Fellow Shareholders:

Thanks to Kroger’s 400,000 associates – who strive to provide friendly service and the freshest products to every customer, every shopping trip –2014 was a record-breaking year.

In short, 2014 was a blockbuster year. We added nearly 25,000 new jobs, creating opportunity for our current and future associates. Andwe have confidence there is more growth and opportunity aheadfor our company.

Since becoming CEO last year, the two most common questions I hear from shareholders are“Why is Kroger doing so well?” and“Can you keep it up?” It is my great honor to try and provide answers in this letter.

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Answering “why is Kroger doing so well?” is like trying to answer “what makes a meal great?”

What makes a meal memorable and enjoyable? It is the combination of food and drink, your companions and the atmosphere, surprise and delight. It is not any one thing, but thesum of its parts.

Like a great meal, there is no single characteristic – no one person or thing – that makes Kroger great. Rather, it is aunique and powerful combination of factors that helps explain Kroger’s success.

It all starts with our friendly associatesexecuting our powerful Customer 1^st Strategy, which we launched 12 years ago. We put the customer first in every decision we make.

Our store managers successfully manage multi-million-dollar businesses. But first and foremost, they are focused on our customers and associates. Our goal is to extend our friendly hospitality to each one of theeight million customers who shop in our stores daily.

Our merchandisers are the best in the industry. Their depth of experience, combined with our world-class customer science and data analytics, creates a powerful blend of art and science that is the hallmark of Kroger’s fresh and relevant merchandising. We are focused on bringing to each customer what is most relevant to them – to their tastes, budget and lifestyle – and delivering unique offers through personalized coupons, our popular fuel rewards program, and exclusive digital offers.

Ourstrong Corporate Brands portfolio continues to gain market share, reaching its highest level of penetration in seven years during the fourth quarter of 2014, when it represented 28.2% of total units sold in our stores. These great products, which can only be found in our family of stores, set us apart.

We continue to invest in price every year. Today, we aresaving our customers more than $3.5 billion annually through every day lower prices. Our productivity improvements fuel these price investments.

We continue to improve the customer shopping experience. And, as I will outline below, we areaccelerating our entry into eCommerce through our recent mergers with Harris Teeter and Vitacost.com, and by growing our digital capabilities.

It is the combination of these strengths – and many more not mentioned here – that together delivered our strong financial results in fiscal 2014.

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Fiscal 2014 Results – An Outstanding Year

Kroger’s consistently remarkable performance delivered for shareholders in 2014. The growth plan we first outlined in October 2012 includes four key performance measures: positive identical supermarket sales growth, slightly expanding non-fuel FIFO operating margin, growing return on invested capital and annual market share growth. In 2014, we met or exceeded each of these metrics.

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At the end of the year, we:

As a result,we exceeded our long-term, net earnings per diluted share growth rate of 8-11% in fiscal 2014, and we increased our dividend for the eighth consecutive year. In fact,Krogerhas delivered double-digit compound growth in our dividend since we reinstated it in 2006.

Net earnings for 2014 totaled $1.73 billion, or $3.44 per diluted share. Excluding adjustment items – the benefit of certain tax items and adjustments for pension plan agreements – Kroger’s adjusted net earnings for 2014 totaled $1.77 billion, or $3.52 per diluted share.

Our strong results during 2014 allowed us to make astrategic and significant contribution to The Kroger Co. Foundation. We use our foundation dollars to support causes that our customers and associates consistently tell us they care about, enhancing our reputation as a locally-connected retailer. We are very proud that Forbes magazine previously recognized our work by naming us the “most generous company in America.” This investment works to support the communities that we serve.

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Which brings us to the second question:“Can you keep it up?”

My answer is an unequivocal YES. Because, as I like to say, our “to-do” list is longer than our “done” list. We are not done growing and differentiating. We are not done innovating to make our customers’ lives better. And we are not done investing to grow for today and the future.

Innovating to Grow

We are expanding our use of technology. In February 2014, Kroger acquired You Technology, LLC, the Silicon Valley-based leader in digital coupons and promotions. Several months later, our merger with Vitacost.com accelerated our entry into the eCommerce space by several years. Vitacost connects us to an amazingly talented team of associates who have created a substantial platform that includes advanced technology and ship-to-home fulfillment centers. We are currently testing Harris Teeter’s successfulExpressLane concept – an order online, pickup at the store model – in Cincinnati, and we plan to expand to other stores and markets in the coming year. Together, the learnings from our Vitacost and Harris Teeter mergers are helping usgive our customers the ability to interact with us when, where and how they want. More customers than ever before are engaging with our digital properties. More than 15 million customers have digital accounts with Kroger, through which they receive unique benefits and offers on our suite of digital platforms, including our mobile app, website and social media sites.

We are entering a new era in customer engagement with the introduction of 84.51°.Early in 2015, Kroger and our data analytics partner dunnhumby Ltd announced a new chapter in our relationship to accelerate innovation in customer science. We replaced our existing exclusive joint venture called dunnhumbyUSA with a more flexible arrangement and the acquisition of certain assets from dunnhumbyUSA. Operating with those acquired assets as its foundation, our new, wholly-owned subsidiary, 84.51°, is starting with 500 talented associates from the former JV and the technology to continue developing our leading customer loyalty program. In addition, the ability to combine what we already know with other partners is exciting and will speed up innovation.

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We are quickly becoming a topdestination for customers lookingfor affordable, accessible organic and natural foods. Natural Foods continues to be the fastest-growing department in our stores on a percentage basis. Our leading natural and organics store brand,Simple Truth, reached a milestone $1.2 billion in annual sales in 2014. And this within two years of launching the brand exclusively in our stores! During the year, more than 20 million households bought one of our more than 2,600 Simple Truth or Simple Truth Organic items.

Investing to Grow

Our mergers with Harris Teeter and Vitacost have also openednew markets that present meaningful growth opportunities for Kroger. In fact, Vitacost today sells direct to consumers in all U.S. states and territories, and more than 160 countries worldwide.

We are currently pursuing ourfill-in markets strategy, as outlined in 2012, and are making good progress. Fill-in markets are existing markets where we are investing capital to grow square footage, primarily through new and expanded stores and remodels, in order to increase our market share.

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The Kroger Difference

Increasingly, shoppers care about price, product selection and quality, the store experienceand how well companies take care of their associates, communities and the planet.

Taking Care of Our Associates

I am proud to say that Kroger is in the food businessand the people business. Our people are our greatest asset.

