828 | 3,438,828 | 3,438,828 | 3,438,828 | ||||||||||||
Performance Units(4) | — | 395,402 | 395,402 | 395,402 | 824,711 | 824,711 | ||||||||||||
Long-Term Cash Bonus(5) | — | 551,974 | 551,974 | 551,974 | 710,500 | 710,500 | ||||||||||||
Executive Group Life Insurance | — | — | 1,147,350 | — | — | — | ||||||||||||
Robert W. Clark | ||||||||||||||||||
Accrued and Banked Vacation | $ | 5,769 | $ | 5,769 | $ | 5,769 | $ | 5,769 | $ | 5,769 | $ | 5,769 | ||||||
Severance | — | — | — | — | — | 2,000,016 | ||||||||||||
Continued Health and Welfare Benefits(1) | — | — | — | — | — | 32,916 | ||||||||||||
Stock Options(2) | — | — | 454,415 | 454,415 | 454,415 | 454,415 | ||||||||||||
Restricted Stock(3) | — | — | 2,724,755 | 2,724,755 | 2,724,755 | 2,724,755 | ||||||||||||
Performance Units(4) | — | — | 155,010 | 155,010 | 375,268 | 375,268 | ||||||||||||
Long-Term Cash Bonus(5) | — | — | 210,968 | 210,968 | 506,518 | 506,518 | ||||||||||||
Executive Group Life Insurance | — | — | 750,000 | — | — | — |
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Name | Involuntary Termination | Voluntary Termination/ Retirement | Death | Disability | Change in Control without Termination | Change in Control with Termination | ||||||||||||||||||
W. Rodney McMullen | ||||||||||||||||||||||||
Accrued and Banked Vacation | $ | 638,750 | $ | 638,750 | $ | 638,750 | $ | 638,750 | $ | 638,750 | $ | 638,750 | ||||||||||||
Severance | – | – | – | – | – | $ | 8,400,000 | |||||||||||||||||
Continued Health and Welfare Benefits(1) | – | – | – | – | – | $ | 49,101 | |||||||||||||||||
Stock Options(2) | $ | 0 | $ | 0 | $ | 6,367,962 | $ | 6,367,962 | $ | 0 | $ | 6,367,962 | ||||||||||||
Restricted Stock(3) | $ | 0 | $ | 0 | $ | 9,783,644 | $ | 9,783,644 | $ | 0 | $ | 9,783,644 | ||||||||||||
Performance Units(4) | $ | 0 | $ | 5,058,176 | $ | 5,058,176 | $ | 5,058,176 | $ | 0 | $ | 5,814,401 | ||||||||||||
Executive Group Life Insurance | – | – | $ | 2,000,000 | – | – | – | |||||||||||||||||
Gary Millerchip | ||||||||||||||||||||||||
Accrued and Banked Vacation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Severance | – | – | – | – | – | $ | 3,210,432 | |||||||||||||||||
Continued Health and Welfare Benefits(1) | – | – | – | – | – | $ | 57,269 | |||||||||||||||||
Stock Options(2) | $ | 0 | $ | 0 | $ | 1,933,978 | $ | 1,933,978 | $ | 0 | $ | 1,933,978 | ||||||||||||
Restricted Stock(3) | $ | 0 | $ | 0 | $ | 3,070,563 | $ | 3,070,563 | $ | 0 | $ | 3,070,563 | ||||||||||||
Performance Units(4) | $ | 0 | $ | 0 | $ | 1,621,380 | $ | 1,621,380 | $ | 0 | $ | 1,867,976 | ||||||||||||
Executive Group Life Insurance | – | – | $ | 1,237,500 | – | – | – | |||||||||||||||||
Stuart W. Aitken | ||||||||||||||||||||||||
Accrued and Banked Vacation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Severance | – | – | – | – | – | $ | 3,550,008 | |||||||||||||||||
Continued Health and Welfare Benefits(1) | – | – | – | – | – | $ | 59,895 | |||||||||||||||||
Stock Options(2) | $ | 0 | $ | 0 | $ | 1,724,608 | $ | 1,724,608 | $ | 0 | $ | 1,724,608 | ||||||||||||
Restricted Stock(3) | $ | 0 | $ | 0 | $ | 3,101,963 | $ | 3,101,963 | $ | 0 | $ | 3,101,963 | ||||||||||||
Performance Units(4) | $ | 0 | $ | 0 | $ | 1,621,380 | $ | 1,621,380 | $ | 0 | $ | 1,867,976 | ||||||||||||
Executive Group Life Insurance | – | – | $ | 1,387,500 | – | – | – | |||||||||||||||||
Yael Cosset | ||||||||||||||||||||||||
Accrued and Banked Vacation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Severance | – | – | – | – | – | $ | 3,350,016 | |||||||||||||||||
Continued Health and Welfare Benefits(1) | – | – | – | – | – | $ | 44,303 | |||||||||||||||||
Stock Options(2) | $ | 0 | $ | 0 | $ | 1,640,444 | $ | 1,640,444 | $ | 0 | $ | 1,640,444 | ||||||||||||
Restricted Stock(3) | $ | 0 | $ | 0 | $ | 3,033,712 | $ | 3,033,712 | $ | 0 | $ | 3,033,712 | ||||||||||||
Performance Units(4) | $ | 0 | $ | 0 | $ | 1,621,380 | $ | 1,621,380 | $ | 0 | $ | 1,867,976 | ||||||||||||
Executive Group Life Insurance | – | – | $ | 1,237,500 | – | – | – | |||||||||||||||||
Timothy A. Massa | ||||||||||||||||||||||||
Accrued and Banked Vacation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Severance | – | – | – | – | – | $ | 3,250,008 | |||||||||||||||||
Continued Health and Welfare Benefits(1) | – | – | – | – | – | $ | 48,839 | |||||||||||||||||
Stock Options(2) | $ | 0 | $ | 0 | $ | 1,147,641 | $ | 1,147,641 | $ | 0 | $ | 1,147,641 | ||||||||||||
Restricted Stock(3) | $ | 0 | $ | 0 | $ | 1,899,083 | $ | 1,899,083 | $ | 0 | $ | 1,899,083 | ||||||||||||
Performance Units(4) | $ | 0 | $ | 1,037,944 | $ | 1,037,944 | $ | 1,037,944 | $ | 0 | $ | 1,202,339 | ||||||||||||
Executive Group Life Insurance | – | – | $ | 1,275,000 | – | – | – |
(1) | Represents the aggregate present value of continued participation in the Company’s medical, dental and executive term life insurance plans, based on the premiums payable by the Company during the eligible period. The eligible period for continued medical and dental benefits is based on the level and length of service, which is 24 months for all NEOs. The eligible period for continued executive term life insurance coverage is six months for the NEOs. The amounts reported may ultimately be lower if the NEO is no longer eligible to receive benefits, which could occur upon obtaining other employment and becoming eligible for substantially equivalent benefits through the new employer. |
(2) | Amounts reported in the |
(3) | Amounts reported in the |
(4) | Amounts reported in the |
Pay Versus Performance
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive “compensation actually paid,” or “CAP,” and certain financial performance of the Company. For further information concerning the Company’s pay-for-performance philosophy and how the Company aligns executive compensation with the Company’s performance, refer to the CD&A beginning on page 46.
PAY VERSUS PERFORMANCE TABLE*
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | ||||||||||||||||||||||||||
Value of Initial Fixed $100 Investment Based on5 | |||||||||||||||||||||||||||||||||
Year | Summary Compensation Table Total for PEO ($)1 | Compensation Actually Paid to PEO ($)2 | Average Summary Compensation Table Total for Non-PEO NEOs ($)3 | Average Compensation Actually Paid to Non-PEO NEOs ($)4 | Total Share- holder Return ($) | Peer Group Total Share- holder Return ($) | Net Income ($)6 (in millions) | Adjusted FIFO Operating Profit ($)7 (in millions) | |||||||||||||||||||||||||
2022 | 19,209,843 | 23,325,794 | 6,117,423 | 6,281,085 | 178.23 | 140.77 | 2,244 | 5,079 | |||||||||||||||||||||||||
2021 | 18,168,730 | 36,111,316 | 5,644,957 | 9,323,327 | 168.66 | 145.25 | 1,655 | 4,310 | |||||||||||||||||||||||||
2020 | 22,373,574 | 29,840,084 | 6,932,437 | 9,191,933 | 131.19 | 123.01 | 2,585 | 4,056 |
*Totals in the above table might not equal the summation of the columns due to rounding amounts to the nearest dollar.
2. | The dollar amounts reported in column (c) represent the amount of “compensation actually paid” to Mr. McMullen as computed in accordance with Item 402(v) of Regulation S-K. The amounts do not reflect the actual amount of compensation earned by or paid to Mr. McMullen during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to Mr. McMullen’s total compensation for |
PEO SCT Total to CAP Reconciliation | |||||||||||||||||||||||||
Year | Reported Summary Compensation Table for PEO ($) | Reported Summary Compensation Table Value of Equity Awards(a) ($) | Equity Award Adjustments(b) ($) | Reported Change in the APV of Pension Benefits in Summary Compensation Table (c) ($) | Plus: Pension Benefit Adjustments(b)(c) ($) | Compensation Actually Paid to PEO ($) | |||||||||||||||||||
2022 | 19,209,843 | 12,667,275 | 16,783,226 | - | - | 23,325,794 | |||||||||||||||||||
2021 | 18,168,730 | 10,999,185 | 28,941,771 | - | - | 36,111,316 | |||||||||||||||||||
2020 | 22,373,574 | 13,001,622 | 22,126,697 | 1,658,565 | - | 29,840,084 |
a) | The amounts included in this column are the amounts reported in “Stock Awards” and “Option Awards” column of the SCT for each applicable year and are subtracted from the Reported Summary Compensation Table for PEO. |
b) | The equity award and pension benefit adjustments for each applicable year were calculated in accordance with the methodology required by Item 402(v) of Regulation S-K as follow: the equity award adjustments for each applicable year include the addition (or subtraction, as applicable) of the following: (i) the year-end fair value of any equity awards granted in the applicable year that are outstanding and unvested as of the end of the year; (ii) the amount equal to the change as of the end of the applicable year (from the end of the prior fiscal year) in the fair value of any awards granted in prior years that are outstanding and unvested as of the end of the applicable year; (iii) for awards that are granted and vest in the same applicable year, the fair value as of the vesting date; (iv) for awards granted in prior years that vest in the applicable year, the amount equal to the change as of the vesting date (from the end of the prior fiscal year) in fair value; (v) for awards granted in prior years that are determined to fail to meet the applicable vesting conditions during the applicable year, a deduction for the amount equal to the fair value at the end of the prior fiscal year; and (vi) the dollar value of any dividends or other earnings paid on stock or option awards in the applicable year prior to the vesting date that are not otherwise reflected in the fair value of such award or included in any other component of total compensation for the applicable year. The valuation assumptions used to calculate fair values did not materially differ from those disclosed at the time of grant. The amounts deducted or added in calculating the equity award adjustments for the PEO are provided in the table below: |
PEO Equity Award Adjustments | |||||||||||||||||||||
Year | Year End Fair Value of Awards Granted in the Year ($) | YoY Change in Fair Value of Outstanding & Unvested Awards ($) | Fair Value as of Vesting Date of Awards Granted and Vested in the Year ($) | Year over Year Change in Fair Value of Awards Granted in Prior Years that Vested in the Year ($) | Total Equity Award Adjustments ($) | ||||||||||||||||
2022 | 9,214,146 | (855,562 | ) | - | 8,424,642 | 16,783,226 | |||||||||||||||
2021 | 17,014,361 | 2,769,331 | - | 9,158,079 | 28,941,771 | ||||||||||||||||
2020 | 12,561,917 | 6,145,551 | - | 3,419,229 | 22,126,697 |
c) | The amounts included in this column are the amounts reported in “Change in Pension and Nonqualifed Deferred Compensation” of the SCT for each applicable year. Total Pension Benefit Adjustments are equal to the Pension Service Costs incurred during the relevant period. No Prior Service Costs were incurred as no modifications were made to the pension plan during the relevant period. |
3. | The dollar amounts reported in column (d) represent the average of the amounts reported for our non-PEO NEOs as a group in the Total column of the SCT in each applicable year. The names of each of these NEOs included for purposes of calculating the average amounts in each applicable year are as follows: (i) for Fiscal 2022 and 2021, Mr. Millerchip, Mr. Aitken, Mr. Cosset, and Mr. Massa; and (ii) for Fiscal 2020, Mr. Millerchip, Mr. Aitken, Mr. Cosset, and Mr. Donnelly. |
4. | The dollar amounts reported in column (e) represent the average amount of “compensation actually paid” to the Non-PEO NEOs as a group as identified in footnote 3 above, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual average amount of compensation earned by or paid to these NEOs as a group during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to the average total compensation for these NEOs as a group for each year to determine the CAP using the same methodology as described in footnote 2: |
Average Non-PEO NEOs Summary Compensation Table Total to CAP Reconciliation | |||||||||||||||||||||||||
Year | Average Reported Summary Compensation Table for Non- PEO NEOs ($) | Average Reported Summary Compensation Table Value of Equity Awards for non-PEO NEOs ($) | Average Equity Award Adjustments(a) ($) | Average Reported Change in the APV of Pension Benefits in SCT(b) ($) | Plus: Average Pension Benefit Adjustments ($) | Average Compensation Actually Paid to non-PEO NEOs ($) | |||||||||||||||||||
2022 | 6,117,423 | 3,783,616 | 3,947,278 | - | - | 6,281,085 | |||||||||||||||||||
2021 | 5,644,957 | 3,174,785 | 6,853,155 | - | - | 9,323,327 | |||||||||||||||||||
2020 | 6,932,437 | 3,807,225 | 6,291,210 | 224,490 | - | 9,191,933 |
(a) | The amounts deducted or added in calculating the total average equity award adjustments are provided in the table below: |
Equity Award Adjustments for Non-PEO NEOs | |||||||||||||||||||||
Year | Average Year End Fair Value of Awards Granted in the Year ($) | Year over Year Average Change in Fair Value of Outstanding & Unvested Awards ($) | Average Fair Value as of Vesting Date of Awards Granted and Vested in the Year ($) | Year over Year Average Change in Fair Value of Awards Granted in Prior Years that Vested in the Year ($) | Total Average Equity Award Adjustment ($) | ||||||||||||||||
2022 | 2,606,281 | (259,317 | ) | - | 1,600,314 | 3,947,278 | |||||||||||||||
2021 | 4,424,764 | 667,315 | - | 1,761,076 | 6,853,155 | ||||||||||||||||
2020 | 4,033,879 | 1,507,771 | - | 749,561 | 6,291,210 |
(b) | Total Pension Benefit Adjustments are equal to the Pension Service Costs incurred during the relevant period. No Prior Service Costs were incurred as no modifications were made to the pension plan during the relevant period. Only Mr. Donnelly participated in the pension plan. |
5. | Cumulative TSR is calculated by dividing (a) the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between the Company’s share price at the end and the beginning of the measurement period by (b) the Company’s share price at the beginning of the measurement period. The peer group selected by the Company for purposes of the TSR benchmarking for the pay versus performance disclosures is the same peer group the Company uses for its performance graph in the Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K. The Peer Group consists of Albertsons Companies, Inc. (included from June 26, 2020 when it began trading), Costco Wholesale Corporation, CVS Health Corporation, Koninklijke Ahold Delhaize N.V., Target Corp., Walgreens Boots Alliance Inc. and Walmart Inc. The cumulative TSR depicts a hypothetical $100 investment in Kroger common shares on February 1, 2020, and shows the value of that investment over time (assuming the reinvestment of dividends) for each calendar year. A hypothetical $100 investment in the Peer Group using the same methodology is shown for comparison. |
6. | Net income is as reported in the Company’s audited financial statements for the applicable year in accordance with U.S. GAAP. |
7. | Adjusted FIFO Operating Profit equals gross profit, excluding the LIFO charge, minus OG&A, minus rent, and minus depreciation and amortization. For a reconciliation of non-GAAP information, see pages 27 – 33 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on March 28, 2023. |
Most Important Performance Measures
The three measures listed below represent the most important financial performance measures used by the Company to link CAP to Company performance for the 2022 fiscal year,
● | Adjusted FIFO Operating Profit |
● | ID sales, without fuel |
● | Adjusted net earnings per diluted share attributable to The Kroger Co. |
For a reconciliation of non-GAAP information, see pages 27 – 33 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on March 28, 2023.
COMPANY SELECTED METRIC – Adjusted FIFO Operating Profit
NET INCOME GRAPHICAL REPRESENTATION
KROGER TSR GRAPHICAL REPRESENTATION
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information regarding the ratio of the annual total compensation of our Chairman and CEO, Mr. McMullen, to the annual total compensation of our median employee.associate.
As reported in the Summary Compensation Table, our CEO had annual total compensation for 20182022 of $12,037,872.$19,209,843. Using this Summary Compensation Table methodology, the annual total compensation of our median employeeassociate for 20182022 was $24,912.$28,644. As a result, we estimate that the ratio of our CEO’s annual total compensation to that of our median employeeassociate for fiscal 20182022 was 483671 to 1. Our median employee is a full-time associate in the Southeast region. Over half of Kroger’s associates are part-time workers.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll records and the methodology described below. The SEC rules for identifying the median compensated employeeassociate and calculating the pay ratio based on that employee’sassociate’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. Therefore, the estimated pay ratio reported above may not be comparable to the pay ratios reported by other companies and should not be used as a basis for comparison between companies.
We identify the “median employee” from our employee population on the last day of our 11th fiscal period (December 8, 2018), which included full-time, part-time, temporary, and seasonal employees who were employed on that date. The consistently applied compensation measure we used was “base salary/wages paid,” which we measured from the beginning of our fiscal year, February 4, 2018, through February 2, 2019; and we multiplied the
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average weekly earnings during this period of each full-time and part-time permanent employee by 52, which was the number of weeks in fiscal 2018. We annualized the earnings of all permanent employees who were on a leave of absence or were new-hires in 2018. We did not make any other adjustments permissible by the SEC nor did we make any other material assumptions or estimates to identify our median employee. The median employee did not change from the prior year. There were no changes in our employee population or compensation arrangements that would have significantly affected our pay ratio calculation.
Once the median employee was identified, we then determined the median employee’sassociate’s annual total compensation using the Summary Compensation Table methodology as detailed in Item 402(c)(2)(x) of Regulation S-K and compared it to the annual total compensation of Mr. McMullen as detailed in the “Total” column of the Summary Compensation Table for 2018,2022, to arrive at the pay ratio disclosed above. Due to a material increase in salary of our median associate in fiscal 2022, we identified a substitute median associate as permitted under SEC rules on April 3, 2023 because we reasonably believed that continuing to use the prior median associate would have significantly affected our CEO pay ratio disclosure and the CEO pay ratio would not reflect the actual ratio that was used to calculate the pay ratio.
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 Compensation Discussion and Analysis, our policies and practices for compensating associates are designed to, among other things, attract and retain high quality and engaged associates. 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. 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.
Item No. 2 Advisory Vote to Approve Executive Compensation
You are being asked to vote, on an advisory basis, to approve the compensation of our NEOs. The Board of Directors recommends that you vote FOR the approval of compensation of our NEOs.
FOR | The Board recommends a vote FOR the approval of compensation of our NEOs. |
The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, requires that we give our shareholders the right to approve, on a nonbinding, advisory basis, the compensation of our NEOs as disclosed earlier in this proxy statement in accordance with the SEC’s rules.
As discussed earlier in the CD&A, our compensation philosophy is to attract and retain the best management talent and to motivate these employeesassociates to achieve our business and financial goals. Our incentive plans are designed to reward the actions that lead to long-term value creation. To achieve our objectives, we seek to ensure that compensation is competitive and that there is a direct link between pay and performance. To do so, we are guided by the following principles:
● | Compensation must be designed to retract and retain the individuals to be an executive at Kroger; |
● | A significant portion of pay should be performance-based, with the percentage of total pay tied to performance increasing proportionally with an executive’s level of responsibility; |
● | Compensation should include incentive-based pay to drive performance, providing superior pay for superior performance, including both a short- and long-term focus; |
● | Compensation policies should include an opportunity for, and a requirement of, significant equity ownership to align the interests of executives and shareholders; |
● | Components of compensation should be tied to an evaluation of business and individual performance measured against metrics that directly drive our business strategy; |
● | Compensation plans should provide a direct line of sight to company performance; |
● | Compensation programs should be aligned with market practices; and |
● | Compensation programs should serve to both motivate and retain talent. |
The vote on this resolution is not intended to address any specific element of compensation. Rather, the vote relates to the compensation of our NEOs as described in this proxy statement. The vote is advisory. This means that the vote is not binding on Kroger. The Compensation Committee of the Board is responsible for establishing executive compensation. In so doing, the Compensation Committee will consider, along with all other relevant factors, the results of this vote.