We want our workforce to be the healthiest in America. To improve workplace wellness, we give associates a variety of tools, including an incentive program with measurable outcomes. Over the last four years, we have seen a demonstrated improvement in the health of our workforce through lower cholesterol, blood pressure and blood glucose scores. And, our workplace well-being program received a ‘Best Employers for Healthy Lifestyles’ award from theNational Business Group on Health, and the company’s commitment to employee health and wellness was recognized by theAmerican Heart Association.

Our goal is to provide our associates a total compensation package that includes solid wages, good quality, affordable health care, and retirement benefits. In 2014, Kroger invested $1.8 billion in our associates’ health care.

Kroger is alsoone of the safest companies in our industry. Associate engagement in innovative safety programs has reduced accident rates in our stores and manufacturing plants by 77 percent since 1995. In 2014, 649 retail locations and three manufacturing plants went the entire year without a recordable injury.

We continue to do our part to create jobs and opportunity. We employ 25,000 more associates today than we did last year. More than 90 percent of these new jobs are in our supermarket divisions, ranging from full-time department heads and assistant store managers to part-time courtesy clerks and cashiers. Over the last seven years, Kroger has created more than 65,000 new jobs in our local communities. We are particularly proud that we hired more than 6,000 veterans in 2014 and more than 29,000 veterans since 2009.

We pride ourselves on ouropportunity culture, where all associates have an opportunity to grow, build new skills and turn a job into a career. More than two-thirds of our store managers started their Kroger careers as part-time clerks. I began my own career at Kroger as a part-time stock clerk while earning my degree at the University of Kentucky, so I know first-hand the opportunities that are available to our associates.

One of the things that makes Kroger so special is how we extend our opportunity culture to everyone. We have a long tradition of hiring people with disabilities, especially on our front lines serving customers. Last year, Kroger was recognized by theMarriott Foundation for People with Disabilities and separately by the Ohio Governor’s Council on People with Disabilities for significantly contributing to employment opportunities for the disability community.

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Taking Care of Our Communities

We are a locally-connected retailer that is embedded in the community. When you combine the food and funds we donate, working together our Company, foundation, customers, associates and supplierscontributed more than $280 million to our local communities in 2014.

We strive to be connected to and responsive to the local communities we serve by:

We make all of these strategic investments because they strengthen the communities we call home and also improve our connection with our customers, who have identified these causes as the priorities that are most important to them. We see our community connection – the Kroger difference – as an important competitive advantage for our company and as a point of pride for our associates.

We also seeengagement with local farmers and producers as part of our efforts to make a difference in our communities. We work closely with growers to buy local and market their seasonally-fresh products in our stores, and we participate in established programs such as Colorado Proud, Kentucky Proud and Go Texan to meet the growing demand for fresh, locally-sourced foods.

Kroger is aleader in supplier diversity, spending more than $2 billion annually with women- and minority-owned businesses. We proudly remain a member of theBillion Dollar Roundtable and the United States Hispanic Chamber of CommerceMillion Dollar Club, received aTop Organization for Multicultural Business Opportunities award fromDiversity Business, and was named one ofAmerica’s Top Corporations for Women Business Enterprisesby theWomen’s Business Enterprise National Council.

Taking Care of the Planet

In 2014, we continued our 12-year journey to reduce our energy consumption while expanding square footage and sales.We have reduced energy consumption by 35% since 2000. Kroger was recently honored as a 2015ENERGY STAR Partner of the Year for our work in energy management.

One of Kroger’s key sustainability priorities is moving our retail stores and facilities toward “zero waste”. Our stores are sending less waste to landfills and incinerators through a variety of efforts, including composting and our innovativePerishable Donations Program – a process to rescue safe, edible fresh products and donate them quickly to local food banks. This system has been replicated by many retailers and today fresh products make up more than half of the food distributed nationwide by Feeding America. Our manufacturing facilities continue to lead waste reduction. Today,26 of our 37 manufacturing plants are designated as “zero waste” facilities.

Another important area issustainable seafood. Our goal is to source 100% of our fresh and frozen seafood from sustainable sources. We continue to make strong progress toward this goal, reaching 86% in 2014 and placing Kroger among market-leaders.

You can learn more about our sustainability initiatives by reading our annual sustainability report, available on our website sustainability.kroger.com.

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Retirements

Dave Dillon, who as I said in last year’s letter has been called “the grocers’ grocer”, retired as Chairman of the Board in December. We thank him for his ten incredible years as Chairman and CEO, and wish him, his wife Dee, and his family much happiness as they turn to the next chapter in their lives.

We also extend our appreciation to Reuben Anderson, who retired from Kroger’s Board of Directors in 2014 after 23 years of service; Steven Rogel, who retired from Kroger’s Board of Directors in 2014 after 15 years of service; Bruce Macaulay, president of Kroger’s Columbus division, who retired in March after 42 years of service with the Company; and Katy Barclay, senior vice president of human resources, who retires in the fall after five years developing Kroger’s human resources capabilities. On behalf of the entire Kroger family, we thank each of these individuals for their service and leadership.

It is my great honor to continue working with one of the strongest management teams in the retail industry.

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We are a company inspired by purpose: To lift up our customers and each other, to make someone’s day brighter, whether through a smile, making dinner easier, or extending a hand to a friend. Our purpose extends well beyond our store walls, and we strive to be good stewards for our customers and associates, planet and communities.

I am pleased to say we fulfilled our commitments to our shareholders, customers and associates in 2014. While we are proud of the strong year behind us, we are looking ahead. We intend to continue growing market share and share of loyalty, and growing our top and bottom lines.There is much more to come.

On behalf of our entire team, thank you for your continued confidence in Kroger.

W. Rodney McMullen
Chairman and Chief Executive Officer

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Congratulations to the winners of The Kroger Co. Community Service Award for 2014:

2014 Community Service Award Winners

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Notice of 2016 Annual Meeting of Shareholders

Thursday, June 25, 2015
11:00 a.m., eastern timeFellow Kroger Shareholders:

To All ShareholdersIt is our pleasure to invite you to join our Board of Directors, senior leadership, and other Kroger associates at The Kroger Co.:

You are invited to the Annual Meeting of Shareholders of The Kroger Co. which will be held at the Music Hall Ballroom, Music Hall, 1241 Elm Street, Cincinnati, Ohio 45202, on June 25, 2015, at 11:00 a.m., eastern time, for the following purposes:Shareholders.

Holders of common shares of recordWe appreciate your continued confidence in Kroger, and we look forward to seeing you at the close of business on April 30, 2015, will be entitled to notice of and to vote at the meeting.

Attendance

Only shareholders holding shares at the close of business on the record date, or their duly appointed proxies, may attend the meeting.If you plan to attend the meeting, you must bring the notice of the meeting that was separately mailed to you or the top portion of your proxy card, either of which will serve as your admission ticket.

YOUR MANAGEMENT DESIRES TO HAVE A LARGE NUMBER OF SHAREHOLDERS REPRESENTED AT THE MEETING, IN PERSON OR BY PROXY. PLEASE VOTE YOUR PROXY ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE. IF YOU HAVE ELECTED TO RECEIVE PRINTED MATERIALS, YOU MAY SIGN AND DATE THE PROXY AND MAIL IT IN THE SELF-ADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.

If you are unable to attend the annual meeting, you may listen to a live webcast of the meeting, which will be accessible through our website, ir.kroger.com, at 11:00 a.m., eastern time.

May 13, 2015
Cincinnati, OH

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Proxy Statement

May 13, 201512, 2016

This Combined Notice, Proxy StatementWe are providing this notice, proxy statement and Annual Report is being furnishedannual report to the shareholders of The Kroger Co. (“Kroger”) in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareholders to be held on June 25, 2015,23, 2016, at 11:00 a.m., eastern time, at the Music Hall Ballroom, Music Hall, 1241 Elm Street,School for Creative and Performing Arts, Corbett Theater, 108 W. Central Parkway, Cincinnati, Ohio 45202, and at any adjournments thereof.

Our principal executive offices are located at 1014 Vine Street, Cincinnati, Ohio 45202-1100. Our telephone number is 513-762-4000. This Proxy Statementnotice, proxy statement and Annual Report,annual report, and the accompanying proxy card were first furnished to shareholders on May 13, 2015.12, 2016.

Who can vote?

You can vote if as of the close of business on April 27, 2016, 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 theKroger’s Board of Directors of TheDirectors. Kroger Co., andis 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 be borne by Kroger. Krogerpay them a fee estimated not to exceed $15,000.

We also will reimburse banks, brokers, nominees, and other fiduciaries for postage and reasonable expenses incurred by them in forwarding the proxy material to their principals. Kroger has retained D.F. King & Co., Inc., 48 Wall Street, New York, New York, to assist in the solicitationbeneficial owners of proxies and will pay that firm a fee estimated at present not to exceed $15,000. 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?

Robert D. Beyer, W. Rodney McMullen, and Ronald L. Sargent, all of whomKroger Directors, are Kroger directors, have been namedthe members of the Proxy Committee for the 2015our 2016 Annual Meeting.

AsHow do I vote my proxy?

You can vote your proxy in one of the closefollowing ways:

What do I need to attend the meeting in person in Cincinnati?

If you plan to attend the meeting, you must bring either: (1) the notice of business on April 30, 2015,meeting that was separately mailed to you or (2) the record date, our outstanding voting securities consistedtop portion of 490,201,501 common shares, the holdersyour proxy card, either of which will be entitled to one vote per share at the annual meeting. your admission ticket.

You must also bring valid photo identification, such as a driver’s license or passport.

Can I change or revoke my proxy?

The common shares represented by each proxy will be voted in the manner you specified unless theyour proxy is revoked before it is exercised. You may change or revoke your proxy by giving usproviding written notice in writing sent to Kroger’s Secretary orat 1014 Vine Street, Cincinnati, Ohio 45202-1100, in person at the meeting or by executing and sending us a subsequent proxy.

How many shares are outstanding?

As of the close of business on April 27, 2016, the record date, our outstanding voting securities consisted of 953,786,557 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. Or you may instruct the proxies to “Abstain” from voting.

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 of Directors.

If you hold shares in street name and do not provide your broker with specific voting instructions on proposals 1, 2, 4, 5, and 6 or 7, 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 3, ratification of auditors, is 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.

ItemWhat are the voting requirements for each of the proposals?

Proposal No. 1, Election of Directors – An affirmative vote of the majority of the total number of votes cast “for”“For” or “against”“Against” a director nominee is required for the election of a director in an uncontested election. Accordingly, broker non-votes and abstentions will have no effect on this proposal. A majority of votes cast means that the number of shares voted “for”“For” a director nominee must exceed the number of votes “against”“Against” such director. Broker non-votes and abstentions will have no effect on this proposal.

ItemProposal No. 2, Advisory Vote to Approve Executive Compensation – Advisory approval by shareholders of executive compensation requires the affirmative vote of the majority of shares participating in the voting. Accordingly, brokerBroker non-votes and abstentions will have no effect on this proposal.

ItemProposal No. 3, Ratification of Independent Auditors – Ratification by shareholders of the selection of independent public accountants requires the affirmative vote of the majority of shares participating in the voting. Accordingly, abstentionsAbstentions will have no effect on this proposal.

ItemProposal Nos. 4, 5, 6 and 6,7, Shareholder Proposals– The affirmative vote of the majority of shares participating in the voting on a shareholder proposal is required for its adoption.such proposal to pass. Accordingly, broker non-votes and abstentions will have no effect on these proposals. Proxies will be voted AGAINSTagainst these proposals unless the Proxy Committee is otherwise instructed on a proxy properly executed and returned.

8How does the Board of Directors recommend that I vote?

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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:

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Proposals to Shareholders

Item 1. Election of Directors
(Item no. 1)

Kroger’sYou are being asked to elect 11 director nominees for a one-year term. The Board of Directors as now authorized,recommends that you vote FOR the election of all director nominees.

As of the date of this proxy statement, the Kroger Board of Directors consists of twelve members. David B. Lewis will be retiring from the Board of Directors immediately prior to the 2016 annual meeting, in accordance with Kroger’s director retirement policy, and will not be standing for re-election. The number of directors will be reduced to eleven members.by the Board. All members are to benominees, if elected at the 2016 annual meeting, towill serve until the annual meeting in 2016,2017, or until their successors have been elected by the shareholders or by the Board pursuant to Kroger’s Regulations, and qualified.

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, will beis the affirmative vote of a majority of the votes cast for or against the election of a nominee.

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 as of the date of this proxy statement. It is intended that, except to the extent that authority is withheld, proxiesExcept as noted, each nominee has been employed by the Proxy Committee will be votedhis or her present employer (or a subsidiary thereof) in an executive capacity for the election of the following nominees:at least five years.

Nominees for DirectorDirectors for Terms of Office
Continuing Until 2016until 2017

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115

126

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14The Board of Directors Recommends a VoteFor Each Director Nominee.

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Information Concerning the Board of Directors

Committees of the Board Leadership Structure and 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 balanced governance structure in which independent directors exercise meaningful and vigorous oversight.