We ask our shareholders to vote on the following resolution:
“RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and the related narrative discussion, is hereby APPROVED.”
The next advisory vote will occur at our 2020 annual meeting.
The Board2024 Annual Meeting subject to shareholders approving one year as the frequency of Directors Recommends a Vote For This Proposal.the advisory vote in Item No. 3 below.
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Item No. 3 Advisory Vote to Approve The Kroger Co. 2019 Long-Term Incentive Planon the Frequency of Future Advisory Votes on Executive Compensation
You are being asked to vote, to approveon an advisory basis, on the Kroger 2019 Long-Term Incentive Plan (the “2019 Plan”). Our frequency of future advisory votes on executive compensation. The Board of Directors has adoptedrecommends a vote of ONE YEAR for the frequency of future advisory votes on executive compensation.
The Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act also require that shareholders be given the right to vote, again on a nonbinding, advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our named executive officers.
When the advisory vote was last held in 2017, shareholders indicated a preference to hold the advisory vote on executive compensation each year and the Board implemented this standard. The Board of Directors believes that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for Kroger and it therefore recommends that you vote FOR this proposal.
Under this Item No. 3,for the Boardone year alternative.
The vote is recommendingadvisory. This means that our shareholders approve the 2019 Plan, which was adopted, subject to shareholder approval, by thevote is not binding on Kroger. Our Board of Directors will determine the actual voting frequency for approval of executive compensation. In so doing the Board will consider, along with all other relevant factors, the results of this vote. The Board may decide to hold an advisory vote on April 29, 2019. The 2019 Plan is intended to replace our shareholder-approved 2014 Long-Term Incentive and Cash Bonus Plan, as amended (the “2014 Plan”), and our shareholder-approved 2011 Long-Term Incentive and Cash Bonus Plan, as amended (the “2011 Plan”), and to implement, among other things:
If
The proxy card provides shareholders the 2019 Plan is approved by our shareholders, it will become effective asopportunity to choose among four options for the frequency of the date of the Annual Meeting and no additional awards will be granted under the 2014 Planadvisory vote: every one, two, or the 2011 Plan. In the event that our shareholders do not approve this Proposal, the 2019 Planthree years, or abstain from casting a vote. Shareholders will not become effective, andbe voting to approve or to disapprove the 2014 Plan and 2011 Plan will continue to be effective in accordance with their terms. No awards have or will be made under the 2019 Plan prior to its approval by shareholders at the Annual Meeting.
As described above in the section entitled “Compensation Discussion and Analysis” beginning on page 19 above, the Compensation Committeerecommendation of the Board of Directors has long maintained a strong pay for performance philosophy designed to attract and retainDirectors. The option receiving the best management talent, to motivate employees to achieve our business and financial goals, and to reward the actions that lead to long-term value creation. The Compensation Committee believes that there is a strong link between our business strategy, the performance metrics in our short-term and long-term incentive programs, and the business results that drive shareholder value. To achieve our objectives, the Compensation Committee seeks to ensure that compensation is competitive and that a significant portion of pay should be performance-based, with the percentage of total pay tied to performance increasing proportionally with an NEO’s level of responsibility. If the 2019 Plan is approved, the Companymost affirmative votes will be able to continue to provide equity awards as part of its compensation program, which is necessary to successfully attract and retain the best possible candidates for positions of substantial responsibility within the Company and to ensure that compensation is competitive and has a direct link with performance. Moreover, awarding equity compensation aligns the interests of our NEOs with the interests of our shareholders and creates incentives to achieve the annual business plan targets and longer term company objectives. The details and design elementsoutcome of the 2019 Plan are set forth in the section entitled “—Summary of the 2019 Plan” beginning on page 52 below.
Providing equityadvisory vote. Broker non-votes and equity-based awards aligns employee compensation interests with the investment interests of our shareholders, and reduces cash compensation expense, permitting cash to be reinvested in our business or returned to our shareholders. Approval of the 2019 Planabstentions will allow Kroger to continue to provide equity and equity-based awards to recruit and compensate its officers and other key employees beyond the time at which the shares reserved under the 2014 Plan and the 2011 Plan would be depleted. If the 2019 Plan is not approved, the Company will continue to grant awards under the 2014 Plan and the 2011 Plan until there arehave no longer any shares available for grant.
We are requesting approval of 38,000,000 shares for awards under the 2019 Plan. Awards may also be made under the 2019 Plan with respect to an estimated 23,783,636 shares that, as of April 23, 2019, remain available for grant under the 2014 Plan and the 2011 Plan, each of which has previously been approved by our shareholders. In addition, if and only to the extent forfeited in accordance with the terms of such plans, a maximum of 26,311,950 shares previously granted under the 2014 Plan and the 2011 Plan may become available for awards under the 2019 Plan (for the avoidance of doubt, such shares are not initially available for grant under the 2019 Plan). We refer to the aggregate number of shares available for awards under the 2019 Plan as the “share reserve.” The share reserve will be reduced by one share for each share subject to a stock option or share appreciation right, and by 2.83 shares for each share subject to a restricted stock award, award of restricted stock units (including performance units), or other share award. In determining the number of shares to request under the 2019 Plan, we evaluated our share availability under the 2014 Plan and the 2011 Plan, recent share usage, our historical annual equity award grant rate, our historical forfeiture rate and our estimates of the number of shares needed to attract new executive hires. We expect that the share reserve will allow us to continue to appropriately grant equity awards at reasonable and desirable levels for approximately the next three years; however, the
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amount of future awards is not currently known and will depend on various factors that cannot be predicted, including, but not limited to, the price of our shares on future grant dates, the volatility of the stock and the types of awards that will be granted.
Key Plan Provisions
In addition, the 2019 Plan increases flexibility for design of performance-based awards following the repeal of the exemption for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”). The Compensation Committee aims to continue to retain flexibility to design compensation programs that are in the long-term best interests of Kroger and our shareholders, with deductibility of compensation being only one of a range of considerations taken into account.
Key Shareholder Considerations
Shareholders should consider the following in determining whether to approve the 2019 Plan:
Fiscal Year | Options Granted | Full-Value Shares Granted | Total Granted (full-value shares adjusted)* | Weighted Average # of Common Shares Outstanding | Burn Rate | ||||||||||
2018 | 2,780,977 | 4,611,375 | 14,309,415 | 810,166,210 | 1.77 | % | |||||||||
2017 | 7,000,000 | 5,800,000 | 21,500,000 | 895,000,000 | 2.40 | % | |||||||||
2016 | 4,800,000 | 3,600,000 | 13,800,000 | 942,000,000 | 1.46 | % |
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equity awards under our 2014 Plan and 2011 Plan, 13,481,250 shares were subject to outstanding equity awards under our 2008 Long-Term Incentive and Cash Bonus Plan, as amended (the “2008 Plan”), and our 2005 Long-Term Incentive Plan, as amended (the “2005 Plan”), an additional 23,783,636 shares were reserved for issuance under our 2014 Plan and 2011 Plan (and, for the avoidance of doubt, no shares remain available for issuance under the 2008 Plan and the 2005 Plan), and we are requesting an additional 38,000,000 shares for grant under the 2019 Plan, which based on 798,429,109 shares outstanding on April 23, 2019, results in a total potential dilution of 13.77%. This overhang is reasonable compared to that of our peers.
The principal features of the 2019 Plan are summarized below. The summary does not purport to be a complete statement of the terms of the 2019 Plan and is qualified in its entirety by reference to the full text of the 2019 Plan, a copy of which is attached as Appendix A to this Proxy Statement.
Purpose
The purpose of the 2019 Plan is to align the interests of eligible participants with our shareholders by providing incentive compensation tied to Kroger’s performance. The intent of the 2019 Plan is to advance Kroger’s interests and increase shareholder value by attracting, retaining and motivating key personnel.
Administration
Pursuant to its terms, the 2019 Plan may be administered by the Compensation Committee of the Board, such other committee of the Board appointed by the Board to administer the Plan or the Board, as determined by the Board (such administrator of the 2019 Plan, the “Committee”). The Committee has the power and discretion
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necessary to administer the 2019 Plan, with such powers including, but not limited to, the authority to select persons to participate in the 2019 Plan, determine the form and substance of awards under the 2019 Plan, determine the conditions and restrictions, if any, subject to which such awards will be made, modify the terms of awards, accelerate the vesting of awards upon termination of service, and make determinations regarding a participant’s termination of employment or service for purposes of an award. The Committee’s determinations, interpretations and actions under the 2019 Plan are bindingeffect on the Company, the participants in the 2019 Plan and all other parties. Generally, the 2019 Plan will be administered by our Compensation Committee, which solely consistsoutcome of independent directors, as appointed by the Board from time to time. The Compensation Committee may delegate authority to a committee of executives in respect of awards to Kroger associates who are not our NEOs or subject to Section 16 under the Exchange Act, as permitted under the 2019 Plan.
Eligibility
Any employee, officer, non-employee director, consultant or advisor to the Company or any of its subsidiaries or affiliates can participate in the 2019 Plan, at the Committee’s discretion. In its determination of eligible participants, the Committee may consider any and all factors it considers relevant or appropriate, and designation of a participant in any year does not require the Committee to designate that person to receive an award in any other year. As of the record date, 439,000 employees, 19 officers, 11 non-employee directors, and no consultants or advisors are eligible to participate in the Plan.
Awards
The types of awards available under the 2019 Plan include stock options (both incentive and non-qualified), share appreciation rights, restricted stock awards, restricted stock units (including performance units), cash incentive awards and share awards. All awards granted to participants under the 2019 Plan will be represented by an award agreement. No award granted to participants under the 2019 Plan may vest prior to the one year anniversary of such award’s date of grant (except for awards in respect of up to 5% of the share reserve of the 2019 Plan, and awards that vest upon the death or disability of the participant, or upon a change in control (to the extent that awards are not continued, assumed or substituted, or upon a qualifying termination of service following such change in control, as described below)).
Stock Options
A stock option grant entitles a participant to purchase a specified number of Company shares (the “Shares”) during a specified term (with a maximum term of 10 years) at an exercise price that will not be less than the fair market value of a Share as of the date of grant.
Subject to the minimum vesting requirements described above, the Committee will determine the requirements for vesting and exercisability of the stock options, which may be based on the continued employment or service of the participant with the Company for a specified time period, upon the attainment of performance goals or both. The stock options may terminate prior to the end of the term or vesting date upon termination of employment or service (or for any other reason), as determined by the Committee. No dividends or dividend equivalent rights will be paid or granted with respect to stock options. Unless approved by the Company’s shareholders, the Committee may not take any action with respect to a stock option that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements of the stock exchange on which Shares are listed.
Stock options granted under the 2019 Plan are either non-qualified stock options or incentive stock options (with incentive stock options intended to meet the applicable requirements under the Code). Stock options are nontransferable except in limited circumstances.
Share Appreciation Rights
A share appreciation right (SAR) granted under the 2019 Plan will give the participant a right to receive, upon exercise or other payment of the SAR, an amount in cash, Shares or a combination of both equal to the excess of (a) the fair market value of a Share on the date of exercise over (b) the base price of the SAR that the Committee specified on the date of the grant. The base price of a SAR will not be less than the fair market value of a Share as of the date of grant. The right of exercise in connection with a SAR may be made by the participant or automatically upon a specified date or event. SARs are non-transferable, except in limited circumstances.
Subject to the minimum vesting requirements described above, the Committee will determine the requirements for vesting and exercisability of the SARs, which may be based on the continued employment or service of the participant with the Company for a specified time period or upon the attainment of specific performance goals. The
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SARs may be terminated prior to the end of the term (with a maximum term of 10 years) upon termination of employment or service, as determined by the Committee. No dividends or dividend equivalent rights will be paid or granted with respect to SARs. Unless approved by the Company’s shareholders, the Committee may not take any action with respect to a SAR that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements of the stock exchange on which Shares are listed.
Restricted Stock Awards
A restricted stock award is a grant of a specified number of Shares to a participant, which restrictions will lapse upon the terms that the Committee determines at the time of grant. Subject to the minimum vesting requirements described above, the Committee will determine the requirements for the lapse of the restrictions for the restricted stock awards, which may be based on the continued employment or service of the participant with the Company over a specified time period, upon the attainment of performance goals, or both.
The participant will have the rights of a shareholder with respect to the shares granted under a restricted stock award, including the right to vote the shares and receive all dividends and other distributions with respect thereto, unless the Committee determines otherwise to the extent permitted under applicable law. Any shares granted under a restricted stock award are nontransferable, except in limited circumstances. A participant may make an election under Section 83(b) of the Code for tax planning purposes.
Restricted Stock Units (including Performance Units)
A restricted stock unit or performance unit granted under the 2019 Plan will give the participant a right to receive, upon vesting and settlement of the restricted stock units (commonly known as RSUs) or performance units, one Share per vested unit or an amount per vested unit equal to the fair market value of one Share as of the date of determination, or a combination thereof, at the discretion of the Committee. The Committee may grant RSUs or performance units together with dividend equivalent rights (which will not be paid until the award vests), and the holder of any RSUs or performance units will not have any rights as a shareholder, such as dividend or voting rights, until the Shares underlying the RSUs or performance units are delivered.
Subject to the minimum vesting requirements described above, the Committee will determine the requirements for vesting and payment of the RSUs and performance units, which may be based on the continued employment or service of the participant with the Company for a specified time period and, for performance units, also upon the attainment of specific performance goals. RSU and performance unit awards will be forfeited if the vesting requirements are not satisfied. RSUs and performance units are nontransferable, except in limited circumstances.
Cash Incentive Awards
Cash incentive awards if granted under the 2019 Plan may be payable based on the achievement of business and/or individual performance goals over a performance period, and may also be based on the continued employment or service of a participant with the Company during the performance period, or such other conditions as determined by the Committee. Cash incentive awards may be paid in any combination of cash or Shares, based on the fair market value of such Shares at the time of payment. The Compensation Committee will determine the requirements for vesting and payment of any cash incentive awards granted under the 2019 Plan.
Share Awards
Share awards may be granted to eligible participants under the 2019 Plan and consist of an award of Shares. A share award may be granted for past employment or service, in lieu of bonus or other cash compensation, as director’s compensation or any other purpose as determined by the Committee. Subject to the minimum vesting requirements described above, the Committee will determine the requirements for the vesting and payment of the share award, with the possibility that awards may be made with no vesting requirements. Upon receipt of the share award, the participant will have all rights of a shareholder with respect to the Shares, including the right to vote and receive dividends.
Performance-Based Compensation
All types of awards granted under the 2019 Plan may be granted with vesting, payment, lapse of restrictions and/or exercisability requirements that are subject to the attainment of specific performance goals (with the exception of cash incentive awards, which must be granted subject to the attainment of performance goals). The Committee may adjust performance goals, or the manner of measurement thereof, as it deems appropriate.
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Plan Amendments or Termination
The Board may amend, modify, suspend or terminate the 2019 Plan, provided that if such amendment, modification, suspension or termination materially and adversely affects any award the Company must obtain the affected participant’s consent. Certain amendments or modifications of the 2019 Plan may also be subject to the approval of our shareholders as required by SEC and NYSE rules or applicable law.
Termination of Service
Awards under the 2019 plan may be subject to reduction, cancellation or forfeiture upon termination of service or failure to meet applicable performance conditions or other vesting terms.
Under the 2019 Plan, unless an award agreement provides otherwise, if a participant’s employment or service is terminated for cause, or if after termination the Committee determines that the participant engaged in an act that falls within the definition of cause, or if after termination the participant engages in conduct that violates any continuing obligation of the participant with respect to the Company, the Company may cancel, forfeit and/or recoup any or all of that participant’s outstanding awards. In addition, if the Committee makes the determination above, the Company may suspend the participant’s right to exercise any stock option or share appreciation right, receive any payment or vest in any award pending a determination of whether the act falls within the definition of cause. The 2019 plan incorporates by reference the definition of cause from the KEPP. If a participant voluntarily terminates employment or service in anticipation of an involuntary termination for cause, that shall be deemed a termination for cause.
The Company has the right to recoup any gain realized by the participant from the exercise, vesting or payment of any award if, within one year after such exercise, vesting or payment, the participant is terminated for cause, the Committee determines the participant is subject to recoupment due to a clawback policy, or after the participant’s termination the Committee determines that the participant engaged in an act that falls within the definition of cause or materially violated any continuing obligation of the participant with respect to the Company.
Change in Control
Under the 2019 Plan, in the event of a change in control of the Company, as defined in the 2019 Plan, all outstanding awards shall either (a) be continued or assumed by the surviving company or its parent, or (b) substituted by the surviving company or its parent for awards, with substantially similar terms (with appropriate adjustments to the type of consideration payable upon settlement, including conversion into the right to receive securities, cash or a combination of both, and with appropriate adjustment of performance conditions or deemed achieved of such conditions at the greater of the target level or actual performance, unless otherwise provided in an award agreement).
Only to the extent that outstanding awards are not continued, assumed or substituted upon or following a change in control, the Committee may, but is not obligated to, make adjustments to the terms and conditions of outstanding awards, including without limitation (i) acceleration of exercisability, vesting and/or payment immediately prior to or upon or following such event, (ii) upon written notice, providing that any outstanding stock option and share appreciation right must be exercised during a period of time immediately prior to such event or other period (contingent upon the consummation of such event), and at the end of such period, such stock options and share appreciation rights shall terminate to the extent not so exercised, and (iii) cancellation of all or any portion of outstanding awards for fair value (in the form of cash, Shares, other property or any combination of such consideration), less any applicable exercise or base price.
Notwithstanding the foregoing, if a participant’s employment or service is terminated upon or within twenty four (24) months following a change in control by the Company without cause or by the participant for good reason (defined in the 2019 Plan by reference to the KEPP), the unvested portion (if any) of all outstanding awards held by the participant will immediately vest (and, to the extent applicable, become exercisable) and be paid in full upon such termination, with any performance conditions deemed achieved at the greater of the target level or actual performance, unless otherwise provided in an award agreement.
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Assumption of Awards in Connection with an Acquisition
The Committee may assume or substitute any previously granted awards of an employee, director or consultant of another corporation who becomes eligible by reason of a corporate transaction. The terms of the assumed award may vary from the terms and conditions otherwise required by the 2019 Plan if the Committee deems it necessary. The assumed awards will not reduce the total number of shares available for awards under the 2019 Plan.
Shares Available
38,000,000 Shares are available for awards under the 2019 Plan.
Awards may also be made under the 2019 Plan with respect to an estimated 23,783,636 shares that, as of April 23, 2019, remain available for grant under the 2014 Plan and the 2011 Plan, each of which has previously been approved by our shareholders. In addition, if forfeited in accordance with their terms, a maximum of 26,311,950 shares previously granted under the 2014 Plan and the 2011 Plan may become available for awards under the 2019 Plan. We refer to the aggregate number of shares available for awards under the 2019 Plan as the “share reserve.” Within the share reserve, a total of 10,000,000 Shares are available for awards of incentive stock options.
If any award granted under the 2019 Plan is canceled, expired, forfeited, surrendered, settled by delivery of fewer shares than the number underlying the award, or otherwise terminated without delivery of the Shares or payment of consideration to the participant, then such shares will be returned to the 2019 Plan and be available for future awards under the 2019 Plan. However, shares that are withheld from an award in payment of the exercise, base or purchase price or taxes or not issued or delivered as a result of the net settlement of an outstanding stock option, share appreciation right or other award will not be returned to the 2019 nor available for future awards under the 2019 Plan.
The share reserve will be reduced by one share for each Share subject to a stock option or share appreciation right, and by 2.83 shares for each Share subject to a restricted stock award, award of restricted stock units (including performance units), or other share award. If a Share that was subject to an award that counted as one share is returned to the share reserve, the share reserve will be credited with one share. If a Share that was subject to an award that counts as 2.83 shares is returned to the share reserve, the share reserve will be credited with 2.83 shares.