In addition, as provided in theGuidelines on Issues of Corporate Governance(the “Guidelines”), the Board has designated one of the independent directors as Lead Director. 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:

Unless otherwise determined by the Board, the chair of the Corporate Governance Committee is designated as the Lead Director. Robert Beyer, an independent director and the chair of the Corporate Governance Committee, is currently the Lead Director. Mr. Beyer is an effective Lead Director for Kroger due to, among other things, his independence, his deep strategic and operational understanding of Kroger obtained while serving as a Kroger director, his insight into corporate governance, his experience on the boards of other large publicly traded companies, and his commitment and engagement to carrying out the roles and responsibilities of the Lead Director.

With respect to the roles of Chairman and CEO, theGuidelines provide that the Board will determine when it is in the best interests of Kroger and our shareholders for the roles to be separated or combined, and the Board exercises its discretion 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. 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 interests of shareholders. Additionally, this structure provides an effective balance between strong Company leadership and appropriate safeguards and oversight by independent directors. The Board believes that the combination or separation of these positions should continue to be considered as part of the succession planning process, as was the case in 2003 and 2014 when the roles were separated.

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The Board and each of its committees conduct an annual self-evaluation to determine whether the Board is functioning effectively at each level. As part of this annual self-evaluation, the Board assesses whether the current leadership structure continues to be appropriate for Kroger and its shareholders. TheGuidelines provide the flexibility for the Board to modify our leadership structure in the future as appropriate. We believe that Kroger, like many U.S. companies, has been well-served by this flexible leadership structure.

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 includingcommittees: Audit, Compensation, Corporate Governance, Financial Policy and Corporate Governance.Public Responsibilities. All standing committees are composed exclusively of independent directors.directors, as determined under the NYSE listing standards. The current charter of each Board committee is available on our website at ir.kroger.com under Corporate Governance – Committee Composition.

The table below provides the current membership of our independent directors on each of the standing Board committees.

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During 2014,Director Nominee Selection Process

The Corporate Governance Committee is responsible for recommending to the AuditBoard a slate of nominees for election at each annual meeting of shareholders. The Corporate Governance Committee met five times, the Compensation Committee met four times,recruits candidates for Board membership through its own efforts and through recommendations from other directors and shareholders. In addition, the Corporate Governance Committee met two times. The Audit Committee reviews financial reportinghas retained an independent search firm to assist in identifying and accounting matters pursuant to its charter and selects our independent accountants. The Compensation Committee recommends for determinationrecruiting director candidates who meet the criteria established by the independent members of the Board the compensation of the CEO, determines the compensation of our other senior management, and administers some of our incentive programs. Additional information on the Compensation Committee’s processes and procedures for consideration of executive compensation are addressed in the Compensation Discussion and Analysis section of this proxy statement. Corporate Governance Committee.

These criteria are:

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The Corporate Governance Committee develops criteria for selectingconsiders racial, ethnic and retaining membersgender 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 that help the Board seeks out qualifiedreflect the diversity of our shareholders, associates, customers and the communities in which we operate. Some consideration also is given to the geographic location of director candidates forin order to provide a reasonable distribution of members from Kroger’s operating areas.

At least annually, the Corporate Governance Committee actively engages in Board succession planning. The Corporate Governance Committee takes into account the Board and reviewscommittee evaluations regarding the performancespecific backgrounds, skills, and experiences that would contribute to overall Board and committee effectiveness as well as the future needs of the Board and along withits committees in light of Kroger’s current and future business strategies and the other independent board members,skills and qualifications of directors who are expected to retire in the CEO.future.

Director NominationsCandidates Nominated by Shareholders

The Corporate Governance Committee will consider shareholder recommendations for nominees for membership on the Board of Directors. If shareholders wish to nominate a person or persons for election to the Board at our 20162017 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 January 13, 2016.March 28, 2017. 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 Committee. These criteria are:

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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 Committee considers director candidates that help the Board reflect the diversity of our shareholders, associates, customers and the communities in which we operate. Some consideration also is given to the geographic location of director candidates in order to provide a reasonable distribution of members from Kroger’s operating areas.

The Corporate Governance Committee recruits candidates for Board membership through its own efforts and through suggestions from other directors and shareholders. In addition, the Committee has retained an independent search firm to assist in identifying and recruiting director candidates who meet the criteria established by the Committee.as described above.

Corporate Governance Guidelines

The Board has adopted theGuidelines on Issues of Corporate Governance. TheseTheGuidelines, which include copies of the current charters for each of the Audit, Compensation, and Corporate Governance Committees, and the otherfive standing committees of the Board, are available on our corporate website at ir.kroger.com.ir.kroger.com under Corporate Governance – Highlights. Shareholders may obtain a copy of theGuidelines by making a written request to Kroger’s Secretary at our executive offices.

Independence

The Board has determined that all of the non-employee directors have no material relationships with Kroger and, therefore, are independent for purposes of the New York Stock Exchange listing standards. The Board made its determination based on information furnished by all members regarding their relationships with Kroger and its management, and other relevant information. After reviewing the information, the Board determined that all of the non-employee directors were independent because (a) they all satisfied the criteria for independence set forth in Rule 303A.02 of the NYSE Listed Company Manual, (b) any business transactions between Kroger and entities with which the directors are because:

In determining that Mr. Sargent is independent, the Board considered transactions during fiscal 2015 between Kroger and Staples, Inc. (where Mr. Sargent is Chairman and CEO) and determined that the amount of business fell below the thresholds set by the NYSE listing standards,standards. The transactions involved the purchase of goods by Kroger in the ordinary course of business totaling approximately $12 million and (c) none had any material relationships withrepresented less than 0.06% of Staples’ annual consolidated gross revenue. Kroger exceptperiodically employs a bidding process or negotiations following a benchmarking of costs of products from various vendors for those arising directlythe items purchased from their performanceStaples and awards the business based on the results of services as a director for Kroger.that process.

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Audit Committee Expertise

The Board has determined that Anne Gates, Susan M. Phillips and Ronald L. Sargent, independent directors who are members of the Audit Committee, are “audit committee financial experts” as defined by applicable 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 adoptedThe Kroger Co. Policy on Business Ethics, applicable to all officers, employees and directors, including Kroger’s principal executive, financial and accounting officers. ThePolicy is available on our corporate website at ir.kroger.com.ir.kroger.com under Corporate Governance – Highlights. Shareholders may also obtain a copy of thePolicy by making a written request to Kroger’s Secretary at our executive offices. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of thePolicy for our principal executive, financial and accounting officers by posting that information on our website at ir.kroger.com.

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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) established by the Board’s Audit Committee. The concerns are investigated by Kroger’s Vice President of Auditing and reported to the Audit Committee as deemed appropriate by the Vice President of Auditing.

Shareholders or interested parties also may communicate with the Board in writing directed to Kroger’s Secretary at our executive offices. The Secretary will consider the nature of the communication and determine whether to forward the communication to the chair of the Corporate Governance Committee. Communications relating to personnel issues or our ordinary business operations, or seeking to do business with us, will be forwarded to the business unit of Kroger that the Secretary deems appropriate. All other 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.

Attendance

The Board held five meetings in fiscal year 2014.2015. During fiscal year 2014,2015, all incumbent directors attended at least 75% of the aggregate number of meetings of the Board and committees on which that director served. Members of the Board are expected to use their best efforts to attend all annual meetings of shareholders. All thirteeneleven members then serving on the Board attended last year’s annual meeting.

Independent Compensation Consultants

The Compensation Committee directly engages a compensation consultant from Mercer Human Resource Consulting to advise the Compensation Committee in the design of compensation for ourKroger’s executive officers.compensation. In 2014,2015, Kroger paid that consultant $294,868$390,767 for work performed for the Compensation Committee. Kroger, on management’s recommendation, retained the parent and affiliated companies of Mercer Human Resource Consulting to provide other services for Kroger in 2014,2015, for which Kroger paid $4,425,282.$2,339,577. These other services primarily related to insurance claims (for which Kroger was reimbursed by insurance carriers as claims were adjusted), insurance brokerage and bonding commissions provided by Marsh USA Inc., and pension consulting.plan compliance and actuary services provided by Mercer Inc. Kroger also made payments to affiliated companies for insurance premiums that were collected by the affiliated companies on behalf of insurance carriers, but these amounts are not included in the totals referenced above, as the amounts were paid over to insurance carriers for services provided by those carriers.

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Although neither the Compensation Committee nor the Board expressly approved the other services, after taking into consideration the NYSE’s independence standards and the SEC rules, the Compensation Committee determined that the consultant is independent and his work has not raised any conflict of interest because (a) the consultant was first engaged by the Committee before he became associated with Mercer; (b) the consultant works exclusively for the Committee and not for our management; (c) the consultant does not benefit from the other work that Mercer’s parent and affiliated companies perform for Kroger; and (d) neither the consultant nor the consultant’s team perform any other services for Kroger. because:

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 employee of Kroger during fiscal year 2014,2015, and no member of the Compensation Committee is a former officer of the CompanyKroger or was a party to any disclosable related person transaction involving the Company.Kroger. During fiscal year 2014,2015, none of our executive officers served on the board of directors or on the compensation committee of any other entity that has or had executive officers serving as a member of theKroger’s Board of Directors or Compensation Committee of the Company.Board.

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Board Oversight of Enterprise Risk

While risk management is primarily the responsibility of Kroger’s management team, the Board is responsible for thestrategic 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.

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 that exposure. The Audit Committee also discusses with management its policies with respect to risk assessment and risk management.

Management, including our Chief Ethics and Compliance Officer, provides regular updates throughout the year to the respective Board committees regarding the management of the risks they oversee, and each of these committees reports on risk to the full Board at each regular meeting of the Board.

In addition to the reports from the committees, the Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks as necessary. At each Board meeting, the Chairman and CEO addresses matters of particular importance or concern, including any significant areas of risk 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 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 committee on risks within the scope of their charters.

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 that exposure. The Audit Committee also discusses with management its policies with respect to risk assessment and risk management.

Management, including our Chief Ethics and Compliance Officer, provides regular updates throughout the year to the respective Board committees regarding management of the risks they oversee, and each of these committees reports on risk to the full Board at each regular meeting of the Board.

We believe that our approach to risk oversight, as described above, optimizes our ability to assess interrelationshipsinter-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 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, led by Mr. McMullen as Chairman of the Board and CEO, in identifying risks and implementing effective risk management policies and controls.

Board Leadership Structure and Lead Director

The Board is composed of ten independent non-employee directors and one management director, Mr. McMullen, the Chairman and CEO. The Board has established five standing committees — audit, compensation, corporate governance, financial policy, and public responsibilities. Each committee is composed solely of independent directors, each with a different independent director serving as committee chair.

In addition, as provided in theGuidelines on Issues of Corporate Governance, the Board has designated one of the independent directors as Lead Director. The Lead Director serves a variety of roles, including reviewing and approving Board meeting agendas, materials and schedules to confirm the appropriate topics are reviewed and sufficient time is allocated to each; serving as liaison between the Chairman, management, and the non-management 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 an executive session 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. Unless otherwise determined by the Board, the chair of the Corporate Governance Committee is designated as the Lead Director. Robert Beyer, an independent director and the chair of the Corporate Governance Committee, is currently the Lead Director. Mr. Beyer is an effective Lead Director for Kroger due to, among other things, his independence, his deep strategic and operational understanding of Kroger obtained while serving as a Kroger director, his insight into corporate governance and his experience on other boards.

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With respect to the roles of Chairman and CEO, theGuidelines provide that the Board will determine when it is in the best interests of Kroger and our shareholders for the roles to be separated or combined, and the Board exercises its discretion 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. 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 interests of shareholders. Additionally, this structure provides an effective balance between strong Company leadership and appropriate safeguards and oversight by independent directors. The Board believes that the combination or separation of these positions should continue to be considered as part of the succession planning process, as was the case in 2003 and 2014 when the roles were separated.

The Board and each of its committees conduct an annual self-evaluation to determine whether they are functioning effectively. As part of this annual self-evaluation, the Board assesses whether the current leadership structure continues to be appropriate for Kroger and its shareholders. TheGuidelines provide the flexibility for the Board to modify our leadership structure in the future as appropriate. We believe that Kroger, like many U.S. companies, has been well-served by this flexible leadership structure.

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Executive Summary

Named Executive Officers

This Compensation – OverviewDiscussion and Analysis provides a discussion and analysis of our compensation program for our named executive officers (“NEOs”). For the 2015 fiscal year ended January 30, 2016, the NEOs were:

Messrs. Schlotman, Donnelly, Hjelm and Morganthall were each promoted to the position of Executive Vice President effective September 1, 2015.