Adjustments
In the event of any recapitalization, reclassification, share dividend, extraordinary dividend, share split, reverse share split, merger, reorganization, consolidation, combination, spin-off or other similar corporate event or transaction affecting the common shares of the Company, the Committee will make equitable adjustments to (i) the number and kind of Shares or other securities available for awards and covered by outstanding awards, (ii) the exercise, base or purchase price, or other value determinations of outstanding awards, and/or (iii) any other terms of an award affected by the corporate event.
Tax Consequences
Incentive Stock Options
An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option normally will recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the exercise date and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
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The difference between the option exercise price and the fair market value of the shares on the exercise date is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.
Nonqualified Stock Options
Options not designated or qualifying as incentive stock options will be nonqualified stock options having no special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonqualified stock option, the optionee normally recognizes ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price. If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired by the exercise of a nonqualified stock option, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss.
Share Appreciation Rights
In general, no taxable income is reportable when SARs are granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the fair market value of any cash or shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock Awards
A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect, pursuant to Section 83(b) of the Code, to accelerate the ordinary income tax event to the date of acquisition by filing an election with the Internal Revenue Service no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Restricted Stock Unit Awards (including Performance Unit Awards)
There are no immediate tax consequences of receiving an award of RSUs or performance units. A participant who is awarded RSUs or performance units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the Committee or a participant. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss.
Cash Incentive Awards
A participant generally will recognize no income upon the grant of a performance cash incentive award. Upon the settlement of such award, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any unrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Share Awards
A participant acquiring unrestricted shares generally will recognize ordinary income equal to the fair market value of the shares on the grant date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of unrestricted shares acquired pursuant to a share award, any gain or loss, based on the difference between the sale price and the fair market value on the date the shares are granted, will be taxed as capital gain or loss.
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Section 409A
Section 409A provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Certain types of awards granted under the 2019 Plan may be subject to the requirements of Section 409A. It is intended that the 2019 Plan and all awards comply with, or be exempt from, the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
Tax Effect for the Company
The Company generally will be entitled to a tax deduction in connection with an award under the 2019 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonqualified stock option). Special rules limit the deductibility of compensation paid to our chief executive officer, chief financial officer and the other “covered employees” as determined under Section 162(m) of the Code and applicable guidance. Under Section 162(m), the annual compensation paid to any of these covered employees, including awards that Kroger grants pursuant to the 2019 Plan, whether performance-based or otherwise, will be subject to the $1 million annual deduction limitation. Because of the elimination of the performance-based compensation exemption, it is possible that all or a portion of the compensation paid to covered employees in the form of equity grants under the 2019 Plan may not be deductible by the Company, to the extent that the annual deduction limitation is exceeded.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE 2019 PLAN. IT DOES NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE IMPACT OF EMPLOYMENT OR OTHER TAX REQUIREMENTS, THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH, OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
New Plan Benefits
The issuance of any awards under the 2019 Plan will be at the discretion of the Committee. In addition, the benefit of any awards granted under the 2019 Plan will depend on a number of factors, including the fair market value of Company shares on future dates, and actual Company performance against performance goals established with respect to performance awards, among other things. Therefore, it is not possible to determine the amount or form of any award that will be granted to any individual in the future. For information regarding awards granted to our NEOs under the 2014 Plan during the 2018 fiscal year, please refer to the Grants of Plan-Based Awards table on page 38 made to our NEOs in fiscal 2018.
Equity Compensation Plan Information
The following table provides information regarding shares outstanding and available for issuance under our existing equity compensation plans, effective as of February 2, 2019.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted average exercise price of outstanding options, warrants and rights(1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
Equity compensation plans approved by security holders | 36,526,924 | $ | 23.42 | 28,386,544 | |||||
Equity compensation plans not approved by security holders | — | — | — | ||||||
Total | 36,526,924 | $ | 23.42 | 28,386,544 |
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Equity Compensation Plan Information as of April 23, 2019
The information included in this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ending February 2, 2019 is updated by the following information regarding all existing equity compensation plans as of April 23, 2019:
Additional Information
For further discussion of our compensation program and the long-term incentive awards granted under our incentive plans, see “Compensation Discussion & Analysis” and the discussion of “Long-Term Compensation” therein.
The Board of Directors Recommends a Vote For This Proposal.
Item No. 4, Vote to Approve Amendment to Regulations to Permit Board Amendments in Accordance with Ohio Law
Under this Item No. 4, we are asking our shareholders to approve an amendment to our Regulations allowing the Board of Directors to adopt amendments to the Regulations to the extent permitted by Ohio law. Our Regulations currently require our shareholders to adopt all amendments.
We also asked shareholders to approve this proposal at our 2018 Annual Meeting. We received the overwhelming support of 97% of our shareholders that voted on the proposal. However, the proposal requires the affirmative vote of 75% of outstanding shares, rather than of shares voted. We received the support of 73% of our outstanding shares falling just short of the 75% necessary that must support the proposal for the proposal to pass. Because of the overwhelming support, this year we are again requesting that our shareholders afford us the flexibility that many other Ohio public companies have to more efficiently oversee the company’s governance by giving our Board the ability to amend our Regulations in certain circumstances.
The text of the revised Article VII of our Regulations, with the additional text proposed by the amendment indicated by underlining is set forth below. The following discussion is qualified in its entirety by reference to the proposed text of the amendment below.
Like many Ohio companies that have also amended their regulations to permit amendments by their boards of directors, we are asking our shareholders to approve Item No. 4 in light of the following:
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Even if this Item No. 4 is approved, under Ohio law, only our shareholders would be able to make the following amendments to our Regulations:
Accordingly, if shareholders approve Item No. 4:
The amendment also clarifies that the power to amend the Regulations, whether exercised by the Board or shareholders, includes the power to adopt new regulations.
If Item No. 4 is approved, we would promptly notify shareholders of any amendments to our Regulations made by the Board of Directors either by filing a report with the SEC or by sending a notice to shareholders of record as of the date of the adoption of the amendment. Our shareholders would continue to be able to adopt, amend and repeal the Regulations without action by the Board and, therefore, to change any amendment made by the Board of Directors should they determine that to be appropriate.
The actual text of the revised Article VII of our Regulations, with changes indicated by underlining, is set forth below. The amendment would become effective at the time of the shareholder vote.
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ARTICLE VII
Amendment of Regulations
The Board of Directors Recommends a Vote For Thisof One Year for this Proposal.
Item No. 54 Ratification of the Appointment of Kroger’s Independent Auditor
You are being asked to ratify the appointment of Kroger’s independent auditor, PricewaterhouseCoopers LLC. The Board of Directors recommends that you vote FOR the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm.
FOR | The Board recommends a vote FOR the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm. |
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities regarding the Company’s financial reporting and accounting practices including the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the independent public accountants’ qualifications and independence; the performance of the Company’s internal audit function and independent public accountants; and the preparation of the Audit Committee Report. The Audit Committee performs this work pursuant to a written charter approved by the Board of Directors. The Audit Committee charter most recently was revised during fiscal 2012 and is available on the Company’s website at ir.kroger.com under Investors –— Governance –— Committee Composition. The Audit Committee has implemented procedures to assist it during the course of each fiscal year in devoting the attention that is necessary and appropriate to each of the matters assigned to it under the Audit Committee’s charter. The Audit Committee held 5 meetings during fiscal year 2018.2022.
Selection of Independent Auditor
The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention, and oversight of Kroger’s independent auditor, as required by law and by applicable NYSE rules. On March 13, 2019,8, 2023, the Audit Committee appointed PricewaterhouseCoopers LLP as Kroger’s independent auditor for the fiscal year ending February 1, 2020.January 27, 2024. PricewaterhouseCoopers LLP or its predecessor firm has been the Company’s independent auditor since 1929.
In determining whether to reappoint the independent auditor, our Audit Committee:
● | Reviews PricewaterhouseCoopers LLP’s independence and performance; |
● | Considers the tenure of the independent registered public accounting firm and safeguards around auditor independence; |
● | Reviews, in advance, all non-audit services provided by PricewaterhouseCoopers LLP, specifically with regard to the effect on the firm’s independence; |
● | Conducts an annual assessment of PricewaterhouseCoopers LLP’s performance, including an internal survey of their service quality by members of management and the Audit Committee; |
● | Conducts regular executive sessions with PricewaterhouseCoopers LLP; |
● | Conducts regular executive sessions with the Vice President of Internal Audit; |
● | Considers PricewaterhouseCoopers LLP’s familiarity with our operations, businesses, accounting policies and practices and internal control over financial reporting; |
● | Reviews candidates for the lead engagement partner in conjunction with the mandated rotation of the public accountants’ lead engagement partner; |
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● | Reviews recent Public Company Accounting Oversight Board reports on PricewaterhouseCoopers LLP and its peer firms; and |
● | Obtains and reviews a report from PricewaterhouseCoopers LLP describing all relationships between the independent auditor and Kroger at least annually to assess the independence of the internal auditor. |
As a result, the members of the Audit Committee believe that the continued retention of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm is in the best interests of our companyCompany and its shareholders.
While shareholder ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor is not required by Kroger’s Regulations or otherwise, the Board of Directors is submitting the selection of PricewaterhouseCoopers LLP to shareholders for ratification, as it has in past years, as a good corporate governance practice. If the shareholders fail to ratify the selection, the Audit Committee may, but is not required to, reconsider whether to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different auditor at any time during the year if it determines that such a change would be in the best interests of our companyCompany and our shareholders.
A representative of PricewaterhouseCoopers LLP is expected to be present atparticipate in the meeting to respond to appropriate questions and to make a statement if he or she desires to do so.
Audit and Non-Audit Fees
The following table presents the aggregate fees billed for professional services performed by PricewaterhouseCoopers LLP for the annual audit and quarterly reviews of our consolidated financial statements for fiscal 20182022 and 2017,2021, and for audit-related, tax and all other services performed in 20182022 and 2017.2021.
Fiscal Year Ended | ||||||
February 2, 2019 | February 3, 2018 | |||||
Audit Fees(1) | $ | 5,067,485 | $ | 5,193,565 | ||
Audit-Related Fees | $ | 1,110,870 | $ | 775,000 | ||
All Other Fees | $ | 900 | 900 | |||
Total | $ | 6,179,255 | $ | 5,969,465 |
Fiscal Year Ended | ||||||||
January 28, 2023 ($) | January 29, 2022 ($) | |||||||
Audit Fees(1) | 5,886,900 | 5,427,500 | ||||||
Audit-Related Fees | 982,000 | 0 | ||||||
Tax Fees(2) | 153,000 | 25,000 | ||||||
All Other Fees(3) | 5,850 | 3,150 | ||||||
Total | 7,027,750 | 5,455,650 |
(1) | Includes annual audit and quarterly reviews of Kroger’s consolidated financial statements, the issuance of comfort letters to underwriters, consents, and assistance with review of documents filed with the SEC. |
(2) | Includes pre-approved assistance with tax compliance and assistance in connection with tax audits. |
(3) | Includes use of accounting research tool. |
The Audit Committee requires that it approve in advance all audit and non-audit work performed by PricewaterhouseCoopers LLP. In 2007,Pursuant to the Audit Committee adopted an audit and non-audit service pre-approval policy. Pursuant to the terms of that policy, the Committee will annually pre-approve certain defined services that are expected to be provided by the independent auditors. If it becomes appropriate during the year to engage the independent accountant for additional services, the Audit Committee must first approve the specific services before the independent accountant may perform the additional work.
PricewaterhouseCoopers LLP has advised the Audit Committee that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in Kroger or its subsidiaries.
The Board of Directors Recommends a Vote For This Proposal.
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Audit Committee Report
Management of the Company is responsible for the preparation and presentation of the Company’s financial statements, the Company’s accounting and financial reporting principles and internal controls, and procedures that are designed to provide reasonable assurance regarding compliance with accounting standards and applicable laws and regulations. The independent public accountants are responsible for auditing the Company’s financial statements and expressing opinions as to the financial statements’ conformity with generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting.
In performing its functions, the Audit Committee:
● | Met separately with the Company’s internal auditor and PricewaterhouseCoopers LLP with and without management present to discuss the results of the audits, their evaluation and management’s assessment of the effectiveness of Kroger’s internal controls over financial reporting and the overall quality of the Company’s financial reporting; |
● | Met separately with the Company’s Chief Financial Officer or the Company’s General Counsel when needed; |
● | Met regularly in executive sessions; |
● | Reviewed and discussed with management the audited financial statements included in our Annual Report; |
● | Discussed with PricewaterhouseCoopers LLP the matters required to be discussed under the applicable requirements of the Public Company Accounting Oversight Board and the SEC; and |
● | Received the written disclosures and the letter from PricewaterhouseCoopers LLP required by the applicable requirements of the Public Accounting Oversight Board regarding the independent public accountant’s communication with the Audit Committee concerning independence and discussed the matters related to their independence. |
Based upon the review and discussions described in this report, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended February 2, 2019,January 28, 2022, as filed with the SEC.
This report is submitted by the Audit Committee.
Anne Gates, Chair
Kevin M. Brown
Karen M. Hoguet
Ronald L. SargentBobby S. ShackoulsMark S. Sutton
Ashok Vemuri
63
Items 5 – 9
SHAREHOLDER PROPOSALS
Included in this proxy statement are five separate shareholder proposals that have been submitted under SEC rules by shareholders who notified the company of their intention to present the proposals for voting at the 2023 Annual Shareholders’ Meeting. Some shareholder proposals and supporting statements may contain assertions about Kroger that we believe are incorrect, and we have not tried to refute all such inaccuracies in the company’s responses. All statements and citations contained in a shareholder proposal and its supporting statements are the sole responsibility of the proponent of that shareholder proposal. Our company will provide the names, addresses, and shareholdings (to our company’s knowledge) of the proponents of any shareholder proposal upon oral or written request made to Corporate Secretary, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100. The information on, or accessible through, Kroger’s websites or report links included in this proxy statement, including the statements that follow, is not part of, or incorporated by reference into, this proxy statement.
AGAINST | The Board recommends a vote AGAINST each of the following shareholder proposals, in each case if properly presented at the meeting, for the reasons stated in Kroger’s statements in opposition following each shareholder proposal. |
Item No. 5 Shareholder Proposal – Report on Public Health Costs from Sale of Tobacco Products
We have been advised that The Sisters of St. Francis of Philadelphia or an appointed representative, along with nine co-filers, will present the following proposal for consideration during the 2023 Annual Shareholders’ Meeting.
“RESOLVED, shareholders ask that the board commission and disclose a report on the external public health costs created by the sale of tobacco products by our company (the “Company”) and the manner in which such costs affect the vast majority of its shareholders who rely on overall market returns.
The negative health and productivity impacts from the consumption of tobacco products impose $1.2 trillion in social damage; tobacco’s unpriced social burden amounts to almost 3 percent of global GDP annually.1
Yet, in spite of the Company dedicating an entire division, Kroger Health, to addressing its customers’ healthcare needs2, as well as the overwhelming evidence that tobacco – a known carcinogen that impairs respiratory function – significantly prejudices the health outcomes of smokers, and particularly smokers infected with COVID-19, the Company continues to sell tobacco products in its stores.
These public health costs, year after year, are devastating to economic growth and further compound the financial devastation wrought by the COVID-19 pandemic. Yet Kroger does not disclose any methodology to address the public health costs of its tobacco sales. Thus, shareholders have no guidance as to costs the Company is externalizing and consequent economic harm. This information is essential to shareholders, the majority of whom are beneficial owners with broadly diversified interests.
But Kroger undermines its commitments to promoting good health and ultimately the interests of its diversified shareholders by not disclosing the social and environmental costs and risks imposed on stakeholders, even when these costs and risks threaten society, the economy and the performance of other companies. All stakeholders are unalterably harmed when companies impose costs on the economy that lower GDP, which reduces equity value.3 While the Company may profit by ignoring costs it externalizes, diversified shareholders will ultimately pay these costs, and they have a right to ask what they are.
The Company’s disclosures do not address the issue, because they do not address the public health costs that Kroger’s tobacco sales impose on shareholders as diversified investors who must fund retirement, education, public goods and other critical social needs. This is a separate social issue of great importance. A report would help shareholders determine whether these externalized costs and the economic harm they may create ultimately serve their interests.”
1https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm
2Kroger Health – Business & Community Health Solutions
3https://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:
Kroger takes the responsibility of selling tobacco products very seriously and has established policies and processes to limit the sale of these items only to customers who are legally permitted to purchase them. We offer customers a wide range of choices across all product categories to meet wide-ranging tastes and preferences, including food and discretionary items.
The Company has the management systems and governance to limit the sale of tobacco products and to support choices for better health.
The Kroger family of companies is committed to ethical and responsible behavior in all parts of our business. Our behavior is rooted in Our Purpose – to Feed the Human Spirit™ – and our promise to our customers. This includes upholding Our Values, which have been the foundation of Kroger’s culture for decades.
The Audit Committee and Public Responsibilities Committee of the board of directors oversee progress in regulatory compliance and pharmacy safety measures.
We recognize our responsibility as a business to support our communities and help families by making it easier for them to live healthier lives. We also believe in our customers’ freedom of choice, and adult customers can choose to purchase tobacco products understanding fully the potential health impacts. The Company continually reviews its product assortment, including tobacco and tobacco cessation products.
Notably, recent studies that show the percentage of U.S. adults who smoke cigarettes has reached a new low, driven by sharply lower smoking rates among young adults.1 Sales for both tobacco products and tobacco cessation products at Kroger have similarly decreased in recent years.
How We Limit Tobacco Sales
Tobacco sales, like the sales of many products, are governed by regulations, which we strictly follow. The Company’s Tobacco Sales Policy is designed to comply with these regulations and affirm our commitment to the health and welfare of our nation’s youth by reducing adolescent access to tobacco. The Policy outlines internal business procedures and best practices to maintain compliance at retail stores.
How We Promote Health and Healthier Choices
We aim to serve and improve health for millions of people across the country through our business operations, Environmental, Social and Governance Strategy – Thriving Together – and Kroger Health’s strategy and services.
Kroger Health leads the company’s health and nutrition strategy, services and programs. It includes retail, mail order, central fill and specialty pharmacy operations; retail health clinics; nutrition and dietitian services; and health advocacy. A team of 22,000 healthcare practitioners, including pharmacists, nurse practitioners, dietitians and technicians, serves more than 14 million customers annually.
We aim to support our customers and communities with tools, resources and services that advance population health for all. We inform our Customers and Associates about the importance of healthy lifestyles, and we equip our pharmacy and health clinic teams to support people trying to quit tobacco. Specifically related to the use of tobacco products, we:
● | Offer smoking cessation coaching programs that are available to all, including coaching through telehealth services; |
1 https://news.gallup.com/poll/405884/cigarette-smoking-rates-down-sharply-among-young-adults.aspx#:~:text=U.S.%20Cigarette%20Smoking%20Rates%2C%20by%20Age%20Group&text=That%20dropped%20to%20an%20average,those%20ages%2065%20and%20older
● | Offer affordable prescription and over-the-counter smoking cessation products that are available to all; and |
● | Encourage Associates not to use tobacco through Company health plan incentives, coverage for smoking cessation products, and employee assistance programs for smoking cessation. |
Kroger continues to make a wide range of health and wellness services more affordable and convenient for millions of customers and for local communities across the U.S. As a trusted local partner, we also provided essential support and services during the COVID-19 pandemic, rapidly scaling testing and vaccine distributions when needed most.
Assessing the external public health costs related to the Company’s sale of a single category of products is not reasonable or practicable given the resources and expertise required to consider all externalities and related topics outside of our control. In light of the above, we do not believe an additional report would add meaningfully to the extensive body of research currently available on this subject and therefore do not believe such an additional report is necessary.
For the foregoing reasons, we urge you to vote AGAINST this proposal.
Item No. 6 – Listing of Charitable Contributions of $10,000 or more
We have been advised that The Louis B & Diana R Eichold Trust or an appointed representative will present the following proposal for consideration during the 2023 Annual Shareholders’ Meeting.
“Whereas the Company's charitable contributions, properly managed, are likely to enhance the reputation of the Company:
Whereas increased disclosure regarding appropriate charitable contributions can create goodwill for our Company .
Whereas making the benefits of our Company's philanthropic programs better known is likely to promote the Company's interests:
Whereas feedback from employees, shareholders, and customers could help guide the Company's future charitable giving process.
Resolved: The Proponent requests that the Board of Directors consider listing on the Company website any recipient of $10,000 or more of direct contributions, excluding employee matching gifts.