Executive Compensation in Context: Our Growth Plan, Financial Strategy and Fiscal Year 2015 Results

Kroger’s growth plan includes four key performance indicators: positive identical supermarket sales without fuel (“ID Sales”) growth, slightly expanding non-fuel first in, first out (“FIFO”) operating margin, growing return on invested capital (“ROIC”), and annual market share growth. In 2015, we met or exceeded our goals for each of these performance indicators:

The compensation of our NEOs in 2015 reflects Kroger’s short-term and long-term goals and outcomes. Total compensation for the year is an indicator of how well Kroger performed compared to our business plan, reflecting how our compensation program responds to business challenges and the marketplace.

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Summary of Key Compensation Practices

Summary of Fixed and At-Risk Pay Elements

The fixed and at-risk pay elements of NEO compensation are reflected in the following table and charts. The amounts used in the charts are based on the amounts reported in the Summary Compensation Table for 2015, excluding the Change in Pension Value and Nonqualified Deferred Compensation Earnings column.

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CEO 87% of CEO pay is At Risk		Average of Other NEOs 82% of Other NEO pay is At Risk
CEO 68% of CEO pay is Long-Term		Average of Other NEOs 68% of Other NEO pay is Long-Term

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The following discussion and analysis addresses the compensation of the NEOs and the factors considered by the Compensation Committee in setting compensation for the NEOs and, in the case of the CEO’s compensation, making recommendations to the independent directors. Additional detail is provided in the compensation tables and the accompanying narrative disclosures that follow this discussion and analysis.

Our Compensation Philosophy and Objectives

As one of the largest retailers in the world, our executive compensation philosophy remainsis to attract and retain the best management talent and to motivate these employees to achieve our business and financial goals. Kroger’s incentive plans are designed 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.

We believe our strategy creates value for shareholders in a manner consistent with our focus on our core values: honesty, integrity, respect, inclusion, diversity and safety.

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:

This Compensation Discussion and Analysis provides a discussion and analysis of our compensation program for the executive officers. For the fiscal year ended January 31, 2015, the named executive officers were:

The compensation of our named executive officers in fiscal year 2014 reflects the above principles. Total compensation for the year is an indicator of how well Kroger performed compared to our business plan, reflecting how our compensation program responds to business challenges and the marketplace. We continue to deliver sales growth and positive earnings results.

The Compensation Committee has three related objectives regarding compensation:

The Committee believes our management produced outstanding results in 2014, measured against increasingly aggressive business plan objectives for sales, net earnings, operating costs and our strategic plan. The compensation paid to our named executive officers reflected this fact as the annual performance-based cash bonus paid out at 121.5% of bonus potentials. The strong link between pay and performance is illustrated by a comparison of past years’ annual cash bonus, such as 2012, 2010 and 2009 with payouts of less than 100%. In those years, we did not achieve all of our business plan objectives. In 2014, all of our business plan goals were exceeded (with the exception of a set of measures under our strategic plan goal, which fell short), resulting in an annual bonus payout that exceeded 100% of potentials.

In keeping with our overall compensation philosophy, we endeavor to ensure that our executive compensation practices conform to best practices. In particular, over the past several years we have:

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In addition, fifty percent of the equity awards granted to the named executive officers are in the form of performance units that are earned only to the extent that performance objectives are achieved. Equity compensation awards continue to play an important role in rewarding named executive officers for the achievement of long-term business objectives and providing incentives for the creation of shareholder value.

The following discussion and analysis addresses the compensation of the named executive officers and the factors considered by the Committee in setting compensation for the named executive officers and making recommendations to the independent directors in the case of the CEO’s compensation. Additional detail is provided in the compensation tables and the accompanying narrative disclosures that follow this discussion and analysis.

Results of 2014 Advisory Vote to Approve Executive Compensation

At the 2014 Annual Meeting of Shareholders, we held our fourth annual advisory vote on executive compensation. Over 96% of the votes cast were in favor of the advisory proposal in 2014. The Committee considers this to be an overwhelmingly favorable outcome and believes it conveys our shareholders’ support of the Committee’s decisions and the existing executive compensation programs. As a result, the Committee made no material changes in the structure of our compensation programs or pay for performance philosophy. At the 2015 Annual Meeting of Shareholders, in keeping with our shareholders’ request for an annual advisory vote, we will again hold an advisory vote to approve executive compensation (see page 55). The Committee will continue to consider the results from this year’s and future advisory votes on executive compensation.

Executive Compensation – Objectives

The Committee has several related objectives regarding compensation. First, the Committee believes that compensation must be designed to attract and retain those best suited to fulfill the challenging roles that executive officers play at Kroger. Second, some elements of compensation should help align the interests of our officers with the interests of our shareholders. Third, compensation should create strong incentives for the officers (a) to achieve the annual business plan targets established by the Board, and (b) to achieve Kroger’s long-term strategic objectives. In developing compensation programs and amounts to meet these objectives, the Committee exercises judgment to ensure that executive officer compensation is appropriate and competitive in light of Kroger’s performance and the needs of the business.

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-employee directors, officers and some other key executives to acquire and hold a minimum dollar value of Kroger common shares as set forth below:

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Covered individuals are expected to achieve the target level within five years of appointment to their position. If the requirements have not been met, directors, officers and key executives, including the named executive officers, must hold 100% of 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, and must retain all Kroger shares unless the disposition is approved in advance by the CEO, or by the Board or Compensation Committee for the CEO.

Role of Compensation Committee

The Compensation Committee of the Board has the primary responsibility for establishing the compensation of our executive officers, including the named executive officers, with the exception of the Chief Executive Officer. The 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.

Establishing Executive Compensation

The independent members of the Board have the exclusive authority to determine the amount of the CEO’s salary, the bonus potential for the CEO, the nature and amount of any equity awards made to the CEO, and any other compensation decisions related to the CEO. In setting the annual bonus potential for the CEO, the independent directors determine the dollar amount that will be multiplied by the percentage payout under the annual bonus plan generally applicable to all corporate management, including the named executive officers. The independent directors retain discretion to reduce the percentage payout the CEO would otherwise receive. The independent directors thus make a separate determination annually concerning both the CEO’s bonus potential and the percentage of bonus paid.

The Committee performs the same function and exercises the same authority as to the other named executive officers. The Committee’s annual review of compensation for the named executive officers includes the following:

In considering each of the factors above, the Committee does not make use of a formula, but rather subjectively reviews each in setting compensation.

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Compensation Policies as They Relate to Risk Management

As part of the Compensation Committee’s review of our compensation practices, the Committee considers and analyzes the extent to which risks arise from such practices and their impact on Kroger’s business. As discussed above in the 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 process, the Committee also focuses on minimizing risk through the implementation of certain practices and policies, such as the executive compensation recoupment policy, which is described in more detail on page 30. 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.

The Committee’s Compensation Consultants and Benchmarking

As referenced earlier in this Compensation Discussion and Analysis, the Committee directly engages a compensation consultant from Mercer Human Resource Consulting to advise the Committee in the design of compensation for executive officers.

The Mercer consultant conducts an annual competitive assessment of executive positions at Kroger for the Committee. The assessment is one of several bases, as described above, on which the Committee determines compensation. The consultant assesses:

The consultant compares these elements against those of other companies in a group of publicly-traded food and drug retailers. For 2014, our peer group consisted of:

This peer group is the same group as was used in 2013. The make-up of the compensation peer group is reviewed annually and modified as circumstances warrant. Industry consolidation and other competitive forces will change the peer group used over time. The consultant also provides the Committee data from companies in “general industry,” a representation of major publicly-traded companies of similar size and scope. These data serve as reference points, particularly for senior staff positions where competition for talent extends beyond the retail sector.

From time to time, the Committee will engage an additional compensation consultant to conduct an additional review of Kroger’s executive compensation, as it deems advisable.

Considering the size of Kroger in relation to other peer group companies, the Committee believes that salaries paid to our named executive officers should be at or above the median paid by competitors for comparable positions. The Committee also aims to provide an annual bonus potential to our named executive officers that, if the increasingly more challenging annual business plan objectives are achieved, would cause total cash compensation to be meaningfully above the median.

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Components of Executive Compensation at Kroger

Compensation for our named executive officersNEOs is comprised of the following:

The annual and long-term performance-based compensation awards described herein were made pursuant to our 2011 Long-Term Incentive and Cash Bonus Plan and our 2014 Long-Term Incentive and Cash Bonus Plan, each of which was approved by our shareholders in 2011 and 2014, respectively.

Annual Compensation – Salary

WeOur philosophy with respect to salary is to provide a sufficient and stable source of fixed cash compensation. All of our named executive officer’scompensation cannot be at-risk or long-term. It is important to provide a meaningful annual salary to attract and other employeesretain a fixed amounthigh caliber leadership team, and to have an appropriate level of cash compensation salary, for their work. that is not variable.

Salaries for the named executive officersNEOs (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 the independent directors. Salaries for the named executive officers wereNEOs are reviewed annually in June 2014.June.

The amount of each named executive officer’sNEO’s salary is influenced by numerous factors including:

The assessment of individual contribution is a qualitative determination, based on a subjective determination, without the use of performance targets, in the following areas:factors:

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The amounts shown below reflect the salaries of the named executive officersNEOs effective August 1, followingat the annual reviewend of their compensation in June.each fiscal year.

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Annual Compensation – Performance-Based Annual Cash Bonus

A large percentageThe NEOs, along with approximately 13,000 of our employees at all levels, including the named executive officers, are eligible to receivetheir fellow Kroger associates, participate in a performance-based annual cash bonus plan. Approximately 7,000 of those associates are eligible for the same plan as the NEOs. The remaining associates are eligible for an annual cash bonus plan of which 40% is based on the performance of Kroger (incorporate plan and 60% is based on the casemetrics and targets for their respective supermarket division or operating unit of the named executive officers) orCompany.

Over time, the Compensation Committee and our independent directors have placed an increased emphasis on our strategic plan by making the targets more difficult to achieve. The annual cash bonus plan is structured to encourage high levels of performance. A threshold level of performance must be achieved before any payouts are earned, while a payout of up to 200% of target can be achieved for superior performance.

The amount of annual cash bonus that the NEOs earn each year is based upon Kroger’s performance compared to targets established by the Compensation Committee and the independent directors based on the business unit (inplan adopted by the caseBoard of employees inDirectors.

The annual cash bonus 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 units). strategy.

Establishing Annual Cash Bonus Potentials

The Compensation Committee establishes annual cash bonus potentials for each named executive officer,NEO, other than the CEO, whose annual cash bonus potential is established by the independent directors. Actual payouts, which can exceed 100% of the potential amounts but may not exceed 200% of the potential amounts, represent the extent to which performance meets or exceeds the thresholdsgoals established by the Compensation Committee. Actual payouts may be as low as zero if performance does not meet the thresholdsgoals established by the Compensation Committee.

The Compensation Committee considers severalmultiple factors in making its determination or recommendation as to annual cash bonus potentials. First, the individual’s level within the organization is a factor in that the Committee believes that more senior executives should have a substantial part of their compensation dependent upon Kroger’s performance. Second, the individual’s salary is a factor so that a substantial portion of a named executive officer’s total cash compensation is dependent upon Kroger’s performance. Finally, the Committee considers the report of its compensation consultant to assess the bonus potential of the named executive officers in light of total compensation paid to comparable executive positions in the industry.potentials:

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The annual cash bonus potential in effect followingat the annual reviewend of compensation in Junethe fiscal year for each named executive officerNEO is shown below. Actual annual cash bonus payouts are prorated to reflect changes, if any, to bonus potentials during the year.

Over time the CommitteeAnnual Cash Bonus Plan Metrics and Connection to our independent directors have placed an increased emphasis on our strategic plan by making the targets more difficult to achieve. Business Plan

The annual cash bonus plan allowshas the following measurable performance metrics, all of which are interconnected, and individually necessary to sustain our business model and achieve our growth strategy:

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The use of these four primary metrics creates checks and balances on the various behaviors and decisions that impact the long-term success of the Company. The ID Sales, EBITDA without fuel and Customer 1^st Strategy metrics are weighted equally to highlight the need to simultaneously achieve all three metrics in order to maintain our growth.

We aligned the weighting of ID Sales and EBITDA without fuel metrics to emphasize sales growth balanced with the focus on profit. Kroger’s business is not sustainable if we merely increase our ID Sales, but do not have a corresponding increase in earnings. Furthermore, payouts in the ID Sales and EBITDA without fuel segments are interrelated. Achieving the goal for minimal or zero bonus to be earned at relatively low levels of performance to provide incentive for achieving evenboth the ID Sales and EBITDA without fuel results in a higher levels of performance.percentage payout on both elements. Achieving the target on one, but not the other will limit the payout percentage on both.

The amount of bonus thatBy supporting the named executive officers earn each year is based upon Kroger’s performance compared to targets established by the CommitteeCustomer 1^st Strategy and the independent directors basedFour Keys, we will better connect with our customers. Our unique competitive advantage is our ability to deliver on the business plan adopted byFour Keys, which are the Board of Directors. In 2014, 30% of the bonus was based on a target for identical sales without supermarket fuel; 30% was based on a target for EBITDA without supermarket fuel; 30% was based on implementationitems that matter most to our customers, and results of a set of measures underit is that multi-faceted achievement that we believe drives our strategic plan, and 10% was based on a target for totalID Sales growth.