Supporting Statement
Absent a system of accountability and transparency; some charitable contributions may be made unwisely, potentially harming the Company's reputation and shareholder value. Corporate philanthropic gifts should be given as much exposure as possible, lest their intended impact on goodwill is diminished. For example, if we gave to the American Cancer Society, thousands of our stakeholders might potentially approve of our interest in challenging this disease. Likewise, our support of Planned Parenthood could win the praise of millions of Americans who have had an abortion at one of their facilities. Educational organizations like the Southern Poverty Law Center have seen an increase in funding since they included several conservative Christian organizations on their list of hate groups. Our stakeholders and customers might be similarly enthused if we supported them. Be it the Girl Scouts, American Heart Association, Boys and Girls Club of America, Red Cross, or countless other possible recipients, our support should be publicly noted. Those who might disagree with our decisions can play a valuable role also.
Some charities may be controversial. Charitable contributions come from the fruit of our employee's labor and belong to our shareholders. Both groups represent a wide diversity of opinions. More importantly, we market ourselves to the general public and should avoid offending segments of this most critical group. It would be unfortunate if a charitable contribution resulted in lower employee morale and shareholder interest, much less a loss of potential revenue.
Fuller disclosure would provide enhanced feedback opportunities from which our Company could make more beneficial choices.”
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:
Kroger has a long history of giving back meaningfully in the communities we serve. Charitable giving is central to Our Purpose – to Feed the Human Spirit – and strategically aligned to our mission – Kroger’s Zero Hunger | Zero Waste social and environmental impact plan. This plan empowers Kroger to pursue our goal to help create communities free of hunger and waste across the country. Additionally, we provide annual public disclosures related to charitable giving areas of focus and annual grant-making.
Every year, we direct charitable contributions at the national, regional and local levels to advance positive impacts for people and our planet. This giving includes funds, in-kind product donations, and retail store donations of surplus fresh food that our associates recover for local food bank partners through our leading Zero Hunger | Zero Waste Food Rescue program. For example, in 2022, 100% of our retail stores participated in the Food Rescue program, donating more than 100 million pounds of fresh food to our communities.
Through corporate giving and the work of our two nonprofit foundations – The Kroger Co. Foundation and The Kroger Co. Zero Hunger | Zero Waste Foundation – we direct more than $300 million annually to partners and causes that align with our mission. Of this, more than 75% supports hunger relief programs to feed individuals and families where we live and work. These totals include generous support from our associates and customers through in-store fundraising programs at checkout. The largest share of corporate funds, in-kind product donations, and customer donations is directed to the Feeding America-affiliated network of local food banks, pantries and agencies in our communities.
Other national organizations receiving significant charitable funds from Kroger include No Kid Hungry, American Red Cross, United Service Organizations (USO), American Heart Association and World Wildlife Fund. Notably, Kroger is the largest cumulative corporate donor to the USO in the organization’s history, showing our long-standing support for the nation’s active-duty military service men and women and their families. At the regional and local levels, we support other nonprofit organizations and causes that matter most to our associates and customers.
Foundation Grants
Kroger provides detailed annual disclosures on the work of our two foundations. The Kroger Co. Foundation, the company’s private foundation established in 1987, which focuses grant-making on causes that support hunger relief; sustainability; disaster relief; diversity and inclusion; and education and youth development. The Foundation’s 2022 Report, including grantee highlights and specific grant funding levels across the country, is available here: https://www.thekrogerco.com/wp-content/uploads/2022/08/Kroger-Co-Foundation-2022-Report.pdf.
In 2021, the Foundation directed $12.7 million in grants, of which 58% aligned with hunger relief and sustainability causes, and 24% supported emergency assistance and disaster relief efforts. Specific grants and grant recipients are highlighted in the annual The Kroger Co. Foundation report.
The Kroger Co. Zero Hunger | Zero Waste Foundation, a nonprofit public charity established in 2018, is designed to advance collective action and innovation to build a better food system for the future. More about the Zero Hunger | Zero Waste Foundation is available on its website: https://thekrogercozerohungerzerowastefoundation.com/. More details about the Foundation’s general grant-making and signature program, the Zero Hunger | Zero Waste Innovation Fund, are disclosed in its annual report: https://www.thekrogerco.com/wp-content/uploads/2022/08/Kroger-Co-Zero-Hunger-Zero-Waste-Foundation-2022-Report.pdf.
In 2021, the Zero Hunger | Zero Waste Foundation directed $18 million in grants; of these, 97% aligned to hunger relief and sustainability causes. Grants included $11.7 million in funds to improve food access and food security and $4.5 million to advance more sustainable food systems. Grant highlights are included in the Zero Hunger | Zero Waste Foundation report.
Guidelines & Policies:
We follow best practices and specific guidelines when reviewing grant requests. Our Donation Guidelines provide direction on the types of organizations that Kroger supports and, importantly, make clear the types of organizations to which donations will not be granted. We accept and consider donation requests from 501(c)(3) registered nonprofit organizations through an online grant management platform. We use the Guidestar Charity Check to confirm they meet all Internal Revenue Service requirements to receive grants and donations. The Donation Guidelines are publicly available on our corporate website: https://thekrogerco.versaic.com/login?Select-A-Store=Enabled&ReturnTo=/default.aspx
We do not make charitable donations to individuals, political campaigns, sectarian or religious organizations for projects that serve only its own members or supporters, or organizations that discriminate based on race, color, sex, pregnancy, disability, age, national origin, religion, sexual orientation, gender identity, genetic information or any other characteristic protected by applicable law.
The Company has adequate public disclosures related to its charitable giving areas of focus and annual grant-making.
Kroger recognizes that disclosure of its corporate philanthropic efforts is important and provides stakeholders with an opportunity to review Kroger charitable programs. We believe the extensive information and other disclosures provided in Kroger’s annual ESG Report, The Kroger Co. Foundation annual report, The Kroger Co. Zero Hunger | Zero Waste Foundation annual report and our website provide ample disclosures related to our approach to charitable giving, which supports Our Purpose, ESG Strategy, and Zero Hunger | Zero Waste impact plan.
For the foregoing reasons, we urge you to vote AGAINST this proposal.
Item No. 7 Shareholder Proposal –— Recyclability of Packaging
We have been notifiedadvised that As You Sow on behalf of the Michael Monteiro 2016 Trust or an appointed representative, along with one co-filer, will present the following proposal for consideration during the 2023 Annual Shareholders’ Meeting.
“WHEREAS: The growing plastic pollution crisis poses increasing risks to Kroger. Corporations could face an annual financial risk of approximately $100 billion should governments require them to cover the waste management costs of the packaging they produce.1 New laws to this effect were recently passed in Maine, Oregon, Colorado, and California,2 while the European Union has enacted a $1 per kilogram tax on all non-recycled plastic packaging waste.3
Pew Charitable Trusts released a groundbreaking study, Breaking the Plastic Wave ("Pew Report"), concluding that improved recycling is insufficient and at least one-third of overall plastic use must be eliminated to stem the global plastic pollution crisis. It finds that plastic use reduction is the most viable solution from environmental, economic, and social perspectives . Without immediate and sustained new commitments, annual flows of plastics into oceans could nearly triple by 2040.4
Kroger has fallen behind its peers in plastic packaging reductions. Kroger is notably absent from the Ellen MacArthur Foundation's Global Commitment to reduce plastic pollution, in which brand signatories have committed to reduce virgin plastic use by an average of 20% by 2025.5 The majority of signatories have already reduced their use of plastic packaging over a 2018 baseline.6
1 https://www.pewtrusts.org/-/media/assets/2020/07/breakingtheplasticwave_report.pdf
2 https://www.packworld.com/news/sustainability/article/22419036/four-states-enact-packaging-epr-laws
3 https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-budget/2021-2027/revenue/own-resources/plastics-own-resource_en
4 https://www.pewtrusts.org/-/media/assets/2020/07/breakingtheplasticwave_report.pdf
5 https://emf.thirdlight.com/link/f6oxost9xeso-nsjoqe/@/#id=2
6 https://emf.thirdlight.com/link/f6oxost9xeso-nsjoqe/@/#id=2, p. 11
Unilever has taken the most significant action to date, agreeing to cut virgin plastic use by 50% by 2025, including an absolute elimination of 100,000 tons of plastic packaging. At least sixty other consumer goods and retail companies currently have goals to reduce use of virgin plastic packaging, including competitors Walmart and Target.7 Kroger has no plastic reduction goal.
Starbucks, Coca-Cola, and Pepsi are leading the industry in reducing disposable packaging, each having set new goals to expand use of zero-waste reusable packaging. As a retail partner of the global reuse platform Loop, Kroger is poised to increase use of reusable packaging, yet has made no commitment to make reusable packaging permanent.
Our company could avoid regulatory, environmental, and competitive risks, and keep up with its peers by, for example, setting new commitments to reduce use of disposable virgin plastic and invest in reusable packaging.
RESOLVED: Shareholders request that the Kroger Board issue a report, at reasonable expense and excluding proprietary information, describing how the Company could reduce its plastics use in alignment with the one-third reduction findings of the Pew Report, or other authoritative sources, to reduce its contribution to ocean plastics pollution.
SUPPORTING STATEMENT:The report should, at Board discretion:
● | Assess the reputational, financial, and operational risks associated with continuing to use substantial amounts of single-use plastic packaging while plastic pollution grows; |
● | Evaluate dramatically reducing the amount of plastic used in our packaging through transitioning to reusables; and |
● | Describe how the Company can further reduce single-use packaging, including any planned reduction strategies or goals, materials redesign, substitution, or reductions in use of virgin plastic.” |
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:
The Kroger family of companies is committed to protecting people and our planet by advancing positive change in our company and our communities. Through our Zero Hunger | Zero Waste social and environmental impact plan, we are on a journey to help create communities free of hunger and waste.
Our sustainable packaging commitments
Kroger has focused on improving the environmental attributes of product packaging for many years through a series of ambitious sustainable packaging goals. Our goals demonstrate Kroger’s continued commitment to help create a more circular economy and reduce plastics found in nature by using more sustainable packaging options where feasible; supporting reusable packaging models; using recyclable packaging and incorporating recycled content; and increasing consumer awareness about reuse and recycling.
We are also committed to upholding the highest standards of food safety and quality for our customers. Decisions about Our Brands food packaging consider critical attributes needed to protect and preserve food safety, quality, freshness, and affordability as well as to reduce greenhouse gas emissions related to the manufacture and transportation of items.
Kroger’s 2030 sustainable packaging commitments include the following elements:
● | Complete an Our Brands baseline product packaging footprint to fully understand current packaging impacts. |
● | Seek to achieve 100% recyclable, compostable and/or reusable packaging for Our Brands products. |
● | Increase recycled content in packaging so that the Our Brands product portfolio collectively contains at least 10% recycled content in packaging. |
● | Reduce unnecessary packaging. |
● | Increase awareness among Kroger customers about how to properly manage Our Brands product packaging at end of life. |
7 https://gc-22.emf.org/ppu/?_gl=1*1p3bi1c*_ga*nzEwMDEwNTU0LjE2Njl1NjQ4MTY.*_ga_V32N675KJX*MTY3MTlyMTM1OS4xMS4xLjE2NzEyMjE0OTMuNjAuMC4w
Taking Action to Achieve our 2030 Goals
In 2022, we developed our baseline packaging footprint with guidance from a consultant and input from our suppliers and internal subject matter experts. We found that 40% of Our Brands product packaging meets our definition of recyclable, when measured by weight of packaging material. In addition, the packaging portfolio captured in our baseline includes 14% post-consumer recycled content (PCR) material. We plan to update and refine our packaging baseline over time to track goal progress and inform goal achievement.
In 2023, we are continuing our work to build a roadmap to achieving our goals by 2030 and prioritize opportunities to adjust our packaging and/or support infrastructure changes. Our roadmap will also accommodate changes required by packaging legislation in the states and municipalities in which Kroger operates. In addition, the packaging baseline will inform any adjustments or refinements to our current goals.
More detailed information about our packaging baseline and key action steps to increase packaging sustainability is available in our 2022 Environmental, Social & Governance (ESG) report (https://www.thekrogerco.com/wp-content/uploads/2022/08/Kroger-Co-2022-ESG-Report.pdf).
We continue to evaluate and implement opportunities to reduce plastic use and improve end-of-life management opportunities for product packaging. Examples include:
Plastic Reduction & Circularity:
● | In 2022, Kroger added 50% post-consumer recycled content (PCR) PET plastic to a new line of Our Brands spice products. We continue to pilot different levels of PCR material in our product packaging, particularly in those products that are subject to packaging legislation, evaluating factors such as function, shelf-life, and aesthetic. |
● | Kroger-operated manufacturing plants continue to reduce plastic use and packaging weights for Our Brands items, where feasible. Last year, we reduced the amount of plastic used in our carbonated soft drinks and cultured dairy tub product packages, saving approximately 450,000 pounds of plastic annually. |
● | Kroger was the first U.S. grocery retail partner for the innovative Loop reusable packaging platform. In 2022, Kroger conducted a pilot at 25 Fred Meyer stores in the Portland, OR, area, selling more than 20 items representing popular brands, to gauge consumer response to this alternative to single-use packaging. Our pilot collected valuable insights on what may be needed to scale reusable packaging solutions in our industry. |
End-of-Life Solutions:
● | We continue to offer the Kroger Our Brands packaging recycling program so our customers can collect flexible plastic packaging and mail it free of charge to TerraCycle for recycling. Kroger is the first retailer to offer this type of recycling program across an entire private-label portfolio. Program engagement and recycling volume continues to grow, with Kroger customers returning more than 1 million packages—the equivalent of more than 22,000 pounds of plastic—to date. |
● | Kroger continued adding the How2Recycle logo to Our Brands items to increase our customers’ awareness of how to recycle product packaging, including those items eligible for front-of-store plastic film recycling programs—which we offer across the enterprise. |
● | The Kroger Co. Zero Hunger | Zero Waste Foundation supports the multi-stakeholder Polypropylene Recycling Coalition, facilitated by The Recycling Partnership, which aims to improve community-level infrastructure to enable curbside polypropylene collection and recycling. In 2022, the Foundation expanded this support to help fund the PET Recycling Coalition, which aims to increase the recyclability of PET (polyethylene terephthalate) plastic packaging. |
● | Kroger is the Grocery Sector Lead partner for Closed Loop Partners’ Beyond the Bag Initiative, launched by the Consortium to Reinvent the Retail Bag. This multi-year collaboration across retail sectors aims to identify, test and implement innovative new design solutions to replace the single-use plastic retail shopping bag. |
Given the above progress on our sustainable packaging roadmap, including detailed reporting available in Kroger’s 2022 ESG Report, we don’t believe additional reporting on packaging and plastics use is additive at this time.
For the foregoing reasons, we urge you to vote AGAINST this proposal.
Item No. 8 Report on Racial and Gender Pay Gaps
We have been advised that Arujna Capital on behalf of Susan Silver or an appointed representative along with one shareholder,co-filer will present the namefollowing proposal for consideration during the 2023 Annual Shareholders’ Meeting.
“Whereas: Pay inequities persist across race and shareholdingsgender and pose substantial risks to companies and society. Black workers' hourly median earnings represent 64 percent of white wages. The median income for women working full time is 83 percent that of men. Intersecting race, Black women earn 63 percent, Native women 60 percent, and Latina women 55 percent. At the current rate, women will not reach pay equity until 2059, Black women in 2130, and Latina women in 2224 .1
Citigroup estimates closing minority and gender wage gaps 20 years ago could have generated 12 trillion dollars in additional national income. PwC estimates closing the gender pay gap could boost Organization for Economic Cooperation and Development (OECD) countries' economies by 2 trillion dollars annually.2
Actively managing pay equity is associated with improved representation. Diversity in leadership is linked to superior stock performance and return on equity.3 Minorities represent 38.5 percent of Kroger's workforce and 26 percent of Store Leaders. Women represent 50.5 percent of the workforce and 33 percent of Store Leaders.4
Best practice pay equity reporting consists of two parts:
1. | unadjusted median pay gaps, assessing equal opportunity to high paying roles, |
2. | statistically adjusted gaps, assessing whether minorities and non-minorities, men and women, are paid the same for similar roles. |
Kroger does not report quantitative unadjusted or adjusted pay gaps. Over 20 percent of the 100 largest U.S. employers currently report adjusted gaps, and an increasing number of companies disclose unadjusted gaps to address the structural bias women and minorities face regarding job opportunity and pay.5
Racial and gender unadjusted median pay gaps are accepted as the valid way of measuring pay inequity by the United States Census Bureau, Department of Labor, OECD, and International Labor Organization. The United Kingdom and Ireland mandate disclosure of median pay gaps, and the United Kingdom is considering racial pay reporting.6
Resolved: Shareholders request The Kroger Co. report on both quantitative median and adjusted pay gaps across race and gender, including associated policy, reputational, competitive, and operational risks, and risks related to recruiting and retaining diverse talent. The report should be prepared at reasonable cost, omitting proprietary information, litigation strategy and legal compliance information.
1https://static1.squarespace.com/static/5bc65db67d0c9102cca54b74/t/622f4567fae4ea772ae60492/1647265128087/Racial+Gender+Pay+Scorecard+2022+-+Arjuna+Capital.pdf
2 Ibid.
3 Ibid.
4https://www.thekrogerco.com/wp-content/uploads/2022/08/Kroger-Co-2022-ESG-Report.pdf
5https://diversiq.com/which-sp-500-companies-disclose-gender-pay-equity-data/
6 https://static1.squarespace.com/static/5bc65db67d0c9102cca54b74/t/622f4567fae4ea772ae60492/1647265128087/Racial+Gender+Pay+Scorecard+2022+-+Arjuna+Capital.pdf
Racial/gender pay gaps are defined as the difference between non-minority and minority/male and female median earnings expressed as a percentage of non-minority/male earnings (Wikipedia/OECD, respectively).
Supporting Statement:An annual report adequate for investors to assess performance could, with board discretion, integrate base, bonus and equity compensation to calculate:
● | percentage median and adjusted gender pay gap, globally and/or by country, where appropriate |
● | percentage median and adjusted racial/minority/ethnicity pay gap, US and/or by country, where appropriate” |
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:
Kroger welcomes associates from every race, culture, gender and ability, and is actively creating and maintaining an equitable workplace where every associate is empowered, supported, and feels valued and a sense of belonging. Our aspiration is for the demographic representation of women and people of color to reflect our communities, at both the organization-wide and local levels.
Kroger already has an established approach to pay equity.Kroger has been performing an annual pay equity analysis since 2016, which takes into consideration gender and race for all salaried roles. We review our pay equity analysis annually with the Compensation and Talent Development Committee of the Board of Directors. The organization also equips and enables our leaders to promote pay equity and transparency. We have robust and comprehensive pay administration guidelines for non-bargaining-unit employees, enabling our managers to effectively manage compensation throughout the year to reward performance and address progression within pay ranges. In addition to these guidelines, we provide additional training to managers in preparation for annual compensation planning.
Kroger provides robust disclosure of representation annually. Kroger consistently discloses and discusses its diverse associate representation in the organization’s annual ESG Report. We publish our annual EEO-1 reports as filed with the EEOC (https://www.thekrogerco.com/wp-content/uploads/2022/08/EEO-1-2021.pdf). In addition, Kroger provides a detailed discussion of our workforce strategy and total rewards and benefits approach in our Annual Report and Form 10-K. The organization also discusses its approach to Human Capital Management in its annual ESG report. The report, available on www.thekrogerco.com/esgreport, includes disclosures related to associate health and safety; Kroger’s Framework for Action: Diversity, Equity & Inclusion plan; talent attraction and retention; and labor relations.
The majority of Kroger’s workforce is covered under collective bargaining agreements, which facilitate pay equity for frontline associates. Kroger’s compensation structure supports fair pay. Wages, health care and pensions are included in more than 354 collective bargaining agreements that cover approximately 64% of our associates. The negotiated pay structures within those agreements facilitate standard and consistent pay progression based on tenure and experience. Pay is determined using structured wage progressions where an associate moves through the progression based on time in role or hours worked. Associates move through the wage progression based on the same definitions and criteria as other associates working in the same roles. Pay parity is promoted within the model because of the structured wage grids and inherent progression framework.
Non-union hourly roles follow similar wage progressions. Where we use a pay-for-performance model for non-union, hourly roles, those workplaces follow compensation guidelines that provide for a framework of tying pay to performance and using pay levels.
Kroger provides comprehensive benefits for associates. The organization has invested an incremental $1.9 billion in associate wages and training since 2018. This has increased our national average hourly rate of pay from $13.66 to $18, or $23.50 per hour with comprehensive benefits.
Kroger has announced plans to continue investing in wages, with plans for a more than $770 million incremental investment in associates during 2023.
In addition to market-competitive wages, our associates have access to a wide variety of benefits that provide value in their lives today and in the future. We invest in the whole person with a benefits package that generally includes: quality, affordable healthcare; retirement savings plans and pension plans; on-demand access to mental health assistance and free counseling to support emotional wellness; career advancement opportunities; financial education programs to help associates manage their day-to-day finances; and an industry-leading continuing education benefit that provides up to $21,000 for associates, part-time and full-time alike, which, along with scholarships for children of associates — most of whom are first-generation college attendees — provide pathways to social mobility to associates who choose to participate. We also offer associates a variety of grocery discounts, volunteer opportunities, and other perks and rewards.
Diversity and inclusion are part of Kroger’s core organizational values, and the organization has strong programs in place to create and maintain an equitable workplace and inclusive culture.
Diversity and inclusion have been longstanding Kroger values. In 2020, we introduced Kroger’s Framework for Action to further advance diversity, equity and inclusion in our culture and communities. The plan’s action steps include creating a DE&I advisory council reporting to senior leadership, providing diversity training to our associate population, improving diverse talent recruiting through expanded partnerships with HBCUs and Hispanic-serving institutions, establishing two-way mentorship and advocacy programs, increasing spend with diverse suppliers, and more. We report progress against these goals in Kroger’s annual ESG report.
Kroger strives to attract, retain and develop leaders and associates who best reflect our communities. Because of our unique business model, we help unlock economic opportunity for nearly half a million people of various ages and aspirations, from those wanting an entry-level part-time job to graduate-degree specialists across corporate functions. We also aim to develop and promote diverse leaders to roles with increasing levels of responsibility. For open leadership positions, we assemble a diverse slate of candidates for consideration.
In 2022, every manager across the organization was expected to actively mentor and develop an associate who has a different background than them. This, along with other objectives, is used to assess the manager’s performance and ultimately affects their compensation. Currently, over 80% of retail division executive leadership teams have at least one diverse leader.
We believe that Kroger’s current compensation practices promote diversity, inclusion and fair pay across our workforce. While Kroger welcomes continued engagement with shareholders on these issues, we believe that the adoption of this proposal is not necessary in light of our existing practices.
For the foregoing reasons, we urge you to vote AGAINST this proposal.
Item No. 9 – Report on EEO Policy Risks
We have been advised that the National Center for Public Policy Research or an appointed representative will be furnishedpresent the following proposal for consideration during the 2023 Annual Shareholders’ Meeting. We will promptly to any shareholderprovide the shareholdings upon written or oral request to Kroger’s Secretary at our executive offices, that it intends to propose the following resolution at the annual meeting:offices.
“RESOLVEDWHEREAS: A portion of Kroger house brand product packaging is unrecyclable, including plastics, which are a growing component of plastic pollution and marine litter. Authorities say that marine litter kills and injures marine life, spreads toxics, and poses a potential threat to human health. The environmental cost of consumer plastic products and packaging exceeds $139 billion annually, according to the American Chemistry Council.
Plastic is the fastest growing form of packaging; U.S. flexible plastic sales are estimated at $26 billion. Dried fruit, frozen meat, cheese, and dog food are some of
Shareholders request the Kroger house brand items packagedCompany ("Kroger") issue a public report detailing the potential risks associated with omitting "viewpoint" and "ideology" from its written equal employment opportunity (EEO) policy. The report should be available within a reasonable timeframe, prepared at a reasonable expense and omit proprietary information.
SUPPORTING STATEMENT
Kroger does not explicitly prohibit discrimination based on viewpoint or ideology in unrecyclable plastic pouches. Private label items account forits written EEO policy.
Kroger's lack of a quartercompany-wide best practice EEO policy sends mixed signals to company employees and prospective employees and calls into question the extent to which individuals are protected due to inconsistent state policies and the absence of all sales – nearly $20 billion annually. Using unrecyclable packaging when recyclable alternatives are available wastes valuable resources. William McDonough, a leading green design advisor, calls pouch packaging a “monstrous hybrid” designed to end up eitherrelevant federal protection. Approximately half of Americans live and work in a landfilljurisdiction with no legal protections if their employer takes action against them for their political activities or incinerator.
Recyclabilitydiscriminates on the basis of household packagingviewpoint in the workplace.
Companies with inclusive policies are better able to recruit the most talented employees from a broad labor pool, resolve complaints internally to avoid costly litigation or reputational damage, and minimize employee turnover. Moreover, inclusive policies contribute to more efficient human capital management by eliminating the need to maintain different policies in different locations.
There is ample evidence that individuals with conservative viewpoints may face discrimination at Kroger.
Kroger recently kowtowed to leftwing social media criticism by removing patriotic and Second Amendment related paraphernalia from store shelves. For instance, after someone complained on Twitter about a growing area of focus as consumers become more environmentally conscious, yet recycling rates stagnate. Only 14% of plastic packaging is recycled, accordingdrink sleeve that stated, "Arms Change, Rights Don't", the Company reportedly recalled the items.1 Kroger's subsidiary grocery store, Harris Teeter, likewise complied with liberal demands to pull "Freedom Series" items from its shelves, removing items that read, "Give me liberty or give me death" and "America, love it or leave it."2
While removing patriotic items from its stores, Kroger has simultaneously pushed a leftwing social agenda. Published in2021, the U.S. Environmental Protection Agency (EPA). Billions of pouchesCompany released an "allyship guide" that told employees to use "inclusive language" and similar multi-layer plastic laminates lie buried in landfills. Unrecyclable packaging is more likely to be littered and swept into waterways. An assessment of marine debris by the Global Environment Facility concluded that one cause of debris entering oceans is “design and marketing of products internationally without appropriate regard to their environmental fate or ability to be recycled…”
In the marine environment, plastics break down into indigestible particles that marine life mistake for food. Studies by the EPA suggest a synergistic effect between plastic debris and persistent, bio-accumulative, toxic chemicals. Plastics absorb toxicscelebrate transgender holidays.3 Defining terms such as polychlorinated biphenyls"non-binary," "transgender," and dioxins"pansexual," the guide asserts that, "Some people's morality can be a barrier to accepting LGBTQ+ people."4
Removing pro-America items from waterstore shelves while publishing "allyship" training guides for staff certainly raise concerns over how Kroger treats employees with diverse points of view, particularly those who disagree with the Company's blatant leftwing actions. This places the Company in reputational, legal, and financial risk, as evidenced by a recent settlement with fired employees who refused to wear a Company issued apron adorning a rainbow on account of it violating their religious beliefs.5
Presently, shareholders are unable to evaluate how Kroger prevents discrimination towards employees based on their ideology or sedimentviewpoint, mitigates employee concerns of potential discrimination, and transfer them to the marine food webensures a respectful and potentially to human diets. If no actions are taken, oceans are expected to contain more plastic than fish by 2050!
Making all packaging recyclable, if possible, is the first step needed to reduce the threat posed by plastic pollution. Better management of plastic could save consumer goods companies $4 billion a year. Companies who aspire to corporate sustainability yet use these risky materials need to explain why they use unrecyclable packaging.
Other companies who manufacture and sell food and household goods are moving towards recyclability. Kroger is lagging behind competitors. Our direct grocery competitors Walmart and Target have both agreed to make their packaging recyclable by 2025. Colgate-Palmolive, PepsiCo, Procter & Gamble, and Unilever have also developed packaging recyclability goals.
RESOLVED: Shareowners of Kroger requestsupportive work atmosphere that the board of directors issue a report, at reasonable cost, omitting confidential information, assessing the environmental impacts of continuing to use unrecyclable brand packaging.bolsters employee performance.
Supporting Statement: Proponents believe
We recommend that the report should include an assessment of the reputational, financialevaluate risks including, but not limited to, negative effects on employee hiring and operationalretention, as well as litigation risks associated with continuing to use unrecyclable brand packagingfrom conflicting state and if possible, goals and a timeline to phase out unrecyclable packaging.company anti-discrimination policies.”
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:
Kroger strives to reflect the communities we serve and foster a culture that empowers everyone to be their true self, inspires collaboration, and feeds the human spirit.
We are committed to a policy of equal opportunity for all associates without regard to race, color, religion, sex, national origin, age, disability, sexual orientation, or gender identity. In implementing our policy, we seek and embrace differences in the backgrounds, cultures, and perspectives of all associates, and we encourage and expect all of our associates to collaborate and actively work together regardless of these differences. Moreover, as we identify in our ESG Report, our diversity, equity and inclusion (DE&I) programs demonstrate our commitment to building a diverse and inclusive workforce, fostering an environment where diversity is a competitive advantage and providing equal opportunities for associates.
We are focused on creating a culture of fairness and respect.
Our formal DE&I Framework for Action, launched in 2020, is focused on creating a more inclusive culture and advancing equitable communities, among other goals, underscoring Kroger’s commitment to standing together and mobilizing our people, passion, scale and resources to transform our culture and our communities. The framework is built around pillars focused on creating a more inclusive culture, developing diverse talent, advancing diverse partnerships, advancing equitable communities and deeply listening and reporting progress.
1 https://www.bizpacreview.com/2022/06/21/harris-teeter-kroger-remove-pro-america-items-from-shelves-after-woke-complaints-backlash-is-swift-1252599/; https://www.foxbusiness.com/retail/harris-teeter-kroger-backlash-pro-america-items-complaints
2 https://www.bizpacreview.com/2022/06/21/harris-teeter-kroger-remove-pro-america-items-from-shelves-after-woke-complaints-backlash-is-swift-1252599/; https://www.foxbusiness.com/retail/harris-teeter-kroger-backlash-pro-america-items-complaints
3 https://www.breitbart.com/social-justice/2022/08/31/kroger-allyship-guide-tells-employees-to-celebrate-trans-holidays-support-bail-fund/
4 https://www.thekrogerco.com/wp-content-uploads/2021/03/AAPI-Allyship-Guide_v3.2-External-merged.pdf
5 https://news.yahoo.com/kroger-pay-180K-lawsuit-over-162047710.html
In particular, we understand that our associates have a wide range of viewpoints. We are committed to a culture of fairness, respect and inclusion that drives us to value and embrace differences. As part of our Framework for Action, we are engaging with external and internal stakeholders to seek perspectives and provide associates with platforms to continue sharing their stories and feedback. To that end, Kroger launched an internal DEI Advisory Council made up of cross-functional leaders who are committed to advancing sustainability in the area of packaging sustainability as part of our 2020 Sustainability Goalsthis progress, working closely with senior officers and our Zero Hunger | Zero Waste social impact plan. We agree that improving the recyclability of product packaging is neededbusiness leaders to reduce the environmental impacts of plastic pollution.
Our Commitments
A few years ago, Kroger introduced our 2020 Sustainability Goals, which include several targets to optimize Our Brands product packaging. These include improving the recyclability of plastic packagingidentify opportunities and achieving 20% recycled content in packagingspecific actions for Kroger manufactured products – which also helps drive demand for recycled materials. In addition, we pledged to increase communication with our customers about recyclability and help expand recycling infrastructure because we can not solve this problem alone. We committed to increase responsible fiber sourcing in paper packaging. And finally, we committed to reduce plastic in Our Brands packaging by 10 million pounds.
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By the end of 2018, we had achieved more than 9 million pounds of reduced plastic in our manufactured plastic packaging since our 2015 baseline, in large part thanks to converting 8 more dairy plants to our lighter-weight milk jug, which is 10% lighter than our previous jug. We are in process of analyzing and calculating the recycled content and certified responsibly grown fiber proportion of our packaging footprint. We continue to add ‘Please Recycle’ to relevant packages, and we are working across relevant business units and with input from our suppliers to evaluate meaningful opportunities to add and increase recycled content in our packaging as well as move to more recyclable packaging materials and designs. And finally, we offer our customers an in-store recycling program through which they can drop plastic film packaging such as shopping bags, bread and produce bags and bottled water case wraps, in our store lobbies.
The detailed packaging optimization goals for 2020 and an update on our progress can be found at http://sustainability.kroger.com/2020-goals.html.
Looking Ahead
As we approach 2020, we recognize the need to consider the next generation of packaging goals for Kroger, and we want to share our plans for 2019 that will inform this work. We will:
We believe our current packaging sustainability commitments,improvement, as well as the additional steps we have outlined for 2019, address the primary objectives outlined in the shareholder proposal.
As a result, we urge you to support theseBoard’s Compensation & Talent Development Committee overseeing progress on our human capital efforts, and vote AGAINST this proposal.
Item No. 7 Shareholder Proposal – Independent Chairman
We have been notified by several shareholders, the name and shareholdings of which will be furnished promptly to any shareholder upon written or oral request to Kroger’s Secretary at our executive offices, that it intends to propose the following resolution at the annual meeting:
“RESOLVED: Shareowners of The Kroger Co. (“Kroger”) ask the Board of Directors to adopt a policy, and amend the bylaws as necessary, to require the Chair of the Board to be an independent member of the Board. This policy shall apply prospectively so as not to violate any contractual obligation. The policy should provide that (i) if the Board determines that a Chair who was independent when selected is no longer independent, the Board shall select a new Chair who satisfies the policy within 60 days of that determination; and (ii) compliance with this policy is waived if no independent director is available and willing to serve as Chair.
SUPPORTING STATEMENT: Except for brief “apprenticeship” periods at the outset of their CEO service, Kroger CEOs have also held the role of Board Chair for many decades. We believe the combination of these two roles in a single person weakens a corporation’s governance, which can harm shareholder value. As Intel’s former Chair Andrew Grove stated, “The separation of the two jobs goes to the heart of the conception of a corporation. Is a company a sandbox for the CEO, or is the CEO an employee? If he’s an employee, he needs a boss, and that boss is the board. The chairman runs the board. How can the CEO be his own boss?”
In our view, shareholder value is enhanced by an independent Board Chair who can provide a balance of power between the CEO and the Board and support strong Board oversight. Proxy advisor Glass Lewis opined in a 2016 report that “shareholders are better served when the board is led by an independent Chairman who weincluding DEI.
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believe is better able to oversee the executives of the CompanyDiverse viewpoints are respected and set a pro-shareholder agenda without the management conflicts that exist when a CEO or other executive also serves as Chairman.1”encouraged.
An independent Board Chair has been found in academic studies to improve the performance of public companies, although evidence overall is inconclusive. While separating the roles of Chair and CEO is the norm in Europe, 50% of S&P 500 company boards have also implemented this best practice.2
We believe that independent Board leadership would be particularly useful at Kroger in providing more robust oversight regarding sustainability issues. We agree with the recent observations by State Street Global Advisors’ CEO that “a long-term horizon requires a focus on sustainability” and that boards “are often better-equipped than the day-to-day management to see these issues over longer time horizons.3”
Kroger continues to risk its reputation by selling produce treated with neonicotinoids, a group of insecticides highly toxic to bees. Kroger has refused to join the Fair Food Program to ensure equitable treatment of farm workers. Kroger also faces reputational risk associated with its responses to the impacts of food production on deforestation. Independent Board leadership would, we think, more likely result in improvedOur policies and practices demonstrate that diverse viewpoints are respected and encouraged and are an essential part of advancing our business. In light of our demonstrated commitment to mitigate these business risks.
We urge shareholders to voteour core values of diversity and inclusion for all stakeholders, we do not believe that issuing a public report detailing the potential risks associated with omitting ‘viewpoint’ and ‘ideology’ from our equal employment opportunity policy, as contemplated by this proposal.
The Boardproposal, is necessary or in the best interests of Directors Recommends a Vote Against This Proposal for the Following Reasons:
The Board believes it should have the ability to tailor its structure to Kroger’s needs at any time and that Kroger’s Board is currently structured to provide the most effective leadership forKroger or our shareholders. Our shareholders’ interests are best served when the company retains the flexibility to select the appropriate person to serve in the Chairman’s role given the changing circumstances of the retail food marketplace, not by adopting a rigid “one size fits all” approach.
Kroger has a balanced governance structure in which independent directors, including an independent Lead Director, exercise meaningful and vigorous oversight. The Board recently appointed a new Lead Director, bringing a fresh perspective to the role. Mr. Sargent previously served as Chairman and CEO of Staples and brings over 35 years of retail experience and a deep understanding of retail operations, consumer insights, and e-commerce to the Board. Our strong independent Lead Director serves the same functions as a Chairman and provides the safeguards that the proposal seeks.
Kroger’s independent Lead Director has a robust set of responsibilities that ensure a strong, independent and active board that complements the Chairman’s role, which are addressed in detail in the Guidelines (available at ir.kroger.com). The Lead Director serves a variety of roles, including:
While our current Chairman is also the CEO, this structure is a reflection of the Board’s current view that both Kroger and our shareholders are best served by a combination of the roles at this time. Our CEO’s strong background in finance, operations, and strategic partnerships are particularly important to the Board given Kroger’s current transformation under the Restock Kroger plan. His consistent leadership, deep industry expertise, and extensive knowledge of the Company are also especially critical in the midst of the rapidly evolving retail landscape.
The Board routinely reviews Kroger’s leadership structure, which includes a discussion of Kroger’s performance, the impact that the leadership has on that performance, and the structure that best serves the interests of shareholders. The Board will continue to regularly review Kroger’s leadership structure to ensure that the structure best addresses Kroger’s evolving and dynamic business in consultation with our shareholders. The Board believes that retaining the flexibility to determine which type of leadership structure is most effective for Kroger’s specific circumstances is critical for the long-term success of our company.
Our strong governance practices ensure our Board’s independent leadership and oversight. The Board has instituted structures and practices, in addition to the independent Lead Director, that create a balanced governance system of independent and effective oversight, including:
For the foregoing reasons, we urge you to vote AGAINST this proposal.
Shareholder Proposals and Director Nominations – 2020— 2024 Annual Meeting
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, shareholder proposals intended for inclusion in the proxy material relating to Kroger’s annual meeting of shareholders in June 20202024 should be addressed to Kroger’s Secretary and must be received at our executive offices not later than January 14, 2020.13, 2024. These proposals must comply with Rule 14a-8 and the SEC’s proxy rules. If a shareholder submits a proposal outside of Rule 14a-8 for the 20202023 annual meeting and such proposal is not delivered within the time frame specified in the Regulations, Kroger’s proxy may confer discretionary authority on persons being appointed as proxies on behalf of Kroger to vote on such proposal.
In addition, Kroger’s Regulations contain an advance notice of shareholder business and director nominations requirement, which generally prescribes the procedures that a shareholder of Kroger must follow if the shareholder intends, at an annual meeting, to nominate a person for election to Kroger’s Board of Directors or to propose other business to be considered by shareholders. These procedures include, among other things, that the shareholder give timely notice to Kroger’s Secretary of the nomination or other proposed business, that the notice contain specified information, and that the shareholder comply with certain other requirements. In order to be timely, this notice must be delivered in writing to Kroger’s Secretary, at our principal executive offices, not later than 45 calendar days prior to the date on which our proxy statement for the prior year’s annual meeting of shareholders was mailed to shareholders. If a shareholder’s nomination or proposal is not in compliance with the procedures set forth in the Regulations, we may disregard such nomination or proposal. Accordingly, if a shareholder intends, at the 2020 annual meeting,2024 Annual Meeting, to nominate a person for election to the Board of Directors or to propose other business, the shareholder must deliver a notice of such nomination or proposal to Kroger’s Secretary not later than March 30, 202028, 2024 and comply with the requirements of the Regulations.
Furthermore, in addition to the requirements of SEC Rule 14a-8 or our Regulations, as applicable, as described above, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than our nominees must provide notice to Kroger’s Secretary that sets forth the information required by Rule 14a-19 of the Exchange Act no later than April 23, 2024, and must comply with the additional requirements of Rule 14a-19(b).
Eligible shareholders canmay also submit director nominees for inclusion in our proxy statement for the 20202024 annual meeting of shareholders. To be eligible, shareholders must have owned at least three percent of our common shares for at least three years. Up to 20 shareholders will be able to aggregate for this purpose. Nominations must be submitted to our Corporate Secretary at our principal executive offices no earlier than December 15, 201914, 2023 and no later than January 14, 2020.13, 2024.
Shareholder proposals, director nominations, including, if applicable pursuant to proxy access, and advance notices must be addressed in writing, and addressed and delivered timely to: Corporate Secretary, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100.
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2018 Annual Report
Attached to this Proxy Statement is our 2018 Annual Report which includes a brief description of our business, including the general scope and nature thereof during fiscal year 2018, together with the audited financial information contained in our 2018 Annual Report on Form 10-K filed with the SEC. A copy of that report is available to shareholders on request without charge by writing to: Carin Fike, Treasurer, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202 or by calling 513-762-1220. Our SEC filings are available to the public on the SEC’s website at www.sec.gov.
Householding of Proxy Materials
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, shareholders of record who have the same address and last name will receive only one copy of the Notice of Availability of Proxy Materials (or proxy materials in the case of shareholders who receive paper copies of such materials) unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees. Householding will not in any way affect dividend check mailings.
If you are eligible for householding, but you and other shareholders of record with whom you share an address currently receive multiple copies of our Notice of Availability of Proxy Materials (or proxy materials in the case of shareholders who receive paper copies of such materials), or if you hold in more than one account, and in either case you wish to receive only a single copy for your household or if you prefer to receive separate copies of our documents in the future, please contact your bank or broker, or contact Kroger’s Secretary at 1014 Vine Street, Cincinnati, Ohio 45202 or via telephone at 513-762-4000.
Beneficial shareholders can request information about householding from their banks, brokers or other holders of record.
The management knows of no other matters that are to be presented at the meeting, but, if any should be presented, the Proxy Committee expects to vote thereon according to its best judgment.
Available Information
The Company files Annual Reports on Form 10-K with the Securities and Exchange Commission. A copy of the Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (except for certain exhibits thereto), including our audited financial statements and financial statement schedules, may be obtained, free of charge, upon written request by any shareholder to Kroger’s Secretary at 1014 Vine Street, Cincinnati, Ohio 45202 or via telephone at 513-762-4000. Copies of all exhibits to the Annual Report on Form 10-K are available upon a similar request, subject to reimbursing the Company for its expenses in supplying any exhibit.
By order of the Board of Directors, | |
Christine S. Wheatley, Secretary |
THE KROGER CO.1014 VINE STREET CINCINNATI, OH 45202SCAN TO MATERIALS & VOTEVOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode aboveUse the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. Eastern Time on June 21, 2023 for shares held directly and by 11:59 P.M. Eastern Time on June 20, 2023 for shares held in a Plan. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.During The Meeting - Go to www.virtualshareholdermeeting.com/KR2023You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. Eastern Time on June 21, 2023 for shares held directly and by 11:59 P.M. Eastern Time on June 20, 2023 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAIL Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: V16737-P90683 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLYTHE KROGER CO.The Board of Directors recommends that you vote FOR the following:1. Election of DirectorsNominees:1a. Nora A. Aufreiter1b. Kevin M. Brown1c. Elaine L. Chao1d. Anne Gates1e. Karen M. Hoguet1f. W. Rodney McMullen1g. Clyde R. Moore1h. Ronald L. Sargent1i. J. Amanda Sourry Knox1j. Mark S. Sutton1k. Ashok VemuriFor Against Abstain The Board of Directors recommends that you vote FOR proposals For Against Abstain 2 and 4 and 1 YEAR for proposal 3. ! ! ! 2. Approval, on an advisory basis, of Kroger's executive compensation. ! ! ! ! ! ! 1 Year 2 Years 3 Years Abstain ! ! ! 3. Advisory Vote on Frequency of Future Votes on Executive ! ! ! ! Compensation. ! ! ! For Against Abstain! ! ! 4. Ratification of PricewaterhouseCoopers LLP, as auditors. ! ! ! ! ! ! The Board of Directors recommends that you vote AGAINST For Against Abstain proposals 5-9. ! ! ! 5. Report on Public Health Costs from Sale of Tobacco Products. ! ! ! ! ! ! 6. Listing of Charitable Contributions of $10,000 or More. ! ! ! ! ! ! 7. Report on Recyclability of Packaging. ! ! ! ! ! ! 8. Report on Racial and Gender Pay Gaps. ! ! ! ! ! ! 9. Report on EEO Policy Risks. ! ! !NOTE: Holders of common shares of record at the close of business onApril 24, 2023 will be entitled to vote at the meeting.Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Combined Notice, Proxy Statement, and Annual Report are available at www.proxyvote.com.V16738-P90683THE KROGER CO.2023 Annual Meeting of Shareholders June 22, 2023 11:00 AM, Eastern TimeThis proxy is solicited by the Board of DirectorsThe undersigned hereby appoints each of ANNE GATES, W. RODNEY McMULLEN, and RONALD L. SARGENT, or if more than one is present and acting then a majority thereof, proxies, with full power of substitution and revocation, to vote the common shares of The Kroger Co. that the undersigned is entitled to vote at the Annual Meeting of Shareholders, and at any adjournment thereof, with all the powers the undersigned would possess if personally present, including authority to vote on the matters shown on the reverse in the manner directed, and upon any other matter that properly may come before the meeting. The undersigned hereby revokes any proxy previously given to vote those shares at the meeting or at any adjournment.The proxies are directed to vote as specified on the reverse hereof and in their discretion on all other matters coming before the meeting. Except as specified to the contrary on the reverse, the shares represented by this proxy will be voted FOR each nominee listed in Proposal 1, FOR Proposal 2, 1 YEAR for Proposal 3, FOR Proposal 4, and AGAINST Proposals 5-9.If you wish to vote in accordance with the recommendations of the Board of Directors,Christine S. Wheatley, Secretary
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Appendix ATHE KROGER CO.2019 LONG-TERM INCENTIVE PLAN
1. Purpose.
all you need to do is sign and return this card. The purpose of The Kroger Co. 2019 Long-Term Incentive Plan is to further align the interests of eligible participants with those of the Company’s shareholders by providing incentive compensation opportunities tied to the performance of the Company and its Common Shares. The Plan is intended to advance the interests of the Company and increase shareholder value by attracting, retaining and motivating key personnel upon whose judgment, initiative and effort the successful conduct of the Company’s business is largely dependent.
2. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth below:
“Affiliate” means any Person directly or indirectly controlling, controlled by, or under common control with such other Person.
“Award” means an award of a Stock Option, Share Appreciation Right, Restricted Share Award, Restricted Share Unit (including Performance Units), Cash Incentive Award or Share Award granted under the Plan.
“Award Agreement” means a notice or an agreement entered into between the Company and a Participant setting forth the terms and conditions of an Award granted to a Participant as provided in Section 16.2 hereof.
“Beneficial Owner” has the meaning ascribed to such term in Rule 13d-3 under the Exchange Act.
“Board” means the Board of Directors of the Company.
“Cash Incentive Award” means an Award that is denominated by a cash amount to an Eligible Person under Section 10 hereof and payable based on or conditioned upon the attainment of business and/or individual performance goals over a specified performance period.
“Cause” has the meaning set forth in the KEPP, unless otherwise defined in an Award Agreement.
“Change in Control”has the meaning set forth in Section 12.4 hereof.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means (i) the Compensation and Talent Development Committee of the Board, (ii) such other committee of the Board appointed by the Board to administer the Plan or (iii) the Board, as determined by the Board.
“Common Shares” means the Company’s common shares, par value $1.00 per share.
“Company” means The Kroger Co., or any successor thereto.
“Date of Grant” means the date on which an Award under the Plan is granted by the Committee or such later date as the Committee may specify to be the effective date of an Award.
“Disability” has the meaning set forth under the Company’s long-term disability plan. Notwithstanding the foregoing, in any case in which a benefit that constitutes or includes “nonqualified deferred compensation” subject to Section 409A would be payable by reason of Disability, the term “Disability” will mean a disability described in Treasury Regulations Section 1.409A-3(i)(4)(i)(A).
“Effective Date”has the meaning set forth in Section 17.1 hereof.
“Eligible Person” means any person who is an officer, employee, Non-Employee Director, or any natural person who is a consultant or advisor of the Company or any of its Subsidiaries.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
“Fair Market Value” means, as applied to a specific date, the price of a Common Share that is based on the opening, closing, actual, high, low or average selling prices of a Common Share reported on any established stock exchange or national market system including without limitation the New York Stock Exchange on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determined by
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the Committee in its discretion. Unless the Committee determines otherwise or unless otherwise specified in an Award Agreement, Fair Market Value shall be deemed to be equal to the closing price of a Common Share on the most recent date on which Common Shares were publicly traded. Notwithstanding the foregoing, if the Common Shares are not traded on any established stock exchange or national market system, Fair Market Value means the price of a Common Share as established by the Committee acting in good faith based on a valuation method that is consistent with the requirements of Section 409A of the Code and the regulations thereunder.
“Good Reason” has the meaning set forth in the KEPP, as amended from time to time, unless otherwise defined in an Award Agreement.
“Incentive Stock Option” means a Stock Option granted under Section 6 hereof that is intended to meet the requirements of Section 422 of the Code and the regulations thereunder.
“KEPP” means The Kroger Co. Employee Protection Plan, as amended from time to time.
“Non-EmployeeDirector” means a member of the Board who is not an employee of the Company or any of its Subsidiaries.
“Nonqualified Stock Option” means a Stock Option granted under Section 6 hereof that is not an Incentive Stock Option.
“Participant” means any Eligible Person who holds an outstanding Award under the Plan.
“Performance Unit” means a Restricted Share Unit that is subject to vesting based on the achievement, or the level of achievement, during a specified performance period of one or more performance goals established by the Committee.
“Person” has the meaning set forth in Section 12.5 hereof.
“Plan” means the Kroger Co. 2019 Long-Term Incentive Plan as set forth herein, effective as of the Effective Date and as may be amended from time to time, as provided herein.
“Restricted Share Award” means a grant of Common Shares to an Eligible Person under Section 8 hereof that are issued subject to such vesting and transfer restrictions as the Committee shall determine, and such other conditions, as are set forth in the Plan and the applicable Award Agreement.
“Restricted Share Unit” means a contractual right granted to an Eligible Person under Section 9 hereof representing notional unit interests equal in value to a Common Share to be paid or distributed at such times, and subject to such conditions, as set forth in the Plan and the applicable Award Agreement.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
“Service” means a Participant’s employment with the Company or any Subsidiary or a Participant’s service as a Non-Employee Director, consultant or other service provider with the Company or any Subsidiary, as applicable.
“Share Appreciation Right” means a contractual right granted to an Eligible Person under Section 7 hereof entitling such Eligible Person to receive a payment, representing the excess of the Fair Market Value of a Common Share over the base price per share of the right, at such time, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
“Share Awards” means a grant of Common Shares to an Eligible Person under Section 11 hereof.
“Stock Option” means a contractual right granted to an Eligible Person under Section 6 hereof to purchase Common Shares at such time and price, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
“Subsidiary”means an entity (whether or not a corporation) that is wholly or majority owned or controlled, directly or indirectly, by the Company or any other Affiliate of the Company that is so designated, from time to time, by the Committee, during the period of such Affiliated status; provided, however, that with respect to Incentive Stock Options, the term “Subsidiary” shall include only an entity that qualifies under Section 424(f) of the Code as a “subsidiary corporation” with respect to the Company.
“Treasury Regulations” means regulations promulgated by the United States Treasury Department.
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3. Administration.
3.1 Committee Members. The Plan shall be administered by a Committee comprised of no fewer than two members of the Board who are appointed by the Board to administer the Plan. To the extent deemed necessary by the Board, each Committee member shall satisfy the requirements for (i) an “independent director” under rules adopted by the New York Stock Exchange or other principal exchange on which the Common Shares are then listed and (ii) a “nonemployee director” within the meaning of Rule 16b-3 under the Exchange Act. Notwithstanding the foregoing, the mere fact that a Committee member shall fail to qualify under any of the foregoing requirements shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The Board may exercise all powers of the Committee hereunder and may directly administer the Plan. Neither the Company nor any member of the Board or Committee shall be liable for any action or determination made in good faith by the Board or Committee with respect to the Plan or any Award thereunder.
3.2 Committee Authority. The Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (i) determine the Eligible Persons to whom Awards shall be granted under the Plan, (ii) prescribe the restrictions, terms and conditions of all Awards, (iii) interpret the Plan and terms of the Awards, (iv) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and interpret, amend or revoke any such rules, (v) make all determinations with respect to a Participant’s Service and the termination of such Service for purposes of any Award, (vi) correct any defect(s) or omission(s) or reconcile any ambiguity(ies) or inconsistency(ies) in the Plan or any Award thereunder, (vii) make all determinations it deems advisable for the administration of the Plan, (viii) decide all disputes arising in connection with the Plan and to otherwise supervise the administration of the Plan, (ix) subject to the terms of the Plan, amend the terms of an Award in any manner that is not inconsistent with the Plan, (x) accelerate the vesting or, to the extent applicable, exercisability of any Award upon termination of Service under certain circumstances, as set forth in the Award Agreement or otherwise, and (xi) adopt such procedures, modifications or subplans as are necessary or appropriate to permit participation in the Plan by Eligible Persons who are foreign nationals or employed outside of the United States. The Committee’s determinations under the Plan need not be uniform and may be made by the Committee selectively among Participants and Eligible Persons, whether or not such persons are similarly situated. The Committee shall, in its discretion, consider such factors as it deems relevant in making its interpretations, determinations and actions under the Plan including, without limitation, the recommendations or advice of any officer or employee of the Company or such attorneys, consultants, accountants or other advisors as it may select. All interpretations, determinations, and actions by the Committee shall be final, conclusive, and binding upon all parties.
3.3 Delegation of Authority. The Committee shall have the right, from time to time, to delegate in writing to one or more officers of the Company the authority of the Committee to grant and determine the terms and conditions of Awards granted under the Plan, subject to such limitations as the Committee shall determine. In no event shall any such delegation of authority be permitted with respect to Awards granted to any member of the Board or to any Eligible Person who is subject to Rule 16b-3 under the Exchange Act. The Committee shall also be permitted to delegate, to any appropriate officer or employee of the Company, responsibility for performing certain ministerial functions under the Plan. In the event that the Committee’s authority is delegated to officers or employees in accordance with the foregoing, all provisions of the Plan relating to the Committee shall be interpreted in a manner consistent with the foregoing by treating any such reference as a reference to such officer or employee for such purpose. Any action undertaken in accordance with the Committee’s delegation of authority hereunder shall have the same force and effect as if such action was undertaken directly by the Committee and shall be deemed for all purposes of the Plan to have been taken by the Committee.
4. Shares Subject to the Plan.
4.1 Number of Shares Reserved. Subject to adjustment as provided in Section 4.4 hereof, the total number of Common Shares that are reserved for issuance under the Plan (the “Share Reserve”) shall equal 38,000,000, plus (i) 23,783,636 Common Shares authorized for issuance but not yet issued under the Kroger Co. 2011 Long-Term Incentive and Cash Bonus Plan (the “2011 Plan”) and the Kroger Co. 2014 Long-Term Incentive and Cash Bonus Plan (the “2014 Plan”), and (ii) up to a maximum of 26,311,950 Common Shares subject to outstanding awards under the 2011 Plan and the 2014 Plan that would have been available to be re-granted under the terms of the 2011 Plan and the 2014 Plan, as applicable (including shares subject to cancelled or forfeited awards). Within the Share Reserve, the total number of Common Shares available for issuance as Incentive Stock Options shall equal 10,000,000. Each Common Share subject to an Award shall reduce the Share Reserve by the applicable number of shares set forth in Section 4.3; provided, however, that Awards that are required to be paid in cash
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pursuant to their terms shall not reduce the Share Reserve. Any Common Shares delivered under the Plan shall consist of authorized and unissued shares or treasury shares.
4.2 Share Replenishment. To the extent that an Award granted under this Plan is canceled, expired, forfeited, surrendered, settled by delivery of fewer Common Shares than the number underlying the Award, as applicable, or otherwise terminated without delivery of the Common Shares or payment of consideration to the Participant under the Plan, the Common Shares retained by or returned to the Company will (i) not be deemed to have been delivered under the Plan, as applicable, (ii) be available for future Awards under the Plan, and (iii) increase the Share Reserve by the applicable number of shares set forth in Section 4.3 for each share that is retained by or returned to the Company. Notwithstanding the foregoing, Common Shares that are (a) withheld from an Award in payment of the exercise, base or purchase price or taxes relating to such an Award or (b) not issued or delivered as a result of the net settlement of an outstanding Stock Option, Share Appreciation Right or other Award under the Plan, as applicable, will be deemed to have been delivered under the Plan and will not be available for future Awards under the Plan.
4.3 Fungible Share Pool. Subject to adjustment under Section 4.4, any Award that is not a Full-Value Award (as defined below) shall be counted against the Share Reserve as one share for each Common Share subject to such Award and any Award that is a Full-Value Award shall be counted against the Share Reserve as 2.83 shares for each Common Share subject to such Full-Value Award. “Full-Value Award” means any Restricted Share Award, Award of Restricted Share Units (including Performance Units) or Share Award. To the extent a Common Share that was subject to an Award that counted as one share is returned to the Share Reserve, the Share Reserve will be credited with one share. To the extent that a Common Share that was subject to an Award that counts as 2.83 shares is returned to the Share Reserve, the Share Reserve will be credited with 2.83 shares.
4.4 Adjustments. If there shall occur any change with respect to the outstanding Common Shares by reason of any recapitalization, reclassification, share dividend, extraordinary dividend, share split, reverse share split or other distribution with respect to the Common Shares or any merger, reorganization, consolidation, combination, spin-off or other corporate event or transaction or any other change affecting the Common Shares (other than regular cash dividends to shareholders of the Company), the Committee shall, in the manner and to the extent it considers appropriate and equitable to the Participants and consistent with the terms of the Plan, cause an adjustment to be made to (i) the maximum number and kind of Common Shares provided in Section 4.1 hereof, (ii) the number and kind of Common Shares, units or other securities or rights subject to then outstanding Awards, (iii) the exercise, base or purchase price for each share or unit or other security or right subject to then outstanding Awards, (iv) other value determinations applicable to the Plan and/or outstanding Awards, and/or (v) any other terms of an Award that are affected by the event. Notwithstanding the foregoing, (a) any such adjustments shall, to the extent necessary, be made in a manner consistent with the requirements of Section 409A of the Code and (b) in the case of Incentive Stock Options, any such adjustments shall, to the extent practicable, be made in a manner consistent with the requirements of Section 424(a) of the Code, unless otherwise determined by the Committee.
5. Eligibility and Awards.
5.1 Designation of Participants. Any Eligible Person may be selected by the Committee to receive an Award and become a Participant. The Committee has the authority, in its discretion, to determine and designate from time to time those Eligible Persons who are to be granted Awards, the types of Awards to be granted, the number of Common Shares or units subject to Awards to be granted and the terms and conditions of such Awards consistent with the terms of the Plan. In selecting Eligible Persons to be Participants, and in determining the type and amount of Awards to be granted under the Plan, the Committee shall consider any and all factors that it deems relevant or appropriate. Designation of a Participant in any year shall not require the Committee to designate such person to receive an Award in any other year or, once designated, to receive the same type or amount of Award as granted to such Participant in any other year.
5.2 Determination of Awards. The Committee shall determine the terms and conditions of all Awards granted to Participants in accordance with its authority under Section 3.2 hereof. An Award may consist of one type of right or benefit hereunder or of two or more such rights or benefits granted in tandem.
5.3 Award Agreements. Each Award granted to an Eligible Person shall be represented by an Award Agreement. The terms of the Award, as determined by the Committee, will be set forth in the applicable Award Agreement as described in Section 16.2 hereof.
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5.4 Minimum Vesting Period. Notwithstanding anything in the Plan or any Award Agreement to the contrary, no equity-based Award may vest in less than one (1) year from its Date of Grant, and no equity-based Award that vests upon the attainment of performance goals shall have a performance period that is less than twelve (12) months, in each case, except for (i) Awards in respect of up to 5% of the Share Reserve; and (ii) Awards that vest upon the death or Disability of the Participant, or upon a Change in Control.
6. Stock Options.
6.1 Grant of Stock Options. A Stock Option may be granted to any Eligible Person selected by the Committee, except that an Incentive Stock Option may only be granted to an Eligible Person satisfying the conditions of Section 6.7(a) hereof. Each Stock Option shall be designated on the Date of Grant, in the discretion of the Committee, as an Incentive Stock Option or as a Nonqualified Stock Option. All Stock Options granted under the Plan are intended to comply with or be exempt from the requirements of Section 409A of the Code, to the extent applicable.
6.2 Exercise Price. The exercise price per share of a Stock Option shall not be less than one hundred percent (100%) of the Fair Market Value of a Common Share on the Date of Grant. The Committee may in its discretion specify an exercise price per share that is higher than the Fair Market Value of a Common Share on the Date of Grant.
6.3 Vesting of Stock Options. Subject to Section 5.4, the Committee shall, in its discretion, prescribe in an award agreement the time or times at which or the conditions upon which, a Stock Option or portion thereof shall become vested and/or exercisable. The requirements for vesting and exercisability of a Stock Option may be based on the continued Service of the Participant with the Company or a Subsidiary for a specified time period (or periods), on the attainment of a specified performance goal(s) and/or on such other terms and conditions as approved by the Committee in its discretion. If the vesting requirements of a Stock Option are not satisfied, the Award shall be forfeited.
6.4 Term of Stock Options. The Committee shall in its discretion prescribe in an Award Agreement the period during which a vested Stock Option may be exercised; provided, however, that the maximum term of a Stock Option shall be ten (10) years from the Date of Grant. The Committee may provide that a Stock Option will cease to be exercisable upon or at the end of a specified time period following a termination of Service for any reason as set forth in the Award Agreement or otherwise. A Stock Option may be earlier terminated as specified by the Committee and set forth in an Award Agreement upon or following the termination of a Participant’s Service with the Company or any Subsidiary, including by reason of voluntary resignation, death, Disability, termination for Cause or any other reason. Subject to Section 409A of the Code and the provisions of this Section 6, the Committee may extend at any time the period in which a Stock Option may be exercised.
6.5 Stock Option Exercise; Tax Withholding. Stock Options may be granted on a basis that allows for the exercise of the right by the Participant, or that requires the Stock Options to be exercised or surrendered for payment of the right upon a specified date or event. Subject to such terms and conditions as specified in an Award Agreement (including applicable vesting requirements), a Stock Option may be exercised in whole or in part at any time during the term thereof by notice in the form required by the Company, together with payment of the aggregate exercise price and applicable withholding tax. Payment of the exercise price may be made: (i) in cash or by cash equivalent acceptable to the Committee, or, (ii) to the extent permitted by the Committee in its sole discretion in an Award Agreement or otherwise (A) in Common Shares valued at the Fair Market Value of such shares on the date of exercise, (B) through an open-market, broker-assisted sales transaction pursuant to which the Company is promptly delivered the amount of proceeds necessary to satisfy the exercise price, (C) by reducing the number of Common Shares otherwise deliverable upon the exercise of the Stock Option by the number of Common Shares having a Fair Market Value on the date of exercise equal to the exercise price, (D) by a combination of the methods described above or (E) by such other method as may be approved by the Committee. In accordance with Section 16.11 hereof, and in addition to and at the time of payment of the exercise price, the Participant shall pay to the Company the full amount of any and all applicable income tax, employment tax and other amounts required to be withheld in connection with such exercise, payable under such of the methods described above for the payment of the exercise price as may be approved by the Committee and set forth in the Award Agreement.
6.6 Limited Transferability of Nonqualified Stock Options. All Stock Options shall be nontransferable except (i) upon the Participant’s death, in accordance with Section 16.3 hereof or (ii) in the case of Nonqualified Stock Options only, for the transfer of all or part of the Stock Option to a Participant’s “family member” (as defined for purposes of the Form S-8 registration statement under the Securities Act), in each case as may be approved by the Committee in its discretion at the time of proposed transfer. The transfer of a Nonqualified Stock Option may be
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subject to such terms and conditions as the Committee may in its discretion impose from time to time. Subsequent transfers of a Nonqualified Stock Option shall be prohibited other than in accordance with Section 16.3 hereof.
6.7 Additional Rules for Incentive Stock Options.
(a) Eligibility. An Incentive Stock Option may only be granted to an Eligible Person who is considered an employee for purposes of Treasury Regulation Section 1.421-1(h) with respect to the Company or any Subsidiary that qualifies as a “subsidiary corporation” with respect to the Company for purposes of Section 424(f) of the Code.
(b) Annual Limits. No Incentive Stock Option shall be granted to a Participant as a result of which the aggregate Fair Market Value (determined as of the Date of Grant) of the Common Shares with respect to which incentive Stock Options under Section 422 of the Code are exercisable for the first time in any calendar year under the Plan and any other Stock Option plans of the Company, would exceed $100,000, determined in accordance with Section 422(d) of the Code. This limitation shall be applied by taking Stock Options into account in the order in which granted. Any Stock Option grant that exceeds such limit shall be treated as a Nonqualified Stock Option.
(c) Additional Limitations. In the case of any Incentive Stock Option granted to an Eligible Person who owns, either directly or indirectly (taking into account the attribution rules contained in Section 424(d) of the Code), shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or any Subsidiary, the exercise price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Common Share on the Date of Grant and the maximum term shall be five (5) years.
(d) Termination of Service. An Award of an Incentive Stock Option may provide that such Stock Option may be exercised not later than (i) three (3) months following termination of Service of the Participant with the Company and all Subsidiaries (other than as set forth in clause (ii) of this Section 6.7(d)) or (ii) one year following termination of Service of the Participant with the Company and all Subsidiaries due to death or permanent and total disability within the meaning of Section 22(e)(3) of the Code, in each case as and to the extent determined by the Committee to comply with the requirements of Section 422 of the Code.
(e) Other Terms and Conditions; Nontransferability. Any Incentive Stock Option granted hereunder shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as are deemed necessary or desirable by the Committee, which terms, together with the terms of the Plan, shall be intended and interpreted to cause such Incentive Stock Option to qualify as an “incentive stock option” under Section 422 of the Code. A Stock Option that is granted as an Incentive Stock Option shall, to the extent it fails to qualify as an “incentive stock option” under the Code, be treated as a Nonqualified Stock Option. An Incentive Stock Option shall by its terms be nontransferable other than by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of a Participant only by such Participant.
(f) Disqualifying Dispositions. If Common Shares acquired by exercise of an Incentive Stock Option are disposed of within two years following the Date of Grant or one year following the transfer of such shares to the Participant upon exercise, the Participant shall, promptly following such disposition, notify the Company in writing of the date and terms of such disposition and provide such other information regarding the disposition as the Company may reasonably require.
6.8 Repricing Prohibited. Subject to the adjustment provisions contained in Section 4.4 hereof, without the prior approval of the Company’s shareholders, neither the Committee nor the Board shall cancel a Stock Option when the exercise price per share exceeds the Fair Market Value of one Common Share in exchange for cash or another Award (other than in connection with a Change in Control) or cause the cancellation, substitution or amendment of a Stock Option that would have the effect of reducing the exercise price of such a Stock Option previously granted under the Plan or otherwise approve any modification to such a Stock Option, that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements adopted by the New York Stock Exchange or other principal exchange on which the Common Shares are then listed.
6.9 Dividend Equivalent Rights. Dividends and dividend equivalent rights shall not be paid or granted with respect to Stock Options.
6.10 No Rights as Shareholder. The Participant shall not have any rights as a shareholder with respect to the shares underlying a Stock Option until such time as Common Shares are delivered to the Participant pursuant to the terms of the Award Agreement.
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7. Share Appreciation Rights.
7.1 Grant of Share Appreciation Rights. Share Appreciation Rights may be granted to any Eligible Person selected by the Committee. Share Appreciation Rights may be granted on a basis that allows for the exercise of the right by the Participant, or that provides for the automatic exercise or payment of the right upon a specified date or event. Share Appreciation Rights shall be non-transferable, except as provided in Section 16.3 hereof. All Share Appreciation Rights granted under the Plan are intended to comply with or otherwise be exempt from the requirements of Section 409A of the Code, to the extent applicable.
7.2 Terms of Share Appreciation Rights. Subject to Section 5.4, the Committee shall in its discretion provide in an Award Agreement the time or times at which or the conditions upon which, a Share Appreciation Right or portion thereof shall become vested and/or exercisable. The requirements for vesting and exercisability of a Share Appreciation Right may be based on the continued Service of a Participant with the Company or a Subsidiary for a specified time period (or periods), on the attainment of a specified performance goal(s) and/or on such other terms and conditions as approved by the Committee in its discretion. If the vesting requirements of a Share Appreciation Right are not satisfied, the Award shall be forfeited. A Share Appreciation Right will be exercisable or payable at such time or times as determined by the Committee; provided, however, that the maximum term of a Share Appreciation Right shall be ten (10) years from the Date of Grant. The Committee may provide that a Share Appreciation Right will cease to be exercisable upon or at the end of a period following a termination of Service for any reason. The base price of a Share Appreciation Right shall be determined by the Committee in its discretion; provided, however, that the base price per share shall not be less than one hundred percent (100%) of the Fair Market Value of a Common Share on the Date of Grant.
7.3 Payment of Share Appreciation Rights. A Share Appreciation Right will entitle the holder, upon exercise or other payment of the Share Appreciation Right, as applicable, to receive an amount determined by multiplying: (i) the excess of the Fair Market Value of a Common Share on the date of exercise or payment of the Share Appreciation Right over the base price of such Share Appreciation Right, by (ii) the number of shares as to which such Share Appreciation Right is exercised or paid. Payment of the amount determined under the foregoing may be made, as approved by the Committee and set forth in the Award Agreement, in Common Shares valued at their Fair Market Value on the date of exercise or payment, in cash or in a combination of Common Shares and cash, subject to applicable tax withholding requirements.
7.4 Repricing Prohibited. Subject to the adjustment provisions contained in Section 4.4 hereof, without the prior approval of the Company’s shareholders, neither the Committee nor the Board shall cancel a Share Appreciation Right when the base price per share exceeds the Fair Market Value of one Common Share in exchange for cash or another Award (other than in connection with a Change in Control) or cause the cancellation, substitution or amendment of a Share Appreciation Right that would have the effect of reducing the base price of such a Share Appreciation Right previously granted under the Plan or otherwise approve any modification to such Share Appreciation Right that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements adopted by the New York Stock Exchange or other principal exchange on which the Common Shares are then listed.
7.5 Dividend Equivalent Rights. Dividends and dividend equivalent rights shall not be paid or provided with respect to Share Appreciation Rights.
7.6 Dividends shall not be paid with respect to Share Appreciation Rights. Dividend equivalent rights may be granted with respect to the Common Shares subject to Share Appreciation Rights to the extent permitted by the Committee and set forth in the Award Agreement. Any dividend equivalent rights accumulated with respect to a Share Appreciation Right shall not be paid until, and only to the extent that, the Award vests, unless otherwise provided in the Award Agreement. Dividend equivalent rights may be subject to forfeiture under the same conditions as apply to the underlying Share Appreciation Rights.
8. Restricted Share Awards.
8.1 Grant of Restricted Share Awards. A Restricted Share Award may be granted to any Eligible Person selected by the Committee.
8.2 Vesting Requirements. Subject to Section 5.4, the restrictions imposed on shares granted under a Restricted Share Award shall lapse in accordance with the vesting requirements specified by the Committee in the Award Agreement. The requirements for vesting of a Restricted Share Award may be based on the continued Service of the Participant with the Company or a Subsidiary for a specified time period (or periods), on the attainment of a specified performance goal(s) and/or on such other terms and conditions as approved by the
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Committee in its discretion. If the vesting requirements of a Restricted Share Award are not satisfied, the Award shall be forfeited and the Common Shares subject to the Award shall be returned to the Company.
8.3 Transfer Restrictions. Shares granted under any Restricted Share Award may not be transferred, assigned or subject to any encumbrance, pledge or charge until all applicable restrictions are removed or have expired, except as provided in Section 16.3 hereof. Failure to satisfy any applicable restrictions shall result in the subject shares of the Restricted Share Award being forfeited and returned to the Company. The Committee may require in an Award Agreement that certificates (if any) representing the shares granted under a Restricted Share Award bear a legend making appropriate reference to the restrictions imposed, and that certificates (if any) representing the shares granted or sold under a Restricted Share Award will remain in the physical custody of an escrow holder until all restrictions are removed or have expired.
8.4 Rights as Shareholder. Subject to the foregoing provisions of this Section 8 and the applicable Award Agreement, the Participant shall have all rights of a shareholder with respect to the shares granted to the Participant under a Restricted Share Award, including the right tonamed proxies cannot vote the shares unless you vote your proxy by Internet or telephone, or sign and receive all dividendsreturn this card.YOUR MANAGEMENT DESIRES TO HAVE A LARGE NUMBER OF SHAREHOLDERS REPRESENTED AT THE VIRTUAL MEETING, IN PERSON OR BY PROXY. PLEASE VOTE YOUR PROXY ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE, OR SIGN AND RETURN THIS CARD. IF YOU HAVE ELECTED TO RECEIVE PRINTED MATERIALS, YOU MAY SIGN AND DATE THIS PROXY CARD AND MAIL IT IN THE SELF-ADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES. The Annual Meeting is being held on a virtual - only basis and other distributions paid or made with respect thereto, unless the Committee determines otherwisecan be accessed online at the time the Restricted Share Award is granted.
8.5 Section 83(b) Election. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Share Award, the Participant shall file, within thirty (30) days following the Date of Grant, a copy of such election with the Companywww.virtualshareholdermeeting.com/KR2023.Continued and with the Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The Committee may provide in an Award Agreement that the Restricted Share Award is conditioned upon the Participant’s making or refraining from making an election with respect to the Award under Section 83(b) of the Code.
9. Restricted Share Units (including Performance Units).
9.1 Grant of Restricted Share Units and Performance Units. A Restricted Share Unit or Performance Unit may be granted to any Eligible Person selected by the Committee. The value of each Restricted Share Unit or Performance Unit is equal to the Fair Market Value of a Common Share on the applicable date or time period of determination, as specified by the Committee. Restricted Share Units and Performance Units shall be subject to such restrictions and conditions as the Committee shall determine. Restricted Share Units and Performance Units shall be non-transferable, except as provided in Section 16.3 hereof.
9.2 Vesting. The Subject to Section 5.4, the Committee shall, in its discretion, determine any vesting requirements with respect to Restricted Share Units and Performance Units, which shall be set forth in the Award Agreement. If the vesting requirements of a Restricted Share Unit Award or Performance Unit Award are not satisfied, the Award shall be forfeited.
(a) Restricted Share Units. The requirements for vesting of a Restricted Share Unit may be based on the continued Service of the Participant with the Company or a Subsidiary for a specified time period (or periods) and/or on such other terms and conditions as approved by the Committee in its discretion.
(b) Performance Units. The requirements for vesting of a Performance Unit may be based on the continued Service of the Participant with the Company or a Subsidiary for a specified time period (or periods), on the attainment of a specified performance goal(s) and/or on such other terms and conditions as approved by the Committee in its discretion.
9.3 Payment of Restricted Share Units and Performance Units. Restricted Share Units and Performance Units shall become payable to a Participant at the time or times determined by the Committee and set forth in the Award Agreement, which may be upon or following the vesting of the Award. Payment of a Restricted Share Unit or Performance Unit may be made, as approved by the Committee and set forth in the Award Agreement, in cash or in Common Shares or in a combination thereof, subject to applicable tax withholding requirements. Any cash payment of a Restricted Share Unit or Performance Unit shall be made based upon the Fair Market Value of a Common Share, determined on such date or over such time period as determined by the Committee.
9.4 Dividend Equivalent Rights. Restricted Share Units and Performance Units may be granted together with a dividend equivalent right with respect to the Common Shares subject to the Award, which may be accumulated and may be satisfied in additional Restricted Share Units and Performance Units that are subject to the same terms and conditions of the applicable Restricted Share Units and Performance Units or may be accumulated in cash, as determined by the Committee in its discretion. Any dividend equivalent rights accumulated with respect to a Restricted Share Unit or Performance Unit shall not be paid until, and only to the extent that, the Award vests,
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unless otherwise provided in the Award Agreement. Dividend equivalent rights may be subject to forfeiture under the same conditions as apply to the underlying Restricted Share Units and Performance Units.
9.5 No Rights as Shareholder. The Participant shall not have any rights as a shareholder with respect to the shares subject to a Restricted Share Unit or Performance Unit until such time as Common Shares are delivered to the Participant pursuant to the terms of the Award Agreement.
10. Cash Incentive Awards.
10.1 Grant of Cash Incentive Awards. A Cash Incentive Award may be granted to any Eligible Person selected by the Committee. A Cash Incentive Award may be evidenced by an Award Agreement specifying the performance period and such other terms and conditions as the Committee, in its discretion, shall determine. Cash Incentive Awards shall be non-transferable, except as provided in Section 16.3 hereof.
10.2 Payment. Payment amounts may be based on the attainment of specified levels of performance goals, including, if applicable, specified threshold, target and maximum performance levels, and performance falling between such levels. The requirements for payment may be also based upon the continued Service of the Participant with the Company or a Subsidiary during the respective performance period and on such other conditions as determined by the Committee. The Committee shall determine the attainment of the performance goals, the level of vesting or amount of payment to the Participant pursuant to Cash Incentive Awards, if any. Cash Incentive Awards may be paid, at the discretion of the Committee, in any combination of cash or Common Shares, based upon the Fair Market Value of such shares at the time of payment.
11. Share Awards.
11.1 Grant of Share Awards. A Share Award may be granted to any Eligible Person selected by the Committee. A Share Award may be granted for past Services, in lieu of bonus or other cash compensation, as directors’ compensation or for any other valid purpose as determined by the Committee. The Committee shall determine the terms and conditions of such Awards, and, subject to Section 5.4, the such Awards may be made without vesting requirements. In addition, the Committee may, in connection with any Share Award, require the payment of a specified purchase price.
11.2 Rights as Shareholder. Subject to the foregoing provisions of this Section 11 and the applicable Award Agreement, upon the issuance of Common Shares under a Share Award the Participant shall have all rights of a shareholder with respect to the Common Shares, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto.
12. Change in Control.
12.1 Effect on Awards. Upon the occurrence of a Change in Control, all outstanding Awards shall either (a) be continued or assumed by the Company (if it is the surviving company or corporation) or by the surviving company or corporation or its parent (with such continuation or assumption including conversion into the right to receive securities, cash or a combination of both), or (b) substituted by the surviving company or corporation or its parent of awards (with such substitution including conversion into the right to receive securities, cash or a combination of both), with substantially similar terms for outstanding Awards (with appropriate adjustments to the type of consideration payable upon settlement of the Awards or other relevant factors, and with any applicable performance conditions adjusted pursuant to Section 13 or deemed achieved at the greater of the target level or actual performance, as determined by the Committee (with the Award remaining subject only to time vesting), unless otherwise provided in an Award Agreement).
12.2 Certain Adjustments. To the extent that outstanding Awards are not continued, assumed or substituted pursuant to Section 12.1 upon or following a Change in Control, the Committee is authorized (but not obligated) to make adjustments in the terms and conditions of outstanding Awards, including without limitation the following (or any combination thereof):
(a) acceleration of exercisability, vesting and/or payment under outstanding Awards immediately prior to the occurrence of such event or upon or following such event;
(b) upon written notice, providing that any outstanding Stock Options and Share Appreciation Rights are exercisable during a period of time immediately prior to the scheduled consummation of the event or such other period as determined by the Committee (contingent upon the consummation of the event), and at the end of such period, such Stock Options and Share Appreciation Rights shall terminate to the extent not so exercised within the relevant period; and
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(c) cancellation of all or any portion of outstanding Awards for fair value (in the form of cash, Common Shares, other property or any combination thereof) as determined in the sole discretion of the Committee; provided, however, that, in the case of Stock Options and Share Appreciation Rights or similar Awards, the fair value may equal the excess, if any, of the value or amount of the consideration to be paid in the Change in Control transaction to holders of Common Shares (or, if no such consideration is paid, Fair Market Value of the Common Shares) over the aggregate exercise or base price, as applicable, with respect to such Awards or portion thereof being canceled, or if there is no such excess, zero; provided, further, that if any payments or other consideration are deferred and/or contingent as a result of escrows, earn-outs, holdbacks or any other contingencies, payments under this provision may be madesigned on substantially the same terms and conditions applicable to, and only to the extent actually paid to, the holders of Common Shares in connection with the Change in Control.
12.3 Certain Terminations of Service. Notwithstanding the provisions of Section 12.1 and Section 12.2, if a Participant’s Service with the Company and its Subsidiaries is terminated upon or within twenty four (24) months following a Change in Control by the Company without Cause or by the Participant for Good Reason, the unvested portion (if any) of all outstanding Awards held by the Participant shall immediately vest (and, to the extent applicable, become exercisable) and be paid in full upon such termination, with any applicable performance conditions deemed achieved at the greater of the target level or actual performance, as determined by the Committee, unless otherwise provided in an Award Agreement.
12.4 Definition of Change in Control. Unless otherwise defined in an Award Agreement, “Change in Control” means, and shall be deemed to have occurred, if:
(a) any Person, excluding the Company, any of its Affiliates and any employee benefit plan of the Company or any of its Affiliates, is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors;
(b) consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, individuals and entities that were the beneficial owners of outstanding voting securities entitled to vote generally in the election of directors of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, at least 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors resulting from such Business Combination (including, without limitation, an entity which, as a result of such transaction, owns all or substantially all of the Company or its assets either directly or through one or more Subsidiaries or Affiliates) in substantially the same proportions as their ownership of such securities immediately prior to such Business Combination;
(c) during any period of twenty-four (24) consecutive months, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason (including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction) to constitute at least a majority thereof; provided that, any individual becoming a director of the Company whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds of the Incumbent Directors shall also be considered an Incumbent Director; or
(d) the consummation of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, to the extent necessary to comply with Section 409A of the Code with respect to the payment of “nonqualified deferred compensation,” “Change in Control” shall be limited to a “change in control event” as defined under Section 409A of the Code.
12.5 Definition of Person. “Person” means an individual, corporation, partnership, association, trust, unincorporated organization, limited liability company or other legal entity. All references to Person shall include an individual Person or a group (as defined in Rule 13d-5 under the Exchange Act) of Persons.
13. Adjustment of Performance Goals. The Committee may provide for the performance goals to which an Award is subject, or the manner in which performance will be measured against such performance goals, to be adjusted in such manner as it deems appropriate, including, without limitation, adjustments to reflect charges for restructurings, non-operating income, the impact of corporate transactions or discontinued operations, events that are unusual in nature or infrequent in occurrence and other non-recurring items, currency fluctuations, litigation orreverse side
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claim judgements, settlements, and the effects of accounting or tax law changes. In addition, with respect to a Participant hired or promoted following the beginning of a performance period, the Committee may determine to prorate the performance goals in respect of such Participant’s Awards for the partial performance period.
14. Forfeiture Events.
14.1 General. The Committee may specify in an Award Agreement at the time of the Award that the Participant’s rights, payments and benefits with respect to an Award are subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, without limitation, termination of Service for Cause, violation of laws, regulations or material Company policies, breach of noncompetition, non-solicitation, confidentiality or other restrictive covenants that may apply to the Participant or other conduct by the Participant that is detrimental to the business or reputation of the Company.
14.2 Termination for Cause; Treatment of Awards. Unless otherwise provided by the Committee and set forth in an Award Agreement, if (i) a Participant’s Service with the Company or any Subsidiary shall be terminated for Cause or (ii) after termination of Service for any other reason, the Committee determines in its discretion either that, (1) during the Participant’s period of Service, the Participant engaged in an act or omission which would have warranted termination of Service for Cause or (2) after termination, the Participant engages in conduct that violates any continuing obligation or duty of the Participant in respect of the Company or any Subsidiary, such Participant’s rights, payments and benefits with respect to an Award shall be subject to cancellation, forfeiture and/or recoupment, as provided in Section 14.3 below. The Company shall have the power to determine whether the Participant has been terminated for Cause, the date upon which such termination for Cause occurs, whether the Participant engaged in an act or omission which would have warranted termination of Service for Cause or engaged in conduct that violated any continuing obligation or duty of the Participant in respect of the Company or any Subsidiary. Any such determination shall be final, conclusive and binding upon all persons. In addition, if the Company shall reasonably determine that a Participant has committed or may have committed any act which could constitute the basis for a termination of such Participant’s Service for Cause or violates any continuing obligation or duty of the Participant in respect of the Company or any Subsidiary, the Company may suspend the Participant’s rights to exercise any Stock Option or Share Appreciation Right, receive any payment or vest in any right with respect to any Award pending a determination by the Company of whether an act or omission could constitute the basis for a termination for Cause as provided in this Section 14.2.
14.3 Right of Recapture.
(a) General. If at any time within one (1) year (or such longer time specified in an Award Agreement or other agreement with a Participant or policy applicable to the Participant) after the date on which a Participant exercises a Stock Option or Share Appreciation Right or on which a Share Award, Restricted Share Award, or Restricted Share Unit (including Performance Units) vests, is settled in shares or otherwise becomes payable or on which a Cash Incentive Award is paid to a Participant, or on which income otherwise is realized or property is received by a Participant in connection with an Award, (i) a Participant’s Service is terminated for Cause, (ii) the Committee determines in its discretion that the Participant is subject to any recoupment of benefits pursuant to the Company’s compensation recovery, “clawback” or similar policy, as may be in effect from time to time, or (iii) after a Participant’s Service terminates for any other reason, the Committee determines in its discretion either that, (1) during the Participant’s period of Service, the Participant engaged in an act or omission which would have warranted termination of the Participant’s Service for Cause or (2) after a Participant’s termination of Service, the Participant engaged in conduct that violated any continuing obligation or duty of the Participant in respect of the Company or any Subsidiary, then, at the sole discretion of the Committee, any gain realized by the Participant from the exercise, vesting, payment, settlement or other realization of income or receipt of property by the Participant in connection with an Award, shall be repaid by the Participant to the Company upon notice from the Company, subject to applicable law. Such gain shall be determined as of the date or dates on which the gain is realized by the Participant, without regard to any subsequent change in the Fair Market Value of a Common Share. To the extent not otherwise prohibited by law, the Company shall have the right to offset the amount of such repayment obligation against any amounts otherwise owed to the Participant by the Company (whether as wages, vacation pay or pursuant to any benefit plan or other compensatory arrangement).
(b) Accounting Restatement. If a Participant receives compensation pursuant to an Award under the Plan based on financial statements that are subsequently restated in a way that would decrease the value of such compensation, the Participant will, to the extent not otherwise prohibited by law, upon the written request
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of the Company, forfeit and repay to the Company the difference between what the Participant received and what the Participant should have received based on the accounting restatement, in accordance with (i) any compensation recovery, “clawback” or similar policy, as may be in effect from time to time to which such Participant is subject and (ii) any compensation recovery, “clawback” or similar policy made applicable by law including the provisions of Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules, regulations and requirements adopted thereunder by the Securities and Exchange Commission and/or any national securities exchange on which the Company’s equity securities may be listed (the “Policy”). By accepting an Award hereunder, the Participant acknowledges and agrees that the Policy, whenever adopted, shall apply to such Award, and all incentive-based compensation payable pursuant to such Award shall be subject to forfeiture and repayment pursuant to the terms of the Policy.
15. Transfer, Leave of Absence, Etc. For purposes of the Plan, except as otherwise determined by the Committee, the following events shall not be deemed a termination of Service: (a) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or (b) an approved leave of absence for military service or sickness, a leave of absence where the employee’s right to re-employment is protected either by a statute or by contract or under the policy pursuant to which the leave of absence was granted, a leave of absence for any other purpose approved by the Company or if the Committee otherwise so provides in writing.
16. General Provisions.
16.1 Status of Plan. The Committee may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Common Shares or make payments with respect to Awards.
16.2 Award Agreement. An Award under the Plan shall be evidenced by an Award Agreement in a written or electronic form approved by the Committee setting forth the number of Common Shares, units, or other amounts or securities subject to the Award, the exercise price, base price or purchase price of the Award, the time or times at which an Award will become vested, exercisable or payable and the term of the Award. The Award Agreement also may set forth the effect on an Award of a Change in Control and/or a termination of Service under certain circumstances. The Award Agreement shall be subject to and incorporate, by reference or otherwise, all of the applicable terms and conditions of the Plan, and also may set forth other terms and conditions applicable to the Award as determined by the Committee consistent with the limitations of the Plan. The grant of an Award under the Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such conditions, as are specified in the Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in the Award Agreement. The Committee need not require the execution of an Award Agreement by a Participant, in which case, acceptance of the Award by the Participant shall constitute agreement by the Participant to the terms, conditions, restrictions and limitations set forth in the Plan and the Award Agreement as well as the administrative guidelines of the Company in effect from time to time. In the event of any conflict between the provisions of the Plan and any Award Agreement, the provisions of the Plan shall prevail.
16.3 No Assignment or Transfer; Beneficiaries. Except as provided in Section 6.6 hereof, Awards under the Plan shall not be assignable or transferable by the Participant, and shall not be subject in any manner to assignment, alienation, pledge, encumbrance or charge. Notwithstanding the foregoing, in the event of the death of a Participant, except as otherwise provided by the Committee in an Award Agreement, an outstanding Award may be exercised by or shall become payable to the Participant’s beneficiary as determined under the Company 401(k) retirement plan or other applicable retirement or pension plan. In lieu of such determination, a Participant may, from time to time, name any beneficiary or beneficiaries to receive any benefit in case of the Participant’s death before the Participant receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant and will be effective only when filed by the Participant in writing (in such form or manner as may be prescribed by the Committee) with the Company during the Participant’s lifetime. In the absence of a valid designation as provided above, if no validly designated beneficiary survives the Participant or if each surviving validly designated beneficiary is legally impaired or prohibited from receiving the benefits under an Award, the Participant’s beneficiary shall be the legatee or legatees of such Award designated under the Participant’s last will or by such Participant’s executors, personal representatives or distributees of such Award in accordance with the Participant’s will or the laws of descent and distribution. The Committee may provide in the terms of an Award Agreement or in any other manner prescribed by the Committee that the Participant shall have the right to designate a beneficiary or beneficiaries who shall be entitled to any rights, payments or other benefits specified under an Award following the Participant’s death.
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16.4 Deferrals of Payment. The Committee may in its discretion permit a Participant to defer the receipt of payment of cash or delivery of Common Shares that would otherwise be due to the Participant by virtue of the exercise of a right or the satisfaction of vesting or other conditions with respect to an Award; provided, however, that such discretion shall not apply in the case of a Stock Option or Share Appreciation Right that is intended to satisfy the requirements of Treasury Regulations Section 1.409A-1(b)(5)(i)(A) or (B). If any such deferral is to be permitted by the Committee, the Committee shall establish rules and procedures relating to such deferral in a manner intended to comply with the requirements of Section 409A of the Code, including, without limitation, the time when an election to defer may be made, the time period of the deferral and the events that would result in payment of the deferred amount, the interest or other earnings attributable to the deferral and the method of funding, if any, attributable to the deferred amount.
16.5 No Right to Employment or Continued Service. Nothing in the Plan, in the grant of any Award or in any Award Agreement shall confer upon any Eligible Person or any Participant any right to continue in the Service of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any of its Subsidiaries to terminate the employment or other service relationship of an Eligible Person or a Participant for any reason or no reason at any time.
16.6 Rights as Shareholder. A Participant shall have no rights as a holder of Common Shares with respect to any unissued securities covered by an Award until the date the Participant becomes the holder of record of such securities. Except as provided in Section 4.4 hereof, no adjustment or other provision shall be made for dividends or other shareholder rights, except to the extent that the Award Agreement provides for dividend payments or dividend equivalent rights. The Committee may determine in its discretion the manner of delivery of Common Shares to be issued under the Plan, which may be by delivery of share certificates, electronic account entry into new or existing accounts or any other means as the Committee, in its discretion, deems appropriate. The Committee may require that the share certificates (if any) be held in escrow by the Company for any Common Shares or cause the shares to be legended in order to comply with the securities laws or other applicable restrictions. Should the Common Shares be represented by book or electronic account entry rather than a certificate, the Committee may take such steps to restrict transfer of the Common Shares as the Committee considers necessary or advisable.
16.7 Trading Policy and Other Restrictions. Transactions involving Awards under the Plan shall be subject to the Company’s insider trading and Regulation FD policy and other restrictions, terms and conditions, to the extent established by the Committee or by applicable law, including any other applicable policies set by the Committee, from time to time.
16.8 Section 409A Compliance. To the extent applicable, it is intended that the Plan and all Awards hereunder comply with, or be exempt from, the requirements of Section 409A of the Code and the Treasury Regulations and other guidance issued thereunder, and that the Plan and all Award Agreements shall be interpreted and applied by the Committee in a manner consistent with this intent in order to avoid the imposition of any additional tax under Section 409A of the Code. In the event that any (i) provision of the Plan or an Award Agreement, (ii) Award, payment, transaction or (iii) other action or arrangement contemplated by the provisions of the Plan is determined by the Committee to not comply with the applicable requirements of Section 409A of the Code and the Treasury Regulations and other guidance issued thereunder, the Committee shall have the authority to take such actions and to make such changes to the Plan or an Award Agreement as the Committee deems necessary to comply with such requirements; provided, however, that no such action shall adversely affect any outstanding Award without the consent of the affected Participant. No payment that constitutes deferred compensation under Section 409A of the Code that would otherwise be made under the Plan or an Award Agreement upon a termination of Service will be made or provided unless and until such termination is also a “separation from service,” as determined in accordance with Section 409A of the Code. Notwithstanding the foregoing or anything elsewhere in the Plan or an Award Agreement to the contrary, if a Participant is a “specified employee” as defined in Section 409A of the Code at the time of termination of Service with respect to an Award, then solely to the extent necessary to avoid the imposition of any additional tax under Section 409A of the Code, the commencement of any payments or benefits under the Award shall be deferred until the date that is six (6) months plus one (1) day following the date of the Participant’s termination of Service or, if earlier, the Participant’s death (or such other period as required to comply with Section 409A). For purposes of Section 409A of the Code, a Participant’s right to receive any installment payments pursuant to this Plan or any Award granted hereunder shall be treated as a right to receive a series of separate and distinct payments. For the avoidance of doubt, each applicable tranche of Common Shares subject to vesting under any Award shall be considered a right to receive a series of separate and distinct payments. In no event whatsoever shall the Company be liable for any
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additional tax, interest or penalties that may be imposed on a Participant by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code.
16.9 Securities Law Compliance. No Common Shares will be issued or transferred pursuant to an Award unless and until all then applicable requirements imposed by Federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any exchanges upon which the Common Shares may be listed, have been fully met. As a condition precedent to the issuance of Common Shares pursuant to the grant or exercise of an Award, the Company may require the Participant to take any action that the Company determines is necessary or advisable to meet such requirements. The Committee may impose such conditions on any Common Shares issuable under the Plan as it may deem advisable, including, without limitation, restrictions under the Securities Act, under the requirements of any exchange upon which such shares of the same class are then listed, and under any blue sky or other securities laws applicable to such shares. The Committee may also require the Participant to represent and warrant at the time of issuance or transfer that the Common Shares are being acquired solely for investment purposes and without any current intention to sell or distribute such shares.
16.10 Substitution or Assumption of Awards in Corporate Transactions. The Committee may grant Awards under the Plan in connection with the acquisition, whether by purchase, merger, consolidation or other corporate transaction, of the business or assets of any corporation or other entity, in substitution for awards previously granted by such corporation or other entity or otherwise. The Committee may also assume any previously granted awards of an employee, director, consultant or other service provider of another corporation or entity that becomes an Eligible Person by reason of such corporation transaction. The terms and conditions of the substituted or assumed awards may vary from the terms and conditions that would otherwise be required by the Plan solely to the extent the Committee deems necessary for such purpose. To the extent permitted by applicable law and the listing requirements of the New York Stock Exchange or other exchange or securities market on which the Common Shares are listed, any such substituted or assumed awards shall not reduce the Share Reserve.
16.11 Tax Withholding. The Participant shall be responsible for payment of any taxes or similar charges required by law to be paid or withheld from an Award or an amount paid in satisfaction of an Award. Any required withholdings shall be paid by the Participant on or prior to the payment or other event that results in taxable income in respect of an Award. The Award Agreement may specify the manner in which the withholding obligation shall be satisfied with respect to the particular type of Award, which may include permitting the Participant to elect to satisfy the withholding obligation by tendering Common Shares to the Company or having the Company withhold a number of Common Shares having a value in each case up to the maximum statutory tax rates in the applicable jurisdiction or as the Committee may approve in its discretion (provided that such withholding does not result in adverse tax or accounting consequences to the Company), or similar charge required to be paid or withheld. The Company shall have the power and the right to require a Participant to remit to the Company the amount necessary to satisfy federal, state, provincial and local taxes, domestic or foreign, required by law or regulation to be withheld, and to deduct or withhold from any Common Shares deliverable under an Award to satisfy such withholding obligation.
16.12 Unfunded Plan. The adoption of the Plan and any reservation of Common Shares or cash amounts by the Company to discharge its obligations hereunder shall not be deemed to create a trust or other funded arrangement. Except upon the issuance of Common Shares pursuant to an Award, any rights of a Participant under the Plan shall be those of a general unsecured creditor of the Company, and neither a Participant nor the Participant’s permitted transferees or estate shall have any other interest in any assets of the Company by virtue of the Plan. Notwithstanding the foregoing, the Company shall have the right to implement or set aside funds in a grantor trust, subject to the claims of the Company’s creditors or otherwise, to discharge its obligations under the Plan.
16.13 Other Compensation and Benefit Plans. The adoption of the Plan shall not affect any other share incentive or other compensation plans in effect for the Company or any Subsidiary, nor shall the Plan preclude the Company from establishing any other forms of share incentive or other compensation or benefit program for employees of the Company or any Subsidiary. The amount of any compensation deemed to be received by a Participant pursuant to an Award shall not constitute includable compensation for purposes of determining the amount of benefits to which a Participant is entitled under any other compensation or benefit plan or program of the Company or a Subsidiary, including, without limitation, under any pension or severance benefits plan, except to the extent specifically provided by the terms of any such plan.
16.14 Plan Binding on Transferees. The Plan shall be binding upon the Company, its transferees and assigns, and the Participant, the Participant’s executor, administrator and permitted transferees and beneficiaries.
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16.15 Severability. If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
16.16 Governing Law; Jurisdiction. The Plan and all rights hereunder shall be governed by and interpreted in accordance with the laws of the State of Ohio, without reference to the principles of conflicts of laws, and to applicable federal laws.
16.17 No Fractional Shares. No fractional Common Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Common Shares or whether such fractional shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
16.18 No Guarantees Regarding Tax Treatment. Neither the Company nor the Committee make any guarantees to any person regarding the tax treatment of Awards or payments made under the Plan. Neither the Company nor the Committee has any obligation to take any action to prevent the assessment of any tax on any person with respect to any Award under Section 409A of the Code, Section 4999 of the Code or otherwise and neither the Company nor the Committee shall have any liability to a person with respect thereto.
16.19 Data Protection. By participating in the Plan, each Participant consents to the collection, processing, transmission and storage by the Company, its Subsidiaries and any third party administrators of any data of a professional or personal nature for the purposes of administering the Plan.
16.20 Awards to Non-U.S. Participants. To comply with the laws in countries other than the United States in which the Company or any of its Subsidiaries operates or has employees, Non-Employee Directors or consultants, the Committee, in its sole discretion, shall have the power and authority to (i) modify the terms and conditions of any Award granted to Participants outside the United States to comply with applicable foreign laws, (ii) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals and (iii) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable.
17. Term; Amendment and Termination; Shareholder Approval.
17.1 Term. The Plan shall be effective as of the date of its approval by the shareholders of the Company (the “Effective Date”). Subject to Section 17.2 hereof, the Plan shall terminate on the tenth anniversary of the Effective Date.
17.2 Amendment and Termination. The Board may from time to time and in any respect, amend, modify, suspend or terminate the Plan; provided, however, that no amendment, modification, suspension or termination of the Plan shall materially and adversely affect any Award theretofore granted without the consent of the Participant or the permitted transferee of the Award. The Board may seek the approval of any amendment, modification, suspension or termination by the Company’s shareholders to the extent it deems necessary in its discretion for purposes of compliance with Section 422 of the Code or for any other purpose, and shall seek such approval to the extent it deems necessary in its discretion to comply with applicable law or listing requirements of the New York Stock Exchange or other exchange or securities market. Notwithstanding the foregoing, the Board shall have broad authority to amend the Plan or any Award under the Plan without the consent of a Participant to the extent it deems necessary or desirable in its discretion to comply with, take into account changes in, or interpretations of, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations.
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