As we strive to achieve our aggressive growth targets, we also continuously aim to reduce our operating costs as a percentage of sales, excludingwithout fuel. An additional 5% would be earned if Kroger achieved three goals with respectProductivity improvements and other reductions in operating costs allow us to its supermarket fuel operations: achievement of the targeted fuel EBITDA of $208.25 million, an increasereduce costs in total gallons sold of 3%, and achievement of 1,325 fuel centers placed in service. The fuel bonus of 5% is only available if all three measures are met. If any of the three fuel goals areareas that do not met, there is no payout under the fuel measurement. Kroger exceeded the three goals and, as a result, received the 5% fuel bonus.matter to our customers so that we can

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invest money in the areas that matter the most to our customers, like the Four Keys. We carefully manage operating cost reductions to ensure a consistent delivery of the customer experience. This again shows the need to have multiple metrics, to create checks and balances on the various behavior and decisions that are influenced by the design of the bonus plan.

Results of 2015 Annual Cash Bonus Plan

The 2014 targets2015 goals established by the Compensation Committee, the actual fiscal 20142015 results and the bonus percentage earned infor each of the componentsperformance metrics of the annual cash bonus plan were as follows:

Following the close of the year, the Compensation Committee reviewed Kroger’s performance against each of the identical sales without supermarket fuel, EBITDA without supermarket fuel, strategic plan objectives, and total operating costs as a percent of sales, excluding fuel,metrics outlined above and determined the extent to which Kroger achieved those objectives. The Compensation Committee believes our management produced outstanding results in 2015, measured against increasingly aggressive business plan objectives. Due to our performance when compared to the targetsgoals established by the Compensation Committee, and based on the business plan adopted by the Board, the named executive officers earned 121.5% of their bonus potentials. This is the same bonus percentage payout received byNEOs and all other participants in the corporate annual cash bonus plan.plan earned 126.7% of their bonus potentials.

In 2014,2015, as in all years, the Compensation Committee retained discretion to reduce the annual cash bonus payout for all executive officers, including the named executive officers,NEOs, if the Compensation Committee determined for any reason that the bonus payouts were not appropriate given their assessment of Company performance. The independent directors retained that discretion for the CEO’s bonus. Those bodiesThe Compensation Committee and the independent directors also retained discretion to adjust the targets goals for each metric

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under the plan should unanticipated developments arise during the year. No adjustments were made to the targetsgoals in 2014.2015. The Compensation Committee, and the independent directors in the case of the CEO, determined that the annual cash bonus payouts forearned appropriately reflected the named executive officers, that were earned based on 2014Company’s strong performance in 2015 and therefore should not be adjusted.

The actual annual cash bonus percentage paidpayout for 20142015 represented excellent performance that exceeded our business plan objectives. objectives, with the exception of operating costs as a percentage of sales, without fuel. 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, 2010 and 2012, when payouts were less than 100%. In those years, we did not achieve all of our business plan objectives.A comparison of actual annual cash bonus percentages for the named executive officerspercentage payouts in prior years demonstrates the variability of annual cash bonus incentive compensation and its strong linkslink to our performance:

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As described above, the annual cash bonus payout percentage is applied to each NEO’s bonus potential, which is determined by the Compensation Committee, and the independent directors in the case of the CEO. The actual amounts of performance-based annual performance-based cash bonuses paid to the named executive officersNEOs for 20142015 are reported in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column and footnote 4 to that table. These amounts represent the bonus potentials for each named executive officer multiplied by the 121.5% payout percentage earned in 2014. In no event can any participant receive a performance-based annual cash bonus in excess of $5,000,000. The maximum amount that a participant, including each named executive officer, can earn is further limited to 200% of the participant’s bonus potential amount.

Long-Term IncentivesCompensation

The Compensation Committee believes in the importance of providing an incentive to the named executive officersNEOs to achieve the long-term goals established by the Board by conditioningBoard. As such, a significant portionmajority of compensation is conditioned on the achievement of those goals.

In 2006, the Committee adopted the first in a series ofCompany’s long-term performance basedgoals and is delivered via four long-term compensation plans designed to reward participants for their contribution to the long-term performance of Kroger. These earlier plans provided for overlapping four year performance periods that allowed for the earning of a long-term cash bonus. In 2010, Kroger’s long-term incentive program was redesigned to combine the total value of ourvehicles: long-term cash bonus, performance units, stock options and equity programs into a cohesive, strategic reward for eligible executivesrestricted stock. Long-term compensation promotes long-term value creation and discourages the over-emphasis of attaining short-term goals at the Vice President level and above. Approximately fifty percentexpense 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 planCEO, recommending to the independent directors the amount awarded. These factors include:

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Long-term incentives are structured to be a combination of performance- and time-based compensation that reflects elements of financial and stock performance to provide both retention value is performance-based, delivered inand alignment with company performance. Long-term cash bonus and performance units,unit payouts are contingent on the achievement of certain strategic performance measures. The other fifty percent ofand 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 and restricted stock are linked to stock performance creating alignment between executives and company shareholders. Options have no initial value and recipients only realize benefits if the value of our stock increases following the date of grant.

A majority of long-term compensation is time-based and delivered inequity-based (performance units, stock options, and restricted stock.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.

Amounts of long-term compensation awards issued and outstanding for the NEOs are set forth in the tables that follow this discussion and analysis.

Performance Based Long-Term CompensationIncentive Plan Design

The long-term incentiveIn contrast to the performance-based annual cash bonus plan, originally adopted in 2010 providesdescribed above, which has approximately 13,000 participants, our performance-based Long-Term Incentive Plan has approximately 160 participants, including the model for our combined plan structure.NEOs. Each year we adopt a similar plan withLong-Term Incentive Plan, which provides for overlapping three year performance periods. The Long-Term Incentive Plan consists of a performance-based long-term cash bonus and performance units which has the following characteristics:

The Compensation Committee anticipates adopting a new Long-Term Incentive Plan each year, measuring improvement over successive three-year periods. Each year when establishing the performance metric baselines and percentage payouts per unit of improvement, the Compensation Committee considers the difficulty of achieving compounded improvement over time. During 2015, Kroger awarded 503,276 performance units to approximately 160 employees, including the NEOs.

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Long-Term Incentive Plan Metrics and Connection to our Business Strategy

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The following table summarizes each of the long-term performance based plansLong-Term Incentive Plans adopted for the years shown: