(1)
| The payout percentage, based on the extent to which the performance metrics are achieved, is applied to both the long-term cash bonus potential and the number of performance units awarded. 28
Actual payouts cannot exceed 100% of the long-term cash bonus potential or 100% of the number of performance units awarded.
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.
Long-Term Incentive Plan Metrics
The following table summarizes the Long-Term Incentive Plans adopted in 2015, 2016 and 2017:
| | | Metric | | Rationale for Use | Customer 1stStrategy | | • Kroger’s Customer 1stStrategy isand Improvement in Associate Engagement components were established by the focus, in our decision-making, onCompensation Committee at the customer. The Four Keys of our Customer 1stStrategy are People, Products, Shopping Experience and Price.
• This proprietary metric measures the improvement in how Kroger is perceived by customers in eachbeginning of the Four Keys.
• Long-Term Incentive Plan payout is based on all of the elements of the Customer 1stStrategy, to maintain our top executives’ consistent focus on the entirety of the Customer 1stStrategy. This is in contrast to the 2017 annual cash bonus payout, which is based on certain elements of the Customer 1stStrategy, to highlight annual objectives thatperformance period, but are intended to receive the most focused attention in that year.
| Improvement in Associate
Engagement
| | • Kroger measures associate engagement in an annual survey of associates.
• This metric is included in these Long-Term Incentive Plansnot disclosed as an acknowledgement that our Company’s success is directly tied to our associates connecting with and serving our customers every day, whether in our stores, manufacturing plants, distribution centers or offices.
| Reduction in Operating
Costs(1)as a Percentage of
Sales, without Fuel
| | • An essential part of Kroger’s model is to increase productivity and efficiency, and to take costs out of the business in a sustainable way.
• We strive to be disciplined, so that as the Company grows, expensesthey are properly managed. Including this metric in these Long-term Incentive Plans, provides an incentive to implement policies for sustainable improvement over a long period of time.
| ROIC(2)
| | • Part of our long-term growth strategy is to make substantial capital investments over time. We have a pipeline of high quality projects.
• With significant capital spend, it is essential that we achieve the proper returns on our investments.
• This measure is intended to hold executives accountable for the returns on the capital investments.
competitively sensitive. |
(1)(2)
| Operating Costs is anon-GAAP measure and is calculated as the sum of (i) operating, general and administrative expenses, depreciation and amortization, and rent expense, without fuel, and (ii) warehouse and transportation costs, shrink, and advertising expenses, for our supermarket operations, without fuel. Operating costs will excludeone-time expenses incurred in lieu of future anticipated obligations. Future expenses that are avoided by virtue of the incurrence of theone-time expense will be deemed to be total operating costs in the year in which they otherwise would have been incurred. |
Operating costs exclude one-time expenses incurred in lieu of future anticipated obligations. Future expenses that are avoided by virtue of the incurrence of the one-time expense will be deemed to be total operating costs in the year in which they otherwise would have been incurred. (2)(3)
| Return on invested capital is anon-GAAP measure and is calculated by dividing adjusted operating profit for the prior four quarters by the average invested capital. Adjusted operating profit is calculated by excluding certain items included in operating profit, and adding ourlast-in, first out (“LIFO”) charge, depreciation and amortization, and rent. Average invested capital will beis calculated as the sum of (i) the average of our total assets, (ii) the average LIFO reserve, (iii) the average accumulated depreciation and amortization, and (iv) a rent factor equal to total rent for the last four quarters multiplied by a factor of eight; minus (i) the average taxes receivable, (ii) the average trade accounts payable, (iii) the average accrued salaries and wages, and (iv) the average other current liabilities, excluding accrued income taxes. |
29
The following table summarizes the Long-Term Incentive Plans for the years shown, as adopted:
| | | | | | | | | 2015 Plan
| | 2016 Plan
| | 2017 Plan
| Performance Period
| | 2015 to 2017
| | 2016 to 2018
| | 2017 to 2019
| | | | | Payout Date
| | March 2018
| | March 2019
| | March 2020
| | | | | Long-term Cash
Bonus Potential
| | Salary at end of fiscalPart 2: Fiscal year 2014*
| | Salary at end of fiscal year 2015*
| | Salary at end of fiscal year 2016* | Performance Metrics
| | | | | | | | | | | Customer 1stStrategy
| | 4% payout per unit improvement | | 4% payout per unit improvement | | 4% payout per unit improvement | | | | | Improvement in Associate Engagement
| | 4% payout per unit improvement | | 4% payout per unit improvement | | 4% payout per unit improvement | | | | | Reduction in Operating Cost as a Percentage of Sales,
without Fuel
| | 0.50% payout per
0.01% reduction
in operating costs
Baseline: 26.41%
| | 0.50% payout per
0.01% reduction
in operating costs
Baseline: 26.16%
| | 0.50% payout per
0.01% reduction
in operating costs
Baseline: 26.23%
| | | | | ROIC
| | 1% payout per 0.01% improvement in ROIC Baseline: 13.50% | | 1% payout per 0.01% improvement in ROIC Baseline: 13.73% | | 4% payout per 0.01% improvement in ROIC Baseline: 13.23% |
* | Or date of plan entry, if later. |
As described above, under “Looking Ahead – 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 be2018 performance was measured on the Restock Kroger metrics of Cumulative Restock Savings & Benefits and Cumulative Free Cash Flow, with each metric accounting for 50% of the payout. The payout percentage was applied to two-thirds of the previously granted cash and performance unit bonus targets on a prorated basis. Performance for 2018 and 2019 will be measured on theRestock Krogermetrics 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.
Results of 2015 Long-Term Incentive Plan
The 2015 Long-Term Incentive Plan, which measured improvements over the three year period from 2015 to 2017, paid out in March 2018 and was calculated as follows:
| | | | | | | | | | | | | | | Metric | | Baseline | | | Result | | | Improvement (A) | | Payout per
Improvement
(B) | | Percentage
Earned
(A) x (B) | | | | | | | Customer 1stStrategy(1) | | | * | | | | * | | | 6 units of improvement | | 4.0% | | 24.0% | | | | | | | Improvement in Associate Engagement(1) | | | * | | | | * | | | no improvement | | 4.0% | | 0.0% | | | | | | | Reduction in Operating Cost as a Percentage of Sales, without Fuel | | | 26.41% | | | | 26.77% | | | no improvement | | 0.5% | | 0.0% | | | | | | | Return on Invested Capital | | | 13.50% | | | | 12.31% | | | no improvement | | 1.0% | | 0.0% | | | | | | | Total | | | | | | | | | | | | | | 24.0% |
| | Cumulative Restock Savings & Benefits | | | $1.95B | | | $2.50B | | | $2.51B | | | 100% | | | 50% | | | 50% | | | | Cumulative Free Cash Flow(1) | | | $2.80B | | | $4.00B | | | $3.59B | | | 83% | | | 50% | | | 41.5% | | | | Total Payout | | | | | | | | | | | | | | | | | | 91.5% | |
(1)
| The Customer 1stStrategyCumulative Free Cash Flow is a non-GAAP measure calculated as net cash provided by operating activities minus net cash used by investing activities plus, in this case, an amount equal to cash taxes paid on the gain on the sale of Turkey Hill Dairy and Improvement in Associate Engagement components were established by the Compensation Committee at the beginning of the performance period, but are not disclosed as they are competitively sensitive.You Technology. |
Accordingly, each NEOno payout was earned on one-third of the bonus target and 91.5% payout was earned on two-thirds of the bonus target, resulting in a 61.0% overall payout. The NEOs received a long-term cash bonus payments in an amount equal to 24.0%61.0% of that executive’s long-term cash bonus potential and waswere issued the number of Kroger common shares equal to 24.0%61.0% of the number of performance units awarded to that executive, along with a cash amount equal to the dividends paid on that number of common shares during the three year performance period. The cash payout and dividends paid on common shares earned under the 20152017-2019 Long-Term Incentive Plan are reported in the “Non-Equity “Non-Equity Incentive Plan 30
Compensation” and “All Other Compensation” columns of the Summary Compensation Table and footnotes 43 and 65 to that table, respectively, and the common shares issued under the plan are reported in the 20172019 Option Exercises and Stock Vested Table and footnote 2 to that table.
2018-2020 Long-Term Incentive Plan Metrics Our 2018-2020 Long-Term Incentive Plan has performance metrics tied entirely to Restock Kroger goals of Cumulative Restock Savings & Benefits and Cumulative Free Cash Flow, with a return on invested capital modifier. Each of the following plan components account for 50% of the potential payout percentage. | | Cumulative Restock Savings & Benefits | | | | Cut in = 50% payout | | | $3.0B | | | | Goal = 100% payout | | | $4.450B | | | | Cumulative Free Cash Flow | | | | Cut in = 50% payout | | | $4.875B | | | | Goal = 100% payout | | | $6.5B | |
After the calculation of the two metrics above, a Return on Invested Capital multiplier is applied, as follows: | | ROIC Results | | | Payout Modifier | | | | Less than 12.12% | | | 80% | | | | 12.12% - 12.32% | | | 100% | | | | Greater than 12.32% | | | 120% | |
The payout percentage is applied to the cash bonus base and the number of performance units granted under the plan to determine the payout amount. Long-Term Compensation – 2019 Redesign Previously, long-term compensation was delivered via four long-term compensation vehicles: long-term cash bonus, performance units, stock options, and restricted stock. These four elements existed in the 2017-2019 Long-Term Incentive Plan and remain in the mid-cycle 2018-2020 Long-Term Incentive Plan. In 2019, the Compensation Committee considered both feedback from shareholders and market practices and made two fundamental changes to the Company’s long-term compensation program, which is applicable to all associates who are Vice President level and higher, including NEOs: The Committee eliminated the cash portion of the long-term performance-based compensation, maintaining only equity, in the form of performance units, in the plan. With respect to the equity grants awarded each year, the Committee combined time-based and performance based long-term equity into one program with consistent guidelines and rebalanced the forms of equity as follows: Accordingly, starting in 2019, all long-term compensation is equity-based, and fifty percent of equity granted under the program is performance based. 2019-2021 Long-Term Incentive Plan Metrics The 2019-2021 Long-Term Incentive Plan reflects existing Restock Kroger metrics for the final two years of the 2018-2020 Restock Kroger financial plan, along with an ROIC component for fiscal year 2021. Each of the following plan components account for 50% of the potential payout percentage. | | Cumulative Restock Savings & Benefits | | | | Cut in = 50% payout | | | $2.050B | | | | Goal = 100% payout | | | $3.434B | | | | Cumulative Free Cash Flow | | | | Cut in = 50% payout | | | $3.675B | | | | Goal = 100% payout | | | $4.640B | |
After the calculation of the two metrics above, a 2021 Return on Invested Capital multiplier is applied, as follows: | | FY 2021 ROIC Results | | | Payout Modifier | | | | Less than 12.24% | | | 80% | | | | 12.24% - 12.44% | | | 100% | | | | Greater than 12.44% | | | 120% | |
The payout percentage is applied to the number of performance units granted under the plan to determine the payout amount. 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 employees with your interest as 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 2017,2019, the Compensation Committee granted to the NEOs stock options and restricted stock, each with a five-yearfour-year ratable vesting schedule, with the exception of a specialone-time restricted stock grant awarded to each of Messrs. Donnelly and Aitken, each of which vests 25% on each of the first two anniversaries of the grant date and 50% on the third anniversary of the grant date.promotion awards with three-year ratable vesting schedules. As discussed below under Stock Ownership Guidelines, covered individuals, including the NEOs, must hold 100% 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.
Retirement and Other Benefits Kroger maintains several defined benefit and defined contribution retirement plans for its employees. 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 64 to the Summary Compensation Table and the 20172019 Pension Benefits Table and the accompanying narrative. Kroger also maintains an executive deferred compensation plan in which some of the NEOs 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 20172019 Nonqualified Deferred Compensation Table and the accompanying narrative. Kroger also maintains The Kroger Co. Employee Protection Plan (“KEPP”), which covers all of our management employees 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 employee is actually or constructively terminated without cause within two years following a change“change in controlcontrol” of Kroger (as defined in KEPP). Participants are entitled to severance pay of up to 24 months’ salary and target annual bonus. 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
With respect to awards prior to 2019, performance-based long-term cash bonus, performance unit, stock option, and restricted stock 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. Grants made in 2019 have double trigger change in control provisions and the “vesting” described above is only triggered if an employee 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 isare party to an employment agreement.
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 31
compensation in the form of perquisites. In 2017, all of the NEOs received the following benefits: premiums paid on life insurance policies, premiums paid on accidental death and dismemberment insurance and premiums paid on long-term disability insurance policies. In 2017, Mr. Aitken received reimbursement of tax preparation fees and cell phone fees. 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 from Mercer to advise the Compensation Committee in the design of compensation for executive officers, through the 20172019 compensation planning cycle. The Mercer consultant
Korn Ferry conducted an annual competitive assessment of executive positions at Kroger for the Compensation Committee. The assessment is one of several bases, as described above, on which the Compensation Committee determines compensation. The consultant assessed: base salary; target performance-based annual cash bonus; target annual cash compensation (the sum of salary and annual cash bonus potential); annualized long-term incentive compensation, such as performance-based long-term cash bonus potential andcomprised of performance units, stock options and restricted stock; and
total direct compensation (the sum of target annual cash compensation and annualized long-term compensation). In addition to the factors identified above, the consultant also reviewed actual payout amounts against the targeted amounts. The consultant compared these elements against those of other companies in a group of publicly traded companies selected by the Compensation Committee. For 2017,2019, our peer group consisted of: Best Buy | | | Home Depot | | | Target | Best Buy
| | Home Depot
| | Target
| Cardinal Health | | | Johnson & Johnson | | | TJX Companies | Costco Wholesale | | Lowes
| Lowes | | | Wal-Mart | CVS Health | | | Procter & Gamble | | | Walgreens Boots Alliance | Express Scripts | | Sysco
| Sysco | | | |
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 data from “general industry” companies provided by its independent compensation consultant, a representation of major publicly-traded companies of similar size and scope from outside the retail industry. This data provided reference points, particularly for senior executive positions where competition for talent extends beyond the retail sector. The new peer group includes a combination of food and drug retailers, other large retailers based on revenue size, and large consumer-facing companies. Median 20172019 revenue for the peer group was $87.8$96 billion, compared to our 20172019 revenue of $122.7$121 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 bonus potential to our NEOs that, if achieved at superior levels, would cause total cash compensation to be meaningfully above the median. Actual payouts may be as low as zero if performance does not meet the baselines established by the Compensation Committee. 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, the independent directors make two determinations: (1) they32
determine the annual cash bonus potential that will be multiplied by the corporate annual cash bonus payout percentage earned
that is applicable to the NEOs and (2) the independent directors determine the annual cash bonus amount paid to the CEO by retaining discretion to reduce the annual cash bonus percentage payout the CEO would otherwise receive under the formulaic plan. 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 on tally sheets. The review includesincluding a summary for each NEO of salary; performance-based annual cash bonus; long-term performance-based cash andequity comprised of performance unit compensation;units, stock options; restricted stock; accumulated realized and unrealized stock option gainsoptions and restricted stock and performance unit values; the value of any perquisites; retirement benefits; company paid health and welfare benefits; banked vacation; severance benefits available under KEPP; and earnings and payouts available under Kroger’s nonqualified deferred compensation program.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. Reviews a report from the Compensation Committee’s compensation consultant reflecting a comprehensive review of each element of pay mix, both annual and long-term and comparing NEO and other senior executive 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 (except in the case of his own compensation) for salary, annual cash bonus 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. Looking Ahead – 2020 Compensation As of the date of this Proxy Statement, Kroger’s operations have been affected by the COVID-19 pandemic. Numerous uncertainties have been created by the pandemic, and certain aspects of our compensation programs may later be revised or modified once the Compensation Committee has had an opportunity to fully evaluate the impact of COVID-19 on our business. The Compensation Committee will work with its independent compensation consultant, Korn Ferry, to evaluate any potential changes to our executive compensation design. With that important caveat, we are providing a preview of our 2020 compensation programs. Our 2020 Annual Cash Bonus Plan is likely to have the following components: ID sales, excluding fuel and adjusted FIFO operating profit, including fuel, with an associate experience kicker. With respect to our long-term performance-based compensation, since 2018, Kroger’s metrics in its Long-Term Incentive Plans have focused on key Restock Kroger metrics. With the three-year financial targets of the 2018-2020 Restock Kroger plan concluding in 2020, the Compensation Committee reconsidered the long-term incentive plan framework. In November 2019, Kroger committed to investors an 8-11% Total Shareholder Return (TSR) target. The Committee determined that going forward, the Long-Term Incentive Plan metrics should align with Kroger’s long-term business plans and guidance that we communicated to shareholders. Accordingly, the 2020-2022 Long-Term Bonus Plan is likely to have the following components which support our long term business plans: total sales without fuel + fuel gallons; cumulative growth in net operating profit; cumulative growth in free cash flow; a fresh metric; and a total shareholder return modifier. Shareholder Engagement & the 2019 Advisory Vote to Approve Executive Compensation At the 20172019 annual meeting, we held our seventhninth annual advisory vote on executive compensation. Over 93%89% of the votes cast were in favor of the advisory vote in 2017. The Compensation Committee believes it conveys2019. In 2019, we also requested meetings with shareholders representing 43% of our shareholders’outstanding shares during the proxy season and off-season engagement and ultimately engaged with shareholders representing 36% 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 benchmarking to market practices, along with the strong support of the Compensation Committee’s decisions and the existingfor our executive compensation programs. Theprogram at the 2019 annual meeting, the Compensation Committee made no materiala number of changes in the structure of our compensation programs for 2017 or our pay for performance philosophy. At the 2017 annual meeting, we held an advisory vote on the frequency of the advisory vote on executive compensation. Approximately 88% of the votes cast were in favor of an annual vote and accordingly, we will continue to have an annual advisory vote.2019 described above. 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, executive officers, and other key executives to acquire and hold a minimum dollar value of Kroger common shares as set forth below: Position
| | Multiple
| | | | | | | | | | | President and Chief Operating Officer | | | | | | | | Executive Vice Presidents and Senior Vice Presidents | | | | | | | | Group Vice Presidents, Division Presidents, and Other Designated Key Executives | | | | | | | | | | | 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 33
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 a material error of facts results in the payment to an executive officer at the level of Group Vice President or higher of an annual cash bonus or a long-term cash bonus in an amount higher than otherwise would have been paid, as determined by the Compensation Committee, then the officer, upon demand from the Compensation Committee, will reimburse Kroger for the amounts that would not have been paid if the error had not occurred. This recoupment policy applies to those amounts paid by Kroger within 36 months prior to the detection and public disclosure of the error. In enforcing the policy, the Compensation Committee will take into consideration all factors that it deems appropriate, including: the materiality of the amount of payment involved; the extent to which other benefits were reduced in other years as a result of the achievement of performance levels based on the error; individual officer culpability, if any; and other factors that should offset the amount of overpayment. Compensation Policies as They Relate to Risk Management As part of the Compensation Committee’s review of our compensation practices, the Compensation Committee considers and analyzes the extent to which risks arise from such practices and their impact on Kroger’s business. As discussed in this 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 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)”.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. Prohibition on Hedging and Pledging After considering best practices related to ownership of companyKroger shares, the Board has 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 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. 34
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.Clyde R. Moore, Chair
Susan J. Kropf
Jorge P. Montoya
James A. Runde
35
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
($)(2) | | | Option
Awards
($)(3) | | | Non-Equity
Incentive Plan
Compensation
($)(4) | | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5) | | | All Other
Compensation
($)(6) | | | Total
($) | | | | | | | | | | | W. Rodney McMullen | | | 2017 | | | | 1,318,752 | | | | 5,166,317 | | | | 2,700,116 | | | | 359,806 | | | | 1,691,406 | | | | 298,463 | | | | 11,534,860 | | Chairman and Chief | | | 2016 | | | | 1,251,781 | | | | 5,125,034 | | | | 2,699,044 | | | | 719,945 | | | | 3,139,537 | | | | 282,051 | | | | 13,217,392 | | Executive Officer | | | 2015 | | | | 1,216,665 | | | | 4,332,252 | | | | 2,300,092 | | | | 2,999,693 | | | | 618,033 | | | | 279,656 | | | | 11,746,391 | | J. Michael Schlotman | | | 2017 | | | | 898,316 | | | | 1,973,228 | | | | 1,040,846 | | | | 207,136 | | | | 873,808 | | | | 242,637 | | | | 5,235,971 | | Executive Vice President | | | 2016 | | | | 850,360 | | | | 1,973,247 | | | | 1,040,436 | | | | 372,855 | | | | 1,436,752 | | | | 141,427 | | | | 5,815,077 | | and Chief Financial Officer | | | 2015 | | | | 793,825 | | | | 2,489,148 | | | | 1,040,847 | | | | 1,394,752 | | | | 44,163 | | | | 148,104 | | | | 5,910,839 | | | | | | | | | | | Michael J. Donnelly | | | 2017 | | | | 817,967 | | | | 2,230,028 | | | | 780,637 | | | | 183,832 | | | | 1,032,483 | | | | 247,149 | | | | 5,292,096 | | Executive Vice President | | | 2016 | | | | 757,036 | | | | 1,480,011 | | | | 780,323 | | | | 341,308 | | | | 2,207,236 | | | | 188,569 | | | | 5,754,483 | | and Chief Operating Officer | | | 2015 | | | | 700,684 | | | | 1,919,013 | | | | 585,529 | | | | 1,274,152 | | | | 321,545 | | | | 175,112 | | | | 4,976,035 | | Christopher T. Hjelm | | | 2017 | | | | 744,245 | | | | 1,480,025 | | | | 780,637 | | | | 173,536 | | | | 520 | | | | 190,917 | | | | 3,369,880 | | Executive Vice President | | | 2016 | | | | 706,567 | | | | 1,480,011 | | | | 780,323 | | | | 326,280 | | | | 832 | | | | 151,201 | | | | 3,445,214 | | and Chief Information Officer | | | 2015 | | | | 653,368 | | | | 1,992,003 | | | | 780,633 | | | | 1,302,852 | | | | 168 | | | | 138,145 | | | | 4,867,169 | | | | | | | | | | | Stuart W. Aitken | | | 2017 | | | | 721,328 | | | | 1,275,567 | | | | 262,612 | | | | 160,015 | | | | - | | | | 110,363 | | | | 2,529,884 | | Group Vice President | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | W. Rodney McMullen | | | 2019 | | | $1,311,849 | | | $8,400,002 | | | $2,100,170 | | | $2,006,450 | | | $6,962,485 | | | $348,692 | | | $21,129,648 | | | | Chairman and Chief | | | 2018 | | | $1,311,984 | | | $4,999,996 | | | $2,367,858 | | | $2,692,833 | | | $335,955 | | | $329,246 | | | $12,037,872 | | | | Executive Officer | | | 2017 | | | $1,318,752 | | | $5,166,317 | | | $2,700,116 | | | $359,806 | | | $1,690,923 | | | $298,463 | | | $11,534,377 | | | | Gary Millerchip | | | 2019 | | | $472,561 | | | $2,350,034 | | | $775,042 | | | $442,755 | | | $0 | | | $101,888 | | | $4,142,280 | | | | Senior Vice President | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | and Chief Financial Officer(6) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | Stuart Aitken | | | 2019 | | | $822,460 | | | $2,225,025 | | | $600,051 | | | $830,446 | | | $0 | | | $134,801 | | | $4,612,783 | | | | Senior Vice President, | | | 2018 | | | $724,946 | | | $1,059,224 | | | $224,548 | | | $817,670 | | | $0 | | | $107,830 | | | $2,934,218 | | | | Alternative Business | | | 2017 | | | $721,328 | | | $1,275,567 | | | $262,612 | | | $160,015 | | | $0 | | | $110,363 | | | $2,529,884 | | | | Yael Cosset | | | 2019 | | | $638,519 | | | $1,825,016 | | | $500,042 | | | $572,191 | | | $0 | | | $110,044 | | | $3,645,812 | | | | Senior Vice President | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | and Chief Information Officer | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | Michael Donnelly | | | 2019 | | | $922,516 | | | $3,200,002 | | | $800,064 | | | $1,060,269 | | | $4,111,824 | | | $235,009 | | | $10,329,684 | | | | Executive Vice President | | | 2018 | | | $885,677 | | | $2,355,780 | | | $769,118 | | | $1,344,160 | | | $205,544 | | | $133,014 | | | $5,693,293 | | | | And Chief Operating Officer | | | 2017 | | | $817,967 | | | $2,230,028 | | | $780,637 | | | $183,832 | | | $1,032,483 | | | $247,149 | | | $5,292,096 | | | | J. Michael Schlotman | | | 2019 | | | $854,879 | | | $1,792,989 | | | $0 | | | $1,061,055 | | | $4,207,937 | | | $550,563 | | | $8,467,423 | | | | Executive Vice President and | | | 2018 | | | $907,292 | | | $2,350,843 | | | $752,700 | | | $1,374,160 | | | $295,994 | | | $91,133 | | | $5,772,122 | | | | Retired Chief Financial Officer(6) | | | 2017 | | | $898,316 | | | $ 1,973,228 | | | $ 1,040,846 | | | $207,136 | | | $873,808 | | | $242,637 | | | $5,235,971 | |
| (1) | Mr. Aitken became an NEO in 2017. |
(2)
| 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. The following table reflects the value of each type of award granted to the NEOs in 2017:2019: |
| | | | | | | | | | | | Name | | Restricted Stock | | Performance Units | | | | Mr. McMullen | | | $ | 3,750,010 | | | | $ | 1,416,307 | | | | | Mr. Schlotman | | | $ | 1,479,921 | | | | $ | 493,307 | | | | | Mr. Donnelly | | | $ | 1,860,019 | | | | $ | 370,009 | | | | | Mr. Hjelm | | | $ | 1,110,016 | | | | $ | 370,009 | | | | | Mr. Aitken | | | $ | 1,151,111 | | | | $ | 124,456 | |
| | Mr. McMullen | | | $3,150,007 | | | $5,249,995 | | | | Mr. Millerchip | | | $1,350,035 | | | $999,999 | | | | Mr. Aitken | | | $975,026 | | | $1,249,999 | | | | Mr. Cosset | | | $825,017 | | | $999,999 | | | | Mr. Donnelly | | | $1,200,004 | | | $1,999,998 | | | | Mr. Schlotman | | | 0 | | | $1,792,989 | |
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 12 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2017.2019. Assuming that the highest level of performance conditions is achieved, the aggregate fair value of the 20172019 performance unit awards at the grant date is as follows: Name | | Value of Performance Units
Assuming Maximum Performance | | | | Mr. McMullen | | | $6,299,994 | | | Mr. McMullenMillerchip | | | $1,199,999 | $2,832,614
| | | | Mr. Aitken | | | $1,499,999 | | | Mr. SchlotmanCosset | | | $1,199,999 | $ 986,614
| | | | Mr. Donnelly | | | $2,399,998 | | | Mr. DonnellySchlotman | | | $2,151,587 | $ 740,018
| | | | Mr. Hjelm
| | | | $ 740,018
| | | | Mr. Aitken
| | | | $ 248,911
| |
36
(3)(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 12 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2017.2019. |
(4)(3)
| Non-equity incentive plan compensation earned for 20172019 consists of amounts earned under the 20172019 performance-based annual cash bonus plan and the 20152017-2019 Long-Term Incentive Plan. |
| | | | | | | | | | | | Name | | Annual Cash Bonus | | Long-Term Cash Bonus | | | | Mr. McMullen | | | | $ 71,806 | | | | | $ 288,000 | | | | | Mr. Schlotman | | | | $ 24,736 | | | | | $ 182,400 | | | | | Mr. Donnelly | | | | $ 24,736 | | | | | $ 159,096 | | | | | Mr. Hjelm | | | | $ 24,736 | | | | | $ 148,800 | | | | | Mr. Aitken | | | | $ 16,160 | | | | | $ 143,855 | |
| | Mr. McMullen | | | $1,227,175 | | | $779,275 | | | | Mr. Millerchip | | | $254,875 | | | $187,880 | | | | Mr. Aitken | | | $406,343 | | | $424,103 | | | | Mr. Cosset | | | $258,651 | | | $313,540 | | | | Mr. Donnelly | | | $589,044 | | | $471,225 | | | | Mr. Schlotman | | | $543,733 | | | $517,322 | |
In accordance with the terms of the 20172019 performance-based annual cash bonus plan, Kroger paid 3.8%49.09% to all of the NEOs.NEOs except for Mr. Aitken who received 58.0%, reflecting results of the corporate annual bonus plan and Mr. Aitken’s team metrics as described in the CD&A. These amounts were earned with respect to performance in 20172019 and paid in March 2018.2020. See “Results of 2017“2019 Annual Cash Bonus Plan”Plan Results” in the Compensation Discussion and Analysis (“CD &A”)&A for more information on this plan. The long-term cash bonus awarded under the 20152017-2019 Long-Term Incentive Plan is a performance-based bonus plan designed to reward participants for improving the long-term performance of the Company. The plan covered performance during fiscal years 2015, 2016 and 2017 and amounts earned under the plan were paid in March 2018. In accordance with the terms of the plan, participants earned and Kroger paid 24% of long-term cash bonus potentials. The long-term cash bonus potential equaled the participant’s salary in effect on the last day of fiscal 2014, and for Mr. Aitken, the day he became eligible for the plan. See “Results of 2015“2017-2019 Long-Term Incentive Plan”Plan – Results” in the CD&A for more information on this plan. (5)(4)
| For 2017,2019, the amounts reported consist of the aggregate change in the actuarial present value of each NEO’s accumulated benefit under a defined benefit pension plan (including supplemental plans), which applies to Messrs. McMullen, Schlotman, Donnelly and Hjelm,Schlotman, and preferential earnings on nonqualified deferred compensation, which applies to Messrs. McMullen Donnelly and Hjelm. Mr. Aitken doesDonnelly. The remainder of the NEOs do not participate in a pension plan and neither Mr. Schlotman nor Mr. Aitken participate in a nonqualified deferred compensation plan. |
| | | | | | | | | | | | Name | | Change in
Pension Value | | Preferential Earnings on Nonqualified
Deferred Compensation | | | | Mr. McMullen | | | $ | 1,591,548 | | | | $ | 99,858 | | | | | Mr. Schlotman | | | $ | 873,808 | | | | | — | | | | | Mr. Donnelly | | | $ | 1,026,782 | | | | $ | 5,701 | | | | | Mr. Hjelm | | | $ | 313 | | | | $ | 207 | | | | | Mr. Aitken | | | | — | | | | | — | |
| | Mr. McMullen | | | $6,840,110 | | | $122,375 | | | | Mr. Millerchip | | | $— | | | $— | | | | Mr. Aitken | | | $— | | | $— | | | | Mr. Cosset | | | $— | | | $— | | | | Mr. Donnelly | | | $4,104,897 | | | $6,927 | | | | Mr. Schlotman | | | $4,207,937 | | | $— | |
Change in Pension Value. These amounts represent the aggregate change in the actuarial present value of 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 increase in the actuarial present value of accumulated pension benefits for 20172019 compared to 20162018 is due to a lower discount rate and additional benefits accrued, as applicable.applicable, driven by an increase in average annual earnings, the decrease in the discount rate, and the decrease in IRC 417(e) segment rates used to convert the Dillon profit sharing offset to an annuity, slightly offset by the mortality projection scale update. Please see the 20172019 Pension Benefits section for further information regarding the assumptions used in calculating pension benefits. The Company froze the compensation and service periods used to calculate pension benefits for active employees who participate in the affected pension plans, including the NEO participants, as of December 31, 2019. Beginning January 1, 2020, the affected active employees will no longer accrue additional benefits for future service and eligible compensation received under these plans.
Preferential Earnings on Nonqualified Deferred Compensation. Messrs. McMullen Donnelly and HjelmDonnelly participate in The Kroger Co. Executive Deferred Compensation Plan (the “Deferred Compensation Plan”). Under the plan, deferred compensation earns interest at a rate representing Kroger’s cost often-year debt, as determined by the CEO 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-37
market,above-market, Kroger calculates the amount by which the actual annual earnings on the account exceed what the 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 20172019 earn interest at a rate higher than 120% of the corresponding federal rate; accordingly, there are preferential earnings on these amounts.
(6)(5)
| Amounts reported in the “All Other Compensation” column for 20172019 include the dollar value of premiums paid by the Company for life insurance, Company contributions to defined contribution retirement plans, dividend equivalents paid on earned performance units, and dividends paid on unvested restricted stock. The following table identifies the value of each benefit. |
| | | | | | | | | | | | | | | | | | | | | 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 | | $ | 94,386 | | | | — | | | $ | 16,718 | | | $ | 187,359 | | | | — | | Mr. Schlotman | | $ | 165,719 | | | | — | | | $ | 8,247 | | | $ | 68,671 | | | | — | | Mr. Donnelly | | $ | 147,823 | | | $ | 45,733 | | | $ | 4,639 | | | $ | 48,954 | | | | — | | Mr. Hjelm | | $ | 100,665 | | | $ | 36,043 | | | $ | 6,186 | | | $ | 48,023 | | | | — | | Mr. Aitken | | $ | 23,508 | | | $ | 48,824 | | | $ | 2,066 | | | $ | 24,898 | | | $ | 11,067 | |
| | Mr. McMullen | | | $4,983 | | | $122,129 | | | $221,580 | | | — | | | | Mr. Millerchip | | | $43,928 | | | $8,408 | | | $49,552 | | | — | | | | Mr. Aitken | | | $75,608 | | | $10,732 | | | $48,461 | | | — | | | | Mr. Cosset | | | $53,890 | | | $8,387 | | | $47,767 | | | — | | | | Mr. Donnelly | | | $105,252 | | | $31,906 | | | $97,851 | | | — | | | | Mr. Schlotman | | | $— | | | $41,454 | | | $73,989 | | | $435,120 | |
(a)
| (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 employees. The Company also makes contributions to NEOs’ accounts under the applicable defined contribution plan restoration plan, which is intended to make up the shortfall in retirement benefits caused by the limitations on benefits to highly compensated individuals under the defined contribution plans in accordance with the Code. The aggregate amounts in the table above representinclude the following additional contributions for 2017:Mr. Donnelly for 2019: a $14,000 matching contribution to the Dillon Companies, Inc. Employees’ Profit Sharing Plan and a $87,377 matching contribution to the Dillon Companies, Inc. Excess Benefit Profit Sharing Plan. |
(b)
| Other. In 2019, the total amount of perquisites and personal benefits for each of the NEOs was less than $10,000. Mr. Schlotman received $435,120 for banked vacation which was paid out upon his retirement. |
(6)
| Mr. Schlotman served as our Chief Financial Officer until April 3, 2019 and as our Executive Vice President until his retirement from the Company on December 31, 2019. Mr. Millerchip succeeded him as Chief Financial Officer on April 4, 2019. |
Mr. Donnelly – a $13,500 matching contribution to the Dillon Companies, Inc. Employees’ Profit Sharing Plan and a $32,233 matching contribution to the Dillon Companies, Inc. Excess Benefit Profit Sharing Plan;41
Mr. Hjelm – a $10,872 matching contribution and a $2,000 automatic company contribution to The Kroger Co. 401(k) Retirement Savings Account Plan (the “401(k) Plan”) and a $23,171 contribution to The Kroger Co. 401(k) Retirement Savings Account Restoration Plan (the “Restoration Plan”); and
Mr. Aitken – a $10,864 matching contribution and a $2,000 automatic company contribution to the 401(k) Plan and a $35,960 contribution to the Restoration Plan.
(b) Other. For each of Messrs. McMullen, Schlotman, Donnelly and Hjelm the total amount of other benefits was less than $10,000. For Mr. Aitken, this amount includes the dollar value of insurance premiums paid by the Company on accidental death and dismemberment insurance and long-term disability insurance and reimbursement of tax preparation fees and cell phone fees.
38
2017
2019 Grants of Plan-Based Awards The following table provides information about equity and non-equity incentive awards granted to the NEOs in 2017. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Grant
Date | | Estimated Future Payouts
UnderNon-Equity Incentive Plan Awards | | Estimated Future
Payouts Under
Equity Incentive
Plan Awards | | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(4) | | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(5) | | Exercise
or Base
Price of
Option
Awards
($/Sh) | | Grant
Date Fair
Value of
Stock
and
Option
Awards | | | | Target
($) | | Maximum
($) | | Target
(#)(3) | | Maximum
(#)(3) | | | | | | | | | | | | | | | W. Rodney McMullen | | | | | | | | $ | 1,889,623 | (1) | | | $ | 3,779,245 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 57,488 | (2) | | | $ | 1,277,500 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7/13/2017 | | | | | | | | | | | | | | | 5,561 | | | | | 123,587 | | | | | | | | | | | | | | | | | | | $ | 1,416,307 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 163,613 | | | | | | | | | | | | | | $ | 3,750,010 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 573,127 | | | | $ | 22.92 | | | | $ | 2,700,116 | | | | | | | | | | | | J. Michael Schlotman | | | | | | | | $ | 650,943 | (1) | | | $ | 1,301,887 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 39,161 | (2) | | | $ | 870,240 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7/13/2017 | | | | | | | | | | | | | | | 1,937 | | | | | 43,046 | | | | | | | | | | | | | | | | | | | $ | 493,307 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 64,569 | | | | | | | | | | | | | | $ | 1,479,921 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 220,930 | | | | $ | 22.92 | | | | $ | 1,040,846 | | | | | | | | | | | | Michael J. Donnelly | | | | | | | | $ | 650,943 | (1) | | | $ | 1,301,887 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 34,763 | (2) | | | $ | 772,500 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7/13/2017 | | | | | | | | | | | | | | | 1,453 | | | | | 32,287 | | | | | | | | | | | | | | | | | | | $ | 370,009 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 48,430 | | | | | | | | | | | | | | $ | 1,110,016 | | | | | | 12/7/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 28,270 | | | | | | | | | | | | | | $ | 750,003 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 165,698 | | | | $ | 22.92 | | | | $ | 780,637 | | | | | | | | | | | | Christopher T. Hjelm | | | | | | | | $ | 650,943 | (1) | | | $ | 1,301,887 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 32,445 | (2) | | | $ | 721,000 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7/13/2017 | | | | | | | | | | | | | | | 1,453 | | | | | 32,287 | | | | | | | | | | | | | | | | | | | $ | 370,009 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 48,430 | | | | | | | | | | | | | | $ | 1,110,016 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 165,698 | | | | $ | 22.92 | | | | $ | 780,637 | | | | | | | | | | | | Stuart W. Aitken | | | | | | | | $ | 425,250 | (1) | | | $ | 850,500 | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 31,286 | (2) | | | $ | 695,250 | (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7/13/2017 | | | | | | | | | | | | | | | 489 | | | | | 10,860 | | | | | | | | | | | | | | | | | | | $ | 124,456 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 17,500 | | | | | | | | | | | | | | $ | 401,100 | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | 32,723 | | | | | | | | | | | | | | $ | 750,011 | | | | | | | 7/13/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 55,742 | | | | $ | 22.92 | | | | $ | 262,612 | |
| | W. Rodney McMullen | | | | | | $2,500,000(1) | | | $5,000,000(1) | | | | | | | | | | | | | | | | | | | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | 127,273 | | | | | | | | | $3,150,007 | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | | | | 348,259 | | | $24.75 | | | $2,100,170 | | | | | | | 3/14/2019 | | | | | | | | | 212,121 | | | 254,545 | | | | | | | | | | | | $5,249,995 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gary Millerchip | | | | | | $550,000(1) | | | $1,100,000(1) | | | | | | | | | | | | | | | | | | | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | 33,334 | | | | | | | | | $825,017 | | | | | | | 7/15/2019 | | | | | | | | | | | | | | | 23,778 | | | | | | | | | $525,018 | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | | | | 82,919 | | | $24.75 | | | $500,042 | | | | | | | 7/15/2019 | | | | | | | | | | | | | | | | | | 51,116 | | | $22.08 | | | $275,000 | | | | | | | 3/14/2019 | | | | | | | | | 40,404 | | | 48,485 | | | | | | | | | | | | $999,999 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stuart Aitken | | | | | | $700,000(1) | | | $1,400,000(1) | | | | | | | | | | | | | | | | | | | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | 39,395 | | | | | | | | | $975,026 | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | | | | 99,503 | | | $24.75 | | | $600,051 | | | | | | | 3/14/2019 | | | | | | | | | 50,505 | | | 60,606 | | | | | | | | | | | | $1,249,999 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yael Cosset | | | | | | $550,000(1) | | | $1,100,000(1) | | | | | | | | | | | | | | | | | | | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | 33,334 | | | | | | | | | $825,017 | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | | | | 82,919 | | | $24.75 | | | $500,042 | | | | | | | 3/14/2019 | | | | | | | | | 40,404 | | | 48,485 | | | | | | | | | | | | $999,999 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael J. Donnelly | | | | | | $1,200,000(1) | | | $2,400,000(1) | | | | | | | | | | | | | | | | | | | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | 48,485 | | | | | | | | | $1,200,004 | | | | | | | 3/14/2019 | | | | | | | | | | | | | | | | | | 132,670 | | | $24.75 | | | $800,064 | | | | | | | 3/14/2019 | | | | | | | | | 80,808 | | | 96,970 | | | | | | | | | | | | $1,999,998 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. Michael Schlotman | | | | | | $1,200,000(1) | | | $2,400,000(1) | | | | | | | | | | | | | | | | | | | | | | | | ��� | 3/14/2019 | | | | | | | | | 72,444 | | | 86,933 | | | | | | | | | | | | $1,792,989 | |
(1)
| These amounts relate to the 20172019 performance-based annual cash incentive bonus plan. The amount listed under “Target” represents the annual cash incentive bonus potential of the NEO. By the terms of the plan, payouts are limited to no more than 200% of a participant’s annual cash incentive bonus potential; accordingly, the amount listed under “Maximum” is two times that officer’s annual cash incentive bonus potential amount. Each NEO’s target and maximum amounts are prorated to reflect his increased annual cash bonus potential following the annual compensation review. The amounts actually earned under this plan were paid in March 20182020 and are included in the Summary Compensation Table for 20172019 in the“Non-Equity “Non-Equity Incentive Plan Compensation” column and are described in footnote 43 to that table.table under “Annual Cash Bonus.” |
(2)
| These amounts relate to the long-term cash bonus potentialrepresent performance units awarded under the 20172019 Long-Term Incentive Plan, which covers performance during fiscal years 2017, 20182019, 2020 and 2019. The long-term cash bonus potential amount equals the annual base salary of the NEOs as of the last day of fiscal 2016. By the terms of the plan, payouts are limited to no more than 100% of a participant’s long-term cash bonus potential; accordingly, the amount listed under “Maximum” is the participant’s long-term cash bonus potential. Because the actual payout is based on the level of performance achieved, the target amount is not determinable and therefore, in accordance with SEC rules, the amount listed under “Target” is a representative amount based on 2017 performance. |
(3) | These amounts represent performance units awarded under the 2017 Long-Term Incentive Plan, which covers performance during fiscal years 2017, 2018 and 2019.2021. The amount listed under “Maximum” represents the maximum number of common shares that can be earned by the NEO under the award. Because the actual payout is based on the levelaward or 120% of performance achieved, the target amount is not determinable and therefore, in accordance with SEC rules, the amount listed under “Target” is a representative amount based on 2017 performance. The grant date fair value reported in the last column is based on the probable outcome of the performance conditions as of the grant date.amount. This amount is consistent with the estimate of aggregate
|
39
| 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 grant date fair value reported in the last column is based on the probable outcome of the performance conditions as of the grant date. The aggregate grant date fair value of these awards is included in the Summary Compensation Table for 20172019 in the “Stock Awards” column and described in footnote 21 to that table. |
(4)(3)
| These amounts represent the number of shares of restricted stock granted in 2017.2019. The aggregate grant date fair value reported in the last column is calculated in accordance with FASB ASC Topic 718. The aggregate grant date fair value of these awards is included in the Summary Compensation Table for 20172019 in the “Stock Awards” column and described in footnote 21 to that table. |
(5)(4)
| These amounts represent the number of stock options granted in 2017.2019. Options are granted with an exercise price equal to the closing price of Kroger common shares on the grant date. The aggregate grant date fair value reported in the last column is calculated in accordance with FASB ASC Topic 718. The aggregate grant date fair value of these awards is included in the Summary Compensation Table for 20172019 in the “Option Awards” column. |
The Compensation Committee, and the independent members of the Board in the case of the CEO, established the bonusincentive potential amounts for the performance-based annual cash bonusincentive awards (shown in this table as “Target”) , and the number of performance units awarded (shown in this table as “Maximum”), and the bonus potential amounts for the long-term cash bonusincentive awards (shown in this table as “Maximum”“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 bonusincentive plan may exceed the target amount if the Company’s performance exceeds the performance goals, but are limited to 200% of the target amount. The potential values for performance units and the long-term cash bonus potentials awarded under the 20172019-2021 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 fivefour anniversaries of the grant date, so long as the officer remains a Kroger employee. Mr. Donnelly’s 12/7/17employee, except for Messrs. Millerchip’s, Aitken’s, and Cosset’s March 2019 award included restricted stock awardawards of 28,2709,091 shares and Mr. Aitken’s 7/13/17 restricted16,584 stock award of 32,373 shares wereoptions as special awards granted in connection with promotions that each vest 25%in equal amounts on each of the first twothree anniversaries of the grant date and 50% on the third anniversary of the grant date. Any dividends declared on Kroger common shares are payable on unvested restricted stock. 40
20172019 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 2017.2019. 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 $29.34$26.86 on February 2, 2018,January 31, 2020, the last trading day of 2017. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) | | | Option
Exercise
Price
($) | | | 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 | | | 130,000 | | | | — | | | | $14.31 | | | | 6/26/2018 | | | | 14,616 | (6) | | | $428,833 | | | | 0 | (15) | | | $0 | (15) | McMullen | | | 130,000 | | | | — | | | | $11.17 | | | | 6/25/2019 | | | | 32,000 | (7) | | | $938,880 | | | | 5,561 | (16) | | | $171,458 | (16) | | | | 140,000 | | | | — | | | | $10.08 | | | | 6/24/2020 | | | | 45,000 | (8) | | | $1,320,300 | | | | | | | | | | | | | 182,880 | | | | — | | | | $12.37 | | | | 6/23/2021 | | | | 51,657 | (9) | | | $1,515,616 | | | | | | | | | | | | | 194,880 | | | | — | | | | $10.98 | | | | 7/12/2022 | | | | 80,044 | (10) | | | $2,348,491 | | | | | | | | | | | | | 155,904 | | | | 38,976 | (1) | | | $18.88 | | | | 7/15/2023 | | | | 163,613 | (11) | | | $4,800,405 | | | | | | | | | | | | | 180,000 | | | | 120,000 | (2) | | | $24.67 | | | | 7/15/2024 | | | | | | | | | | | | | | | | | | | | | 94,166 | | | | 141,249 | (3) | | | $38.33 | | | | 7/15/2025 | | | | | | | | | | | | | | | | | | | | | 71,618 | | | | 286,473 | (4) | | | $37.48 | | | | 7/13/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 573,127 | (5) | | | $22.92 | | | | 7/13/2027 | | | | | | | | | | | | | | | | | | J. Michael | | | 50,000 | | | | — | | | | $10.08 | | | | 6/24/2020 | | | | 8,196 | (6) | | | $240,471 | | | | 0 | (15) | | | $0 | (15) | Schlotman | | | 91,280 | | | | — | | | | $12.37 | | | | 6/23/2021 | | | | 12,000 | (8) | | | $352,080 | | | | 1,937 | (16) | | | $59,720 | (16) | | | | 109,280 | | | | — | | | | $10.98 | | | | 7/12/2022 | | | | 23,166 | (9) | | | $679,690 | | | | | | | | | | | | | 87,424 | | | | 21,856 | (1) | | | $18.88 | | | | 7/15/2023 | | | | 4,445 | (12) | | | $130,416 | | | | | | | | | | | | | 48,000 | | | | 32,000 | (2) | | | $24.67 | | | | 7/15/2024 | | | | 31,589 | (10) | | | $926,821 | | | | | | | | | | | | | 42,612 | | | | 63,919 | (3) | | | $38.33 | | | | 7/15/2025 | | | | 64,569 | (11) | | | $1,894,454 | | | | | | | | | | | | | 27,607 | | | | 110,431 | (4) | | | $37.48 | | | | 7/13/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 220,930 | (5) | | | $22.92 | | | | 7/13/2027 | | | | | | | | | | | | | | | | | | Michael J. | | | 40,000 | | | | — | | | | $10.08 | | | | 6/24/2020 | | | | 4,804 | (6) | | | $140,949 | | | | 0 | (15) | | | $0 | (15) | Donnelly | | | 70,720 | | | | — | | | | $12.37 | | | | 6/23/2021 | | | | 9,000 | (8) | | | $264,060 | | | | 1,453 | (16) | | | $44,793 | (16) | | | | 50,720 | | | | — | | | | $10.98 | | | | 7/12/2022 | | | | 17,729 | (9) | | | $520,169 | | | | | | | | | | | | | 40,576 | | | | — | | | | $18.88 | | | | 7/15/2023 | | | | 4,445 | (12) | | | $130,416 | | | | | | | | | | | | | 36,000 | | | | 24,000 | (2) | | | $24.67 | | | | 7/15/2024 | | | | 23,693 | (10) | | | $695,153 | | | | | | | | | | | | | 23,971 | | | | 35,958 | (3) | | | $38.33 | | | | 7/15/2025 | | | | 48,430 | (11) | | | $1,420,936 | | | | | | | | | | | | | 20,705 | | | | 82,823 | (4) | | | $37.48 | | | | 7/13/2026 | | | | 28,270 | (13) | | | $829,442 | | | | | | | | | | | | | — | | | | 165,698 | (5) | | | $22.92 | | | | 7/13/2027 | | | | | | | | | | | | | | | | | | Christopher T. | | | 16,000 | | | | — | | | | $11.17 | | | | 6/25/2019 | | | | 3,804 | (6) | | | $111,609 | | | | 0 | (15) | | | $0 | (15) | Hjelm | | | 24,000 | | | | — | | | | $10.08 | | | | 6/24/2020 | | | | 9,000 | (8) | | | $264,060 | | | | 1,453 | (16) | | | $44,793 | (16) | | | | 40,576 | | | | — | | | | $12.37 | | | | 6/23/2021 | | | | 17,376 | (9) | | | $509,812 | | | | | | | | | | | | | 50,720 | | | | — | | | | $10.98 | | | | 7/12/2022 | | | | 4,445 | (12) | | | $130,416 | | | | | | | | | | | | | 40,576 | | | | 10,144 | (1) | | | $18.88 | | | | 7/15/2023 | | | | 23,693 | (10) | | | $695,153 | | | | | | | | | | | | | 36,000 | | | | 24,000 | (2) | | | $24.67 | | | | 7/15/2024 | | | | 48,430 | (11) | | | $1,420,936 | | | | | | | | | | | | | 31,959 | | | | 47,939 | (3) | | | $38.33 | | | | 7/15/2025 | | | | | | | | | | | | | | | | | | | | | 20,705 | | | | 82,823 | (4) | | | $37.48 | | | | 7/13/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 165,698 | (5) | | | $22.92 | | | | 7/13/2027 | | | | | | | | | | | | | | | | | | Stuart W. Aitken | | | 8,930 | | | | 13,396 | (3) | | | $38.33 | | | | 7/15/2025 | | | | 4,853 | (9) | | | $142,387 | | | | 0 | (15) | | | $0 | (15) | | | | 6,965 | | | | 27,863 | (4) | | | $37.48 | | | | 7/13/2026 | | | | 6,667 | (6) | | | $195,610 | | | | 489 | (16) | | | $15,067 | (16) | | | | — | | | | 55,742 | (5) | | | $22.92 | | | | 7/13/2027 | | | | 8,562 | (10) | | | $251,209 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,500 | (11) | | | $513,450 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 32,723 | (14) | | | $960,093 | | | | | | | | | |
| | W. Rodney McMullen | | | 140,000 | | | — | | | $10.08 | | | 6/24/2020 | | | 17,219(9) | | | $462,502 | | | | | | | | | | 182,880 | | | — | | | $12.37 | | | 6/23/2021 | | | 40,022(10) | | | $1,074,991 | | | | | | | | | | 194,880 | | | — | | | $10.98 | | | 7/12/2022 | | | 98,168(11) | | | $2,636,792 | | | | | | | | | | 194,880 | | | — | | | $18.88 | | | 7/15/2023 | | | 63,321(11) | | | $1,700,802 | | | | | | | | | | 300,000 | | | — | | | $24.67 | | | 7/15/2024 | | | 127,273(12) | | | $3,418,553 | | | | | | | | | | 188,332 | | | 47,083(1) | | | $38.33 | | | 7/15/2025 | | | | | | | | | | | | | | | | 214,854 | | | 143,237(2) | | | $37.48 | | | 7/13/2026 | | | | | | | | | 61,268(19) | | | $1,754,095 | | | | 229,250 | | | 343,877(3) | | | $22.92 | | | 7/13/2027 | | | | | | | | | 95,242(20) | | | $2,737,265 | | | | 87,323 | | | 261,970(3) | | | $28.05 | | | 7/13/2028 | | | | | | | | | | | | | | | | | | | 348,259(4) | | | $24.75 | | | 3/14/2029 | | | | | | | | | | | | | | | | Gary Millerchip | | | 9,600 | | | — | | | $24.67 | | | 7/15/2024 | | | 1,014(9) | | | $27,236 | | | | | | | | | | 11,193 | | | 2,799(1) | | | $38.33 | | | 7/15/2025 | | | 3,447(10) | | | $92,586 | | | | | | | | | | 16,782 | | | 11,190(2) | | | $37.48 | | | 7/13/2026 | | | 7,671(11) | | | $206,043 | | | | | | | | | | 8,726 | | | 26,179(3) | | | $22.92 | | | 7/13/2027 | | | 16,362(13) | | | $439,483 | | | | | | | | | | 7,562 | | | 22,689(3) | | | $28.05 | | | 7/13/2028 | | | 7,795(11) | | | $209,374 | | | | | | | | | | | | | 66,335(4) | | | $24.75 | | | 3/14/2029 | | | 24,243(12) | | | $651,167 | | | | | | | | | | | | | 16,584(5) | | | $24.75 | | | 3/14/2029 | | | 9,091(14) | | | $244,184 | | | | | | | | | | | | | 51,116(6) | | | $22.08 | | | 7/15/2029 | | | 23,778(15) | | | $638,677 | | | | | | | | | | | | | — | | | | | | | | | | | | | | | 4,523(19) | | | $129,503 | | | | | | | — | | | | | | | | | | | | | | | 18,141(20) | | | $521,384 | | | | Stuart Aitken | | | 17,860 | | | 4,466(1) | | | $38.33 | | | 7/15/2025 | | | 1,618(9) | | | $43,459 | | | | | | | | | | 20,896 | | | 13,932(2) | | | $37.48 | | | 7/13/2026 | | | 4,281(10) | | | $114,988 | | | | | | | | | | 22,296 | | | 33,446(3) | | | $22.92 | | | 7/13/2027 | | | 10,500(11) | | | $282,030 | | | | | | | | | | 8,281 | | | 24,843(3) | | | $28.05 | | | 7/13/2028 | | | 16,362(13) | | | $439,483 | | | | | | | | | | | | | 82,919(4) | | | $24.75 | | | 3/14/2029 | | | 9,172(11) | | | $246,360 | | | | | | | | | | | | | 16,584(5) | | | $24.75 | | | 3/14/2029 | | | 30,304(12) | | | $813,965 | | | | | | | | | | | | | — | | | | | | | | | 9,091(14) | | | $244,184 | | | | | | | | | | | | | — | | | | | | | | | | | | | | | 16,673(19) | | | $477,349 | | | | | | | — | | | | | | | | | | | | | | | 22,677(20) | | | $651,730 | | | | Yael Cosset | | | 11,193 | | | 2,799(1) | | | $38.33 | | | 7/15/2025 | | | 1,014(9) | | | $27,236 | | | | | | | | | | 10,878 | | | 7,252(2) | | | $37.48 | | | 7/13/2026 | | | 2,074(10) | | | $55,708 | | | | | | | | | | 3,979 | | | 2,653(7) | | | $31.25 | | | 9/15/2026 | | | 1,280(16) | | | $34,381 | | | | | | | | | | 4,244 | | | 6,367(8) | | | $28.83 | | | 3/9/2027 | | | 3,330(17) | | | $89,444 | | | | | | | | | | 17,406 | | | 26,110(3) | | | $22.92 | | | 7/13/2027 | | | 9,163(11) | | | $246,118 | | | | | | | | | | 7,374 | | | 22,125(3) | | | $28.05 | | | 7/13/2028 | | | 16,362(13) | | | $439,483 | | | | | | | | | | | | | 66,335(4) | | | $24.75 | | | 3/14/2029 | | | 12,033(11) | | | $323,206 | | | | | | | | | | | | | 16,584(5) | | | $24.75 | | | 3/14/2029 | | | 24,243(12) | | | $651,167 | | | | | | | | | | | | | — | | | | | | | | | 9,091(14) | | | $244,184 | | | | | | | | | | | | | — | | | | | | | | | | | | | | | 4,656(19) | | | $133,298 | | | | | | | — | | | | | | | | | | | | | | | 18,141(20) | | | $521,384 | | | | Michael J. Donnelly | | | 70,720 | | | — | | | $12.37 | | | 6/23/2021 | | | 5,910(9) | | | $158,743 | | | | | | | | | | 50,720 | | | — | | | $10.98 | | | 7/12/2022 | | | 11,847(10) | | | $318,210 | | | | | | | | | | 50,720 | | | — | | | $18.88 | | | 7/15/2023 | | | 29,058(11) | | | $780,498 | | | | | | | | | | 60,000 | | | — | | | $24.67 | | | 7/15/2024 | | | 14,135(18) | | | $379,666 | | | | | | | | | | 47,943 | | | 11,986(1) | | | $38.33 | | | 7/15/2025 | | | 39,594(11) | | | $1,063,495 | | | | | | | | | | 62,116 | | | 41,412(2) | | | $37.48 | | | 7/13/2026 | | | 48,485(12) | | | $1,302,307 | | | | | | | | | | 66,279 | | | 99,419(3) | | | $22.92 | | | 7/13/2027 | | | | | | | | | | | | | | | | 28,364 | | | 85,092(3) | | | $28.05 | | | 7/13/2028 | | | | | | | | | 20,370(19) | | | $583,184 | | | | | | | 132,670(4) | | | $24.75 | | | 3/14/2029 | | | | | | | | | 36,283(20) | | | $1,042,767 | | | | J. Michael Schlotman | | | 91,280 | | | — | | | $12.37 | | | 6/23/2021 | | | 7,722(9) | | | $207,413 | | | | | | | | | | 109,280 | | | — | | | $18.88 | | | 7/15/2023 | | | 15,795(10) | | | $424,254 | | | | | | | | | | 80,000 | | | — | | | $24.67 | | | 7/15/2024 | | | 38,742(11) | | | $1,040,610 | | | | | | | | | | 85,224 | | | 21,307(1) | | | $38.33 | | | 7/15/2025 | | | 38,891(11) | | | $1,044,612 | | | | | | | | | | 82,822 | | | 55,216(2) | | | $37.48 | | | 7/13/2026 | | | | | | | | | | | | | | | | 88,372 | | | 132,558(3) | | | $22.92 | | | 7/13/2027 | | | | | | | | | 13,376(19) | | | $382,955 | | | | 27,758 | | | 83,276(3) | | | $28.05 | | | 7/13/2028 | | | | | | | | | 10,008(20) | | | $287,630 | |
(1)
| Stock options vest on 7/15/2018.2020. |
(2)
| Stock options vest in equal amounts on 7/13/2020 and 7/13/2021. |
(3)
| Stock options vest in equal amounts on 7/13/2020, 7/13/2021, and 7/13/2022. |
(4)
| Stock options vest in equal amounts on 3/14/2020, 3/14/2021, 3/14/2022, and 3/14/2023. |
(5)
| Stock options vest in equal amounts on 3/14/2020, 3/14/2021, and 3/14/2022. |
(6)
| Stock options vest in equal amounts on 7/15/20182020, 7/15/2021, 7/15/2022, and 7/15/2019.2023. |
(3)(7)
| Stock options vest in equal amounts on 7/9/15/2018, 7/15/2019,2020 and 7/9/15/2020.2021. |
(4)(8)
| Stock options vest in equal amounts on 3/9/2020, 3/9/2021, and 3/9/2022. |
(9)
| Restricted stock vests on 7/13/2018, 7/13/2019,15/2020. |
(10)
| Restricted stock vests in equal amounts on 7/13/2020 and 7/13/2021. |
(5)(11)
| Stock options vestRestricted stock vests in equal amounts on 7/13/2018, 7/13/2019, 7/13/2020, 7/13/2021, and 7/13/2022. |
(6)(12)
| Restricted stock vests in equal amounts on 3/14/2020, 3/14/2021, 3/14/2022, and 3/14/2023. |
(13)
| Restricted stock vests on 7/15/2018.13/2020. |
41
(7)(14)
| Restricted stock vests in equal amounts on 12/12/2018.3/14/2020, 3/14/2021, and 3/14/2022. |
(8)(15)
| Restricted stock vests in equal amounts on 7/15/20182020, 7/15/2021, 7/15/2022, and 7/15/2019.2023. |
(9)(16)
| Restricted stock vests in equal amounts on 7/9/15/2018, 7/15/2019,2020 and 7/9/15/2020.2021. |
(10)(17)
| Restricted stock vests in equal amounts on 7/13/2018, 7/13/2019, 7/13/3/9/2020, and 7/13/2021. |
(11) | Restricted stock vests in equal amounts on 7/13/2018, 7/13/2019, 7/13/2020, 7/13/3/9/2021, and 7/13/3/9/2022. |
(12)(18)
| Restricted stock vests on 9/17/2018. |
(13) | Restricted stock vests 25% on each of 12/7/2018 and 12/7/2019 and 50% on 12/7/2020. |
(14) | Restricted stock vests 25% on each of 7/13/2018 and 7/13/2019 and 50% on 7/13/2020. |
(15)(19)
| Performance units granted under the 2016 Long-Term Incentive Plan2018 long-term incentive plan are earned as of the last day of fiscal 2018,2020, to the extent performance conditions are achieved. Because the awards earned are not currently determinable, in accordance with SEC rules, the number of units and the corresponding market value reflect a representative amount based on performance through 2017,2019, including cash payments equal to projected dividend equivalent payments. For Mr. Schlotman, the awards listed in the table reflect a representative amount prorated based on the number of weeks of the plan he was actively employed. |
(16)(20)
| Performance units granted under the 2017 Long-Term Incentive Plan2019 long-term incentive plan are earned as of the last day of fiscal 2019,2021, to the extent performance conditions are achieved. Because the awards earned are not currently determinable, in accordance with SEC rules, the number of units and the corresponding market value reflect a representative amount based on performance through 2017,2019, including cash payments equal to projected dividend equivalent payments. For Mr. Schlotman, the awards listed in the table reflect a representative amount prorated based on the number of weeks of the plan he was actively employed. |
2017
2019 Option Exercises and Stock Vested The following table provides information regarding 20172019 stock options exercised, restricted stock vested, and common shares issued pursuant to performance units earned under the 2015 Long-Term Incentive Plan. | | | | | | | | | | | | | | | | | | | | 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 | | | 120,000 | | | $ | 2,176,200 | | | | 133,484 | | | $ | 3,180,600 | | J. Michael Schlotman | | | — | | | | — | | | | 60,634 | | | $ | 1,390,177 | | Michael J. Donnelly | | | 80,000 | | | $ | 1,406,776 | | | | 32,860 | | | $ | 750,535 | | Christopher T. Hjelm | | | 8,000 | | | $ | 130,680 | | | | 32,902 | | | $ | 752,208 | | Stuart W. Aitken | | | — | | | | — | | | | 12,087 | | | $ | 278,971 | |
| | W. Rodney McMullen | | | 130,000 | | | $1,875,900 | | | 188,948 | | | $4,688,674 | | | | Gary Millerchip | | | — | | | $— | | | 22,463 | | | $529,660 | | | | Stuart Aitken | | | — | | | $— | | | 25,122 | | | $598,127 | | | | Yael Cosset | | | — | | | $— | | | 24,223 | | | $573,505 | | | | Michael J. Donnelly | | | 40,000 | | | $642,959 | | | 65,978 | | | $1,628,211 | | | | J. Michael Schlotman | | | 159,280 | | | $2,752,418 | | | 72,762 | | | $2,071,866 | |
(1)
| Stock options have aten-year life and expire if not exercised within thatten-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. |
(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 | | | 120,961 | | | $ | 2,884,682 | | | | 12,523 | | | $ | 295,918 | | Mr. Schlotman | | | 54,456 | | | $ | 1,244,200 | | | | 6,178 | | | $ | 145,977 | | Mr. Donnelly | | | 29,385 | | | $ | 668,416 | | | | 3,475 | | | $ | 82,119 | | Mr. Hjelm | | | 28,268 | | | $ | 642,714 | | | | 4,634 | | | $ | 109,494 | | Mr. Aitken | | | 10,425 | | | $ | 239,687 | | | | 1,662 | | | $ | 39,284 | |
| | W. Rodney McMullen | | | 113,560 | | | $2,493,375 | | | 75,388 | | | $2,195,299 | | | | Gary Millerchip | | | 17,273 | | | $378,527 | | | 5,190 | | | $151,133 | | | | Stuart Aitken | | | 18,497 | | | $405,207 | | | 6,625 | | | $192,920 | | | | Yael Cosset | | | 19,046 | | | $422,751 | | | 5,177 | | | $150,754 | | | | Michael J. Donnelly | | | 46,283 | | | $1,054,693 | | | 19,695 | | | $573,518 | | | | J. Michael Schlotman | | | 47,173 | | | $1,326,714 | | | 25,589 | | | $745,152 | |
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.42
Performance Units. In 2015, participantsParticipants in the 20152017-2019 Long-Term Incentive Plan, as modified, were awarded performance units that were earned based on performance criteria established by the Compensation Committee atas described on page 31 in “2017-2019 Long-Term Incentive Plan – Results” in the beginning of the three-year performance period.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 $23.63$29.12 on March 15, 2018,12, 2020, the date of deemed delivery of the shares, are reflected in the table above. 2017
The following table provides information regarding pension benefits for the NEOs as of the last day of 2017. Mr. Aitken does not participate in a pension plan. | | | | | | | | | | | | | | | Name | | Plan Name | | Number of
Years Credited
Service
(#) | | | Present Value
of Accumulated
Benefit
($)(1) | | | Payments during
Last fiscal year
($) | | W. Rodney McMullen | | Pension Plan | | | 32 | | | $ | 1,412,451 | | | | — | | | | Excess Plan | | | 32 | | | $ | 14,576,108 | | | | — | | J. Michael Schlotman | | Pension Plan | | | 32 | | | $ | 1,520,588 | | | | — | | | | Excess Plan | | | 32 | | | $ | 7,416,810 | | | | — | | Michael J. Donnelly | | Pension Plan | | | 38 | | | $ | 754,056 | | | | — | | | | Excess Plan | | | 38 | | | $ | 5,960,476 | | | | — | | Christopher T. Hjelm | | Pension Plan | | | — | | | | — | (2) | | | — | (2) |
| | W. Rodney McMullen | | | Pension Plan | | | 34 | | | $1,882,693 | | | — | | | | | | | Excess Plan | | | 34 | | | $21,170,930 | | | — | | | | Gary Millerchip | | | Pension Plan | | | | | | $—(2) | | | —(2) | | | | | | | Excess Plan | | | | | | $— | | | — | | | | Stuart Aitken | | | Pension Plan | | | | | | $—(2) | | | —(2) | | | | | | | Excess Plan | | | | | | $— | | | — | | | | Yael Cosset | | | Pension Plan | | | | | | $—(2) | | | —(2) | | | | | | | Excess Plan | | | | | | $— | | | | | | | Michael J. Donnelly | | | Pension Plan | | | 40 | | | $1,206,264 | | | — | | | | | | | Excess Plan | | | 40 | | | $9,812,413 | | | — | | | | J. Michael Schlotman | | | Pension Plan | | | 34 | | | $1,973,721 | | | — | | | | | | | Excess Plan | | | 34 | | | $11,467,608 | | | — | |
(1)
| The discount rate used to determine the present values was 3.99%3.00% for each of The Kroger Consolidated Retirement Benefit Plan Spin Off (the “Pension Plan”) and 3.01% for The Kroger Co. Consolidated Retirement Excess Benefit Plan (the “Excess Plan”), which are the same rates used at the measurement date for financial reporting purposes. Additional assumptions used in calculating the present values are set forth in Note 15to15 to the consolidated financial statements in Kroger’s10-K for fiscal year 2017.2019. |
(2)
| In 2017, the cash balance portion of the Pension Plan was terminatedMessrs. Millerchip, Aitken and Mr. Hjelm’s balance was distributed via a transfer to an annuity contract on December 5, 2017. Accordingly, Mr. Hjelm is no longer a participantCosset do not participate in the Pension Plan and had no present value of accumulated benefits onor the last day of 2017. See the narrative discussion following this table under the heading “Cash Balance Participants” for additional information on the termination of the Pension Plan for cash balance participants.Excess Plan. |
Pension Plan and Excess Plan In 2017,2019, Messrs. McMullen, Schlotman, Donnelly, and HjelmSchlotman were participants in the Pension Plan, which is a qualified defined benefit pension plan. Messrs. McMullen, SchlotmanDonnelly, and DonnellySchlotman also participate 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. 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. McMullen, and Schlotman, 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. McMullen, Donnelly, and Schlotman and Donnelly isare eligible for these grandfathered benefits. Mr. Hjelm is not a grandfathered participant, and therefore, his benefits are determined using the cash balance formula.43
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 “grandfathered participants”, Messrs.participants,” Mr. McMullen, Mr. Donnelly and Mr. Schlotman, and Donnellywho retired on December 31, 2019, 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 bonus) during the last ten calendar years of employment, reduced by 11⁄∕4% times years of credited service multiplied by the primary social security benefit; |
normal retirement age is 65; unreduced benefits are payable beginning at age 62; and | • | | benefits payable between ages 55 and 62 will be reduced by1⁄∕3 of one percent for each of the first 24 months and by1⁄∕2 of one percent for each of the next 60 months by which the commencement of benefits precedes age 62. |
In 2018, we announced changes to these company-sponsored pension plans. The Company froze the compensation and service periods used to calculate pension benefits for active employees who participate in the affected pension plans, including the NEO participants, as of December 31, 2019. Beginning January 1, 2020, the affected active employees will 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. Cash Balance Participants
Mr. Hjelm began participating in the Pension Plan in August 2005 as a cash balance participant. Until the plan was frozen on December 31, 2006, cash balance participants received an annual pay credit equal to 5% of that year’s eligible earnings plus an annual interest credit equal to the account balance at the beginning of the plan year multiplied by the annual rate of interest on30-year Treasury Securities in effect prior to the plan year. Beginning on January 1, 2007, cash balance participants receive an annual interest credit but no longer receive an annual pay credit.
In 2017, the Company terminated the Pension Plan with respect to activenon-union cash balance participants and distributed the current balance of each eligible participant, at his/her election, via a transfer to a 401(k) plan, IRA or a lump sum cash payment. Participants that did not make an election had their balance transferred to an insurer through an annuity contract. On December 5, 2017, Mr. Hjelm’s balance of $11,407.48 was distributed via transfer to an annuity contract. Mr. Hjelm is no longer a participant in the Pension Plan.
Mr. Donnelly also participates 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 Mr. Donnelly, 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, Mr. Donnelly’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. Mr. Donnelly also participates 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 Mr. Donnelly’s benefit from the Excess Plan. The offsets are reflected in the Pension Benefits table above. 44
20172019 Nonqualified Deferred Compensation
The following table provides information on nonqualified deferred compensation for the NEOs for 2017.2019. Only Messrs. SchlotmanMcMullen and Aitken do notDonnelly participate 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 | | $ | 113,409 | (3) | | $ | 618,075 | | | $ | 9,765,811 | | J. Michael Schlotman | | | — | | | | — | | | | — | | Michael J. Donnelly | | $ | 111,014 | (4) | | $ | 30,817 | | | $ | 540,667 | | Christopher T. Hjelm | | | — | | | $ | 11,697 | | | $ | 259,712 | | Stuart W. Aitken | | | — | | | | — | | | | — | |
| | W. Rodney McMullen | | | $10,000(3) | | | $715,358 | | | $11,288,782 | | | | Gary Millerchip | | | — | | | — | | | — | | | | Stuart Aitken | | | — | | | — | | | — | | | | Yael Cosset | | | — | | | — | | | — | | | | Michael J. Donnelly | | | — | | | $39,042 | | | $707,870 | | | | J. Michael Schlotman | | | — | | | — | | | — | |
(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 20172019 are deemed to be preferential earnings and are included in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table for 2017:2019: Mr. McMullen, $99,858;$122,375; and Mr. Donnelly, $5,701; and Mr. Hjelm, $207.$6,927. |
(2)
| The following amounts in the Aggregate Balance column were reported in the Summary Compensation Tables covering fiscal years 2006 – 2016:2018: Mr. McMullen, $2,925,884;$3,273,221; and Mr. Donnelly, $134,959; and Mr. Hjelm, $149,163.$238,872. |
(3)
| This amount includes the deferral of $5,417$10,000 of his salary in fiscal 2017;2019; this amount is included in the “Salary” column of the Summary Compensation Table for 2017. This amount also includes the deferral of $56,925 of his 2014 Long-Term Incentive Plan cash bonus earned for performance over the three year period 2014 to 2016 and paid in March 2017 and the deferral of $51,067 of his 2016 performance-based annual cash bonus plan earned in 2016 and paid in March 2017; these amounts are included in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for 2016.2019. |
(4) | This amount represents the deferral of a portion of his 2014 Long-Term Incentive Plan cash bonus earned for performance over the three year period 2014 to 2016 and paid in March 2017; this amount is included in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for 2016. |
Executive Deferred Compensation Plan Messrs. McMullen Donnelly and HjelmDonnelly participate 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 bonus 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 CEO 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 20172019 earn interest at a rate of 2.8%4.45%. 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” 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 employee 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. 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, award agreements for stock options, restricted stock and performance units, and the long-term cash bonus plans, and the long-term incentive plans under which performance units are granted provide for certain payments and benefits to participants, including the NEOs, in the event of a 45
termination of employment or a change in control of Kroger, as defined in the applicable plan or agreement. Our pension plan 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 20172019 Pension Benefits section and the 20172019 Nonqualified Deferred Compensation section, respectively. KEPP
The Kroger Co. Employee Protection Plan KEPP applies to all management employees 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, 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 bonus 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 6 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 employee 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 employee receiving the greatest aggregate amount on an after-tax basis.
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
| Involuntary
Termination | Stock Options
| | Restricted Stock
| | Performance Units
| | Performance-Based
Long-Term
Cash Bonus
| 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 three yearthree-year performance period has not ended | | | Forfeit all rights to long-term cash bonuses for which the three yearthree-year performance period has not ended | | | Voluntary Termination/ Retirement
- Prior to minimum
age and five
years of
service(2)(1)
| | | 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 three yearthree-year performance period has not ended | | | Forfeit all rights to long-term cash bonuses for which the three yearthree-year performance period has not ended | | | Voluntary Termination/ Retirement
- After minimum
age
and five
years of
service(2)(1)
| | | Unvested options held greater than 1 year continue vesting on the original schedule. All options are exercisable for remainder of the original 10-year term. | | | Unvested shares held greater than 1 year continue vesting on the original schedule | | | Pro rata portion (1)(2) of units earned based on performance results over the full three-year period | | | Pro rata portion (1)(2) of long-term cash bonuses earned based on performance results over the full three-year period | |
46
Triggering Event
| Death | Stock Options
| | Restricted Stock
| | Performance Units
| | Performance-Based
Long-Term
Cash Bonus
| 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 (1)(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 year. | | | Pro rata portion (1)(2) of long-term cash bonuses 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 year. | | Disability
| 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 (1)(2) of units earned based on performance results over the full three-year period | | | Pro rata portion (1)(2) of long-term cash bonuses earned based on performance results over the full three-year period | | | Change in
Control(3)
- For awards prior
to March 2019 | | | Unvested options are immediately vested and exercisableexercisable. | | | Unvested shares immediately vestvest. | | | 50% of the units granted at the beginning of the performance period earned immediately | | | 50% of the bonus granted at the beginning of the performance period earned immediately | | | | Change in
Control(4)
- For awards
in March 2019
and thereafter | | | Unvested options only vest and become exercisable upon an actual or constructive termination of employment within 2 years following a change in control. | | | Unvested shares only vest upon an actual or constructive termination of employment within 2 years following a change in control. | | | 50% of the units granted at the beginning of the performance period earned upon an actual or constructive termination of employment within 2 years following a change in control. | | | Not applicable | |
(1)
| The minimum age requirement is age 62 for stock options and restricted stock and age 55 for performance units and the long-term cash bonus. |
(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. |
(2) | The minimum age requirement is age 62 for stock options and restricted stock and age 55 for performance units and the long-term cash bonus. |
(3)
| These benefits are payable upon a change in control of Kroger, as defined in the applicable agreement, with or without a termination of employment. |
47
(4)
| These benefits are payable upon an actual or constructive termination of employment within two years after a change in control, as defined in the applicable agreements. |
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, except for Mr. Schlotman, if the triggering event occurred on the last day of the fiscal year, February 3, 2018,1, 2020, 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 ($ 29.3426.86 on February 2, 2018)January 31, 2020). 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 | | $ | 705,370 | | | $ | 705,370 | | | $ | 705,370 | | | $ | 705,370 | | | $ | 705,370 | | | $ | 705,370 | | Severance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,631,800 | | Continued Health and Welfare Benefits(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 69,946 | | Stock Options(2) | | | — | | | | — | | | | 4,648,164 | | | | 4,648,164 | | | | 4,648,164 | | | | 4,648,164 | | Restricted Stock(3) | | | — | | | | — | | | | 11,352,526 | | | | 11,352,526 | | | | 11,352,526 | | | | 11,352,526 | | Performance Units(4) | | | — | | | | 54,402 | | | | 54,402 | | | | 54,402 | | | | 2,889,403 | | | | 2,889,403 | | Long-Term Cash Bonus(5) | | | — | | | | 19,166 | | | | 19,166 | | | | 19,166 | | | | 1,258,750 | | | | 1,258,750 | | Executive Group Life Insurance | | | — | | | | — | | | | 5,213,600 | | | | — | | | | — | | | | — | | J. Michael Schlotman | | | | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | $ | 479,564 | | | $ | 479,564 | | | $ | 479,564 | | | $ | 479,564 | | | $ | 479,564 | | | $ | 479,564 | | Severance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,192,720 | | Continued Health and Welfare Benefits(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 104,012 | | Stock Options(2) | | | — | | | | — | | | | 1,796,584 | | | | 1,796,584 | | | | 1,796,584 | | | | 1,796,584 | | Restricted Stock(3) | | | — | | | | — | | | | 4,223,933 | | | | 4,223,933 | | | | 4,223,933 | | | | 4,223,933 | | Performance Units(4) | | | — | | | | 18,948 | | | | 18,948 | | | | 18,948 | | | | 1,017,658 | | | | 1,017,658 | | Long-Term Cash Bonus(5) | | | — | | | | 13,056 | | | | 13,056 | | | | 13,056 | | | | 855,120 | | | | 855,120 | | Executive Group Life Insurance | | | — | | | | — | | | | 50,000 | | | | — | | | | — | | | | — | | Michael J. Donnelly | | | | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | $ | 211,530 | | | $ | 211,530 | | | $ | 211,530 | | | $ | 211,530 | | | $ | 211,530 | | | $ | 211,530 | | Severance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,150,000 | | Continued Health and Welfare Benefits(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 85,275 | | Stock Options(2) | | | — | | | | — | | | | 1,282,087 | | | | 1,282,087 | | | | 1,282,087 | | | | 1,282,087 | | Restricted Stock(3) | | | — | | | | — | | | | 4,001,125 | | | | 4,001,125 | | | | 4,001,125 | | | | 4,001,125 | | Performance Units(4) | | | — | | | | 14,212 | | | | 14,212 | | | | 14,212 | | | | 763,295 | | | | 763,295 | | Long-Term Cash Bonus(5) | | | — | | | | 11,590 | | | | 11,590 | | | | 11,590 | | | | 761,250 | | | | 761,250 | | Executive Group Life Insurance | | | — | | | | — | | | | 3,132,800 | | | | — | | | | — | | | | — | | Christopher T. Hjelm | | | | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | $ | 28,562 | | | $ | 28,562 | | | $ | 28,562 | | | $ | 28,562 | | | $ | 28,562 | | | $ | 28,562 | | Severance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,885,208 | | Continued Health and Welfare Benefits(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 64,442 | | Stock Options(2) | | | — | | | | — | | | | 1,282,087 | | | | 1,282,087 | | | | 1,282,087 | | | | 1,282,087 | | Restricted Stock(3) | | | — | | | | — | | | | 3,131,986 | | | | 3,131,986 | | | | 3,131,986 | | | | 3,131,986 | | Performance Units(4) | | | — | | | | 14,212 | | | | 14,212 | | | | 14,212 | | | | 763,295 | | | | 763,295 | | Long-Term Cash Bonus(5) | | | — | | | | 10,817 | | | | 10,817 | | | | 10,817 | | | | 710,500 | | | | 710,500 | | Executive Group Life Insurance | | | — | | | | — | | | | 2,920,400 | | | | — | | | | — | | | | — | | Stuart W. Aitken | | | | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | $ | 8,264 | | | $ | 8,264 | | | $ | 8,264 | | | $ | 8,264 | | | $ | 8,264 | | | $ | 8,264 | | Severance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,027,000 | | Continued Health and Welfare Benefits(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 34,943 | | Stock Options(2) | | | — | | | | — | | | | 357,864 | | | | 357,864 | | | | 357,864 | | | | 357,864 | | Restricted Stock(3) | | | — | | | | — | | | | 2,062,749 | | | | 2,062,749 | | | | 2,062,749 | | | | 2,062,749 | | Performance Units(4) | | | — | | | | — | | | | 4,780 | | | | 4,780 | | | | 256,740 | | | | 256,740 | | Long-Term Cash Bonus(5) | | | — | | | | — | | | | 10,431 | | | | 10,431 | | | | 685,125 | | | | 685,125 | | Executive Group Life Insurance | | | — | | | | — | | | | 3,889,100 | | | | — | | | | — | | | | — | |
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Upon Mr. Schlotman’s retirement on December 31, 2019, he received a payment equal to his banked vacation as described in footnote 5 to the Summary Compensation Table. Please see the Long-Term Incentive Awards Table on page 49 for a discussion of the treatment of Mr. Schlotman’s long-term incentive awards following his retirement, with Mr. Schlotman having reached the minimum age and service requirements.| | 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) | | | — | | | — | | | — | | | — | | | — | | | 32,653 | | | | Stock Options(2) | | | 0 | | | 0 | | | 2,089,702 | | | 2,089,702 | | | 1,354,875 | | | 2,089,702 | | | | Restricted Stock(3) | | | 0 | | | 0 | | | 9,293,641 | | | 9,293,641 | | | 5,875,088 | | | 9,293,641 | | | | Performance Units(4) | | | 0 | | | 1,949,837 | | | 1,949,837 | | | 1,949,837 | | | 1,260,070 | | | 4,108,855 | | | | Long-Term Cash Bonus(5) | | | 0 | | | 1,145,710 | | | 1,145,710 | | | 1,145,710 | | | 1,315,900 | | | 1,315,900 | | | | Executive Group Life Insurance | | | — | | | — | | | 1,973,850 | | | — | | | — | | | — | | | | Gary Millerchip | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | | $3,846 | | | $3,846 | | | $3,846 | | | $3,846 | | | $3,846 | | | $3,846 | | | | Severance | | | — | | | — | | | — | | | — | | | — | | | 1,837,500 | | | | Continued Health and Welfare Benefits(1) | | | — | | | — | | | — | | | — | | | — | | | 48,166 | | | | Stock Options(2) | | | 0 | | | 0 | | | 522,439 | | | 522,439 | | | 103,145 | | | 522,439 | | | | Restricted Stock(3) | | | 0 | | | 0 | | | 2,508,751 | | | 2,508,751 | | | 974,723 | | | 2,508,751 | | | | Performance Units(4) | | | 0 | | | 0 | | | 243,424 | | | 243,424 | | | 93,030 | | | 635,655 | | | | Long-Term Cash Bonus(5) | | | 0 | | | 0 | | | 141,483 | | | 141,483 | | | 162,500 | | | 162,500 | | | | Executive Group Life Insurance | | | — | | | — | | | 750,000 | | | — | | | — | | | — | | | | Stuart Aitken | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | | $6,346 | | | $6,346 | | | $6,346 | | | $6,346 | | | $6,346 | | | $6,346 | | | | Severance | | | — | | | — | | | — | | | — | | | — | | | 2,795,848 | | | | Continued Health and Welfare Benefits(1) | | | — | | | — | | | — | | | — | | | — | | | 48,913 | | | | Stock Options(2) | | | 0 | | | 0 | | | 341,729 | | | 341,729 | | | 131,777 | | | 341,729 | | | | Restricted Stock(3) | | | 0 | | | 0 | | | 2,184,470 | | | 2,184,470 | | | 1,126,320 | | | 2,184,470 | | | | Performance Units(4) | | | 0 | | | 0 | | | 501,591 | | | 501,591 | | | 342,908 | | | 1,021,190 | | | | Long-Term Cash Bonus(5) | | | 0 | | | 0 | | | 311,786 | | | 311,786 | | | 358,100 | | | 358,100 | | | | Executive Group Life Insurance | | | — | | | — | | | 1,237,500 | | | — | | | — | | | — | | | | Yael Cosset | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | | $5,038 | | | $5,038 | | | $5,038 | | | $5,038 | | | $5,038 | | | $5,038 | | | | Severance | | | — | | | — | | | — | | | — | | | — | | | 2,209,174 | | | | Continued Health and Welfare Benefits(1) | | | — | | | — | | | — | | | — | | | — | | | 36,213 | | | | Stock Options(2) | | | 0 | | | 0 | | | 277,832 | | | 277,832 | | | 102,873 | | | 277,832 | | | | Restricted Stock(3) | | | 0 | | | 0 | | | 2,110,927 | | | 2,110,927 | | | 1,215,576 | | | 2,110,927 | | | | Performance Units(4) | | | 0 | | | 0 | | | 245,797 | | | 245,797 | | | 95,756 | | | 638,382 | | | | Long-Term Cash Bonus(5) | | | 0 | | | 0 | | | 230,465 | | | 230,465 | | | 264,700 | | | 264,700 | | | | Executive Group Life Insurance | | | — | | | — | | | 982,500 | | | — | | | — | | | — | | | | Michael J. Donnelly | | | | | | | | | | | | | | | | | | | | | | Accrued and Banked Vacation | | | $174,144 | | | $174,144 | | | $174,144 | | | $174,144 | | | $174,144 | | | $174,144 | | | | Severance | | | — | | | — | | | — | | | — | | | — | | | 4,260,000 | | | | Continued Health and Welfare Benefits(1) | | | — | | | — | | | — | | | — | | | — | | | 15,831 | | | | Stock Options(2) | | | 0 | | | 0 | | | 671,645 | | | 671,645 | | | 391,711 | | | 671,645 | | | | Restricted Stock(3) | | | 0 | | | 0 | | | 4,002,919 | | | 4,002,919 | | | 2,700,612 | | | 4,002,919 | | | | Performance Units(4) | | | 0 | | | 689,605 | | | 689,605 | | | 689,605 | | | 418,935 | | | 1,504,187 | | | | Long-Term Cash Bonus(5) | | | 0 | | | 380,917 | | | 380,917 | | | 380,917 | | | 437,500 | | | 437,500 | | | | Executive Group Life Insurance | | | — | | | — | | | 1,395,000 | | | — | | | — | | | — | |
(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 20 months for Mr. Aitken, and 24 months for the otherall 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 death, disability and change in control columns represent the intrinsic value of the accelerated vesting of unvested stock options, calculated as the difference between the exercise price of the stock option and the closing price per Kroger common share on February 2, 2018.January 31, 2020. A value of $0 is attributed to stock options with an exercise price greater than the market price on the last day of the fiscal year. In accordance with SEC rules, no amount is reported in the voluntary termination/retirement column because vesting is not accelerated, but the options may continue to vest on the original schedule if the conditions described above are met. |
(3)
| Amounts reported in the death, disability and change in control columns represent the aggregate value of the accelerated vesting of unvested restricted stock. In accordance with SEC rules, no amount is reported in the voluntary termination/retirement column because vesting is not accelerated, but the restricted stock may continue to vest on the original schedule if the conditions described above are met. |
(4)
| Amounts reported in the voluntary termination/retirement, death and disability columns represent the aggregate value of the performance units granted in 20162018 and 2017,2019, based on performance through the last day of fiscal 20172019 and prorated for the portion of the performance period completed. Amounts reported in the change in control column represent the aggregate value of 50% of the maximum number of performance units granted in 20162018 and 2017.2019. Awards under the 20152017 Long-Term Incentive Plan were earned as of the last day of 20172019 so each NEO age 55 or over was entitled to receive (regardless of the triggering event) the amount actually earned, which is reported in the Stock Awards column of the 20172019 Option Exercises and Stock Vested Table. |
(5)
| Amounts reported in the voluntary termination/retirement, death and disability columns represent the aggregate value of the long-term cash bonuses granted in 2016 and 2017,2018, based on performance through the last day of fiscal 20172019 and prorated for the portion of the performance period completed. Amounts reported in the change in control column represent the aggregate value of 50% of the long-term cash bonus potentials under the 2016 and 20172018 Long-Term Incentive Plans.Plan. Awards under the 20152017 Long-Term Incentive Plan were earned as of the last day of 2017,2019, so each NEO age 55 or over was entitled to receive (regardless of the triggering event) the amount actually earned, which is reported in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017.2019. |
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. As reported in the Summary Compensation Table, our CEO had annual total compensation for 20172019 of $11,534,860.$21,129,648. Using this Summary Compensation Table methodology, the annual total compensation of our median employee for 20172019 was $21,075.$26,790. As a result, we estimate that the ratio of our CEO’s annual total compensation to that of our median employee for fiscal 20172019 was 547789 to 1. 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 employee and calculating the pay ratio based on that employee’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
As permitted by SEC rules, we used the “median employee” fromsame median employee in 2017 and 2018 based on our employee population on the last day of our 11th fiscal period (December 2, 2017)7, 2019), which included full-time, part-time, temporary, and seasonal employees who were employed on that date. The consistently applieddate, as there were no changes in our employee population or compensation measurearrangements that we used was “base salary/wages paid”, which we measured from the beginning ofbelieve would have significantly affected our fiscal year, January 29, 2017, through December 2, 2017; and we multiplied49
pay ratio calculation.
the average weekly earnings during this period of each full-time and part-time permanent employee by 53, which was the number of weeks in fiscal 2017. We annualized the earnings of all permanent employees who were on a leave of absence or werenew-hires in 2017. 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.
Once the median employee was identified, we then determined the median employee’s annual total compensation using the Summary Compensation Table methodology as detailed in Item 402(c)(2)(x) of RegulationS-K and compared it to the annual total compensation of Mr. McMullen as detailed in the “Total” column of the Summary Compensation Table for 2017,2019, to arrive at the pay ratio disclosed above.
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. 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 employees 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: 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, equity ownership to align the interests of executives and shareholders; and Components of compensation should be tied to an evaluation of business and individual performance measured against metrics that directly drive our business strategy. 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 2019 annual meeting.2021 Annual Meeting. The Board of Directors Recommends a Vote For This Proposal. Item No. 3 Vote to Approve Amendment to Regulations to Permit Proxy AccessYou are being asked to vote to approve an amendment to our Regulations to incorporate a provision that will permit proxy access nominations of directors to our Board of Directors. Our Board of Directors recommends that you vote FOR this proposal.
Under this Item No. 3, the Board is recommending that our shareholders adopt an amendment to our Regulations to implement proxy access. The proposed amendment is contained in a new Article I, Section 2(B)(3) to our Regulations, a copy of which is included in Appendix A attached to this Proxy Statement (the “Amendment”). Proxy access allows eligible shareholders to include their own nominees for director in the Company’s proxy materials along with the Board of Director’s nominees.
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In connection with our review of our corporate governance practices and recent trends, in combination with views expressed by certain of our shareholders, the Board approved the Amendment. Pursuant to our Regulations, the Amendment will not become effective unless it is adopted by the affirmative vote of a majority of our shareholders. The Board of Directors’ decision to approve and seek shareholder adoption of this proposal to implement proxy access reflects its continuing commitment to respond to the views of the Company’s shareholders and provide them with a voice in corporate governance matters. Furthermore, the Board of Directors believes that the implementation of proxy access in the manner set forth in this proposal will provide meaningful rights to our shareholders while ensuring the rights are used by shareholders in a responsible manner.
Description of Amendment
The following description of the Amendment is qualified in its entirety by reference to the complete text of the Amendment, which is included in the Regulations and set forth in Appendix A. You are urged to read the Amendment in its entirety.
Eligibility of Shareholders to Nominate Directors
The Amendment would permit any shareholder, or group of no more than 20 shareholders, owning 3 percent or more of our outstanding common shares continuously for at least the previous three years who complies with the requirements set forth in the provision, to include one director nominee in the Company’s proxy statement for its annual meeting of shareholders.
Calculation of Qualifying Ownership
To ensure that the interests of shareholders seeking to include director nominees in the Company’s proxy materials are aligned with those of other shareholders, a nominating shareholder would be deemed to own only those outstanding common shares of the Company as to which the shareholder possesses both the full voting and investment rights pertaining to the shares and the full economic interest in (including the opportunity for profit from and risk of loss on) such shares.
Number of Shareholder-Nominated Candidates
The maximum number of shareholder-nominated candidates that the Company would be required to include in its proxy materials would equal the greater of 2 or 20% of the directors in office at the time of nomination. If the 20% calculation does not result in a whole number, the maximum number of shareholder-nominated candidates would be the closest whole number below 20%. Based on our current Board of Directors size of 11 directors, the maximum number of shareholder-nominated candidates we would be required to include in our annual meeting proxy materials is two. If one or more vacancies occur on the Board, or the Board decides to reduce the size of the Board in connection therewith, after the nomination deadline, the nominee limit would be calculated based on the reduced number of directors. The maximum number of shareholder-nominated candidates would be reduced by candidates nominated under proxy access procedures who (i) are included in the Company’s proxy statement as a nominee of the Board of Directors, or (ii) were previously elected to the Board of Directors at one of the last two annual meetings and renominated as a director by the Board of Directors. In addition, such number will be further reduced (but not below one) by the number of director nominees submitted by shareholders pursuant to the Company’s advance notice nomination procedures.
Each nominating shareholder or group of shareholders may nominate one, but not more than one, director. If the number of shareholder-nominated candidates exceed the maximum permitted number of nominees, then such candidates would be included in the proxy material in order of the number of Company common shares (largest to smallest) held by each nominating shareholder or group of shareholders until the maximum is reached.
Nominating Procedure
In order to provide adequate time to assess shareholder nominated candidates, requests to include shareholder nominated candidates in the Company’s proxy materials must be received not later than the close of business on the 120th calendar day nor earlier than the close of business on the 150th calendar day prior to the date on which the Company’s proxy statement for the prior year’s annual meeting of shareholders was first mailed to shareholders.
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Information Required; Representations and Undertakings
Each shareholder seeking to include a shareholder-nominated candidate in the Company’s proxy materials would be required to provide certain information and make certain representations and undertakings at the time of nomination, including:
Proof that the nominating shareholder or group of shareholders has held the required number of shares for the requisite period;
The shareholder’s notice on Schedule 14N required to be filed with the SEC;
The written consent of the shareholder-nominated candidate to being named in the proxy statement as a nominee and to serving as a director if elected; and
Representations and undertakings, including with respect to the shareholder’s intent and compliance with applicable laws, including the lack of an intent to change or influence control of the Company and an undertaking to assume liability stemming from any violation arising out of any communications by the nominating shareholder with the Company’s shareholders and from the information that the shareholder provides to the Company.
In addition, each shareholder-nominated candidate would be required to submit certain information, including as necessary to permit the Board of Directors to determine if the shareholder-nominated candidate is independent under the NYSE listing standards, any applicable rules of the SEC, or any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Company’s directors. Each shareholder-nominated candidate would also be required to provide certain representations and agreement, including in relation to adherence to applicable Company policies, disclosure of voting commitment or compensation arrangement in connection with his or her nomination or service as a director and the completion of any applicable questionnaires as requested by the Company.
Qualifications and Eligibility of Shareholder-Nominated Candidates
The Company would not be required to include the shareholder-nominated candidate in its proxy materials under certain circumstances, including if:
the Board of Directors determines he or she is not independent under the NYSE listing standards, any applicable rules of the SEC, or any disclosed standards used by the Board of Directors in determining and disclosing the independence of the Company’s directors;
the shareholder-nominated candidate has participated in another person’s solicitation;
the Company would be in violation of its organizational documents, applicable law or NYSE listing standards;
the shareholder-nominated candidate or shareholder has provided materially false or misleading information to the Company;
the shareholder-nominated candidate is party to an undisclosed voting commitment or compensation arrangement; or
the shareholder nominated candidate’s business or personal interests place such candidate in a conflict of interest with the Company.
Renomination of Shareholder-Nominated Candidates
Any shareholder-nominated candidate who is included in the Company’s proxy materials, but subsequently withdraws from or becomes ineligible for election at the meeting, or does not receive at least 25% of the vote cast in favor of his or her election would be ineligible for nomination for the following two annual meetings.
Supporting Statement
Nominating shareholders may submit to the Company for inclusion in the proxy materials a500-word statement in support of their nominee(s). The Company may omit any information or statement that it believes would violate any applicable law or regulation.
The Board of Directors Recommends a VoteFor This Proposal.
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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.
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 whose shareholders have voted to amend their regulations to permit amendments by their boards of directors, we are asking our shareholders to approve Proposal No. 4 in light of the following:
Many jurisdictions, such as Delaware, have historically allowed the directors of a corporation to amend the corporation’s bylaws (the Delaware equivalent of Ohio’s regulations) without shareholder approval.
Since 2006, Ohio law provides Ohio corporations with flexibility similar to Delaware corporations, to make certain amendments to their regulations without shareholder approval, if the authority is provided in the corporation’s articles of incorporation or regulations, subject to statutory limitations that prohibit directors from amending the regulations in a way that affects important rights that Ohio law reserves for shareholders.
Giving this flexibility to our Board of Directors would enable them to efficiently and cost-effectively streamline and improve the Regulations as needed in the future and also to quickly adapt them to changes in state law or governance trends, such as adopting modern provisions regarding electronic notice and actions.
Even if Proposal 4 is approved, the Board’s ability to amend the Regulations will be limited. Under Ohio law, only our shareholders would be able to make the following amendments to our Regulations:
changing the percentage of common shares needed to call a special shareholders’ meeting;
changing the length of the time period required for notice of shareholders’ meetings;
changing the requirement for a quorum at shareholders’ meetings;
prohibiting shareholder or director actions from being authorized or taken without a meeting;
defining terms of office for directors or providing for classification of directors;
requiring greater than a majority vote of shareholders to remove directors without cause;
changing the requirements for a quorum at directors’ meetings or the required vote for an action of the directors; or
including a requirement that a control share acquisition of the corporation be approved by the corporation’s shareholders.
Accordingly, if shareholders approve Proposal 4:
Article VII of our Regulations would be revised to allow the Board of Directors to amend our Regulations in the future to the extent permitted by Ohio law, which authority could not be delegated to a committee of the Board of Directors; and
the Board would be able to amend, repeal and adopt new regulations to implement ministerial and other changes to our Regulations, other than with respect to the matters reserved for shareholders under Ohio law, including as set forth above, without the time-consuming and expensive process of seeking shareholder approval.
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 Proposal 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
These regulations may be amended or repealed or new regulations may be adopted (A) at any meeting of the shareholders called for that purpose or without such meeting by the affirmative vote or consent of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal except that the affirmative vote or consent of the holders of record of shares entitling them to exercise 75% of the voting power on such proposal shall be required to amend, alter, change or repeal Sections 1 or 5 of Article II or this Article VII, or to amend, alter, change or repeal these regulations in any way inconsistent with the intent of the foregoing provisions, or (B) by the Board of directors to the extent permitted by the Ohio Revised Code.
The Board of Directors Recommends a VoteFor This Proposal.
Item No. 5 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. 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 2017.2019. 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 14, 2018,11, 2020, the Audit Committee appointed PricewaterhouseCoopers LLP as Kroger’s independent auditor for the fiscal year ending February 2, 2019.January 30, 2021. 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, allnon-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; 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. 54
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.
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 20172019 and 2016,2018, and for audit-related, tax and all other services performed in 20172019 and 2016. | | | | | | | | | | | | Fiscal Year Ended | | | | | February 3, 2018 | | | January 28, 2017 | | Audit Fees(1) | | $ | 5,178,208 | | | $ | 5,894,384 | | Audit-Related Fees | | | 775,000 | | | | — | | Tax Fees(2) | | | | | | | 30,736 | | All Other Fees | | | 900 | | | | — | | | | | | | | | | | Total | | $ | 5,954,108 | | | $ | 5,925,120 | | | | | | | | | | |
| | Audit Fees(1) | | | $5,153,885 | | | $5,067,485 | | | | Audit-Related Fees(2) | | | $0 | | | $1,110,870 | | | | All Other Fees(3) | | | $900 | | | 900 | | | | Total | | | $5,154,785 | | | $6,179,255 | |
(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)
| FeesIncludes fees related to audit services in connection with the carve-out for state sales tax consulting.the sale of the c-stores from the financial statements, lease pre-implementation procedures, and divestiture due diligence. |
(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, 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.
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;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 with 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 3, 2018,1, 2020, as filed with the SEC. This report is submitted by the Audit Committee. Anne Gates, ChairKaren M. HoguetRonald L. Sargent ChairAnne Gates
Bobby S. Shackouls
Mark S. Sutton
Item No. 64 Shareholder Proposal – Recyclability of Packaging We have been notified by one shareholder,two 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:
“WHEREAS: 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 the Kroger house brand items packaged in unrecyclable plastic pouches. Private label items account for a quarter of all sales –nearly– 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 either in a landfill or incinerator.Recyclability of household packaging is a growing area of focus as consumers become more environmentally conscious, yet recycling rates stagnate. Only 14%13% of plastic packaging is recycled, according to the U.S. Environmental Protection Agency (EPA). Billions of pouches 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, bio accumulative, toxic chemicals. Plastics absorb toxics such as polychlorinated biphenyls and dioxins from water or sediment and transfer them to the marine food web 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. Walmart uses sustainable packaging guidelines to incentivize its suppliersKroger is lagging behind competitors; the company has only offered a vague statement that it will strive to increase the amountrecyclability of its plastic packaging. Direct grocery competitors Walmart and Target have both agreed to make their packaging they use that can be recycled.recyclable, reusable, or compostable by 2025. Colgate-Palmolive, PepsiCo, Procter & Gamble, and Unilever and Walmart have all developed similar packaging recyclability goals. RESOLVED: Shareowners of Kroger request 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.Supporting Statement: Proponents believe that the report should include an assessment of the reputational, financial and operational risks associated with continuing to use unrecyclable brand packaging and, if possible, goals and a timeline to phase out unrecyclable packaging.”
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons: Kroger recognizes the important role our company plays as a good steward of the environment, including efforts to reduce packaging and increase recyclability. We focus on reducing waste through our commitment to be a Zero Waste Company (diverting at least 90% of waste from landfills) by 2020 (as of 2017, Kroger had diverted more than 75% of its waste), and as part of our Zero Hunger I Zero Waste social impact plan to end hunger in our communities and eliminate waste across the company by 2025.
In 2016, Kroger announced itsintroduced our 2020 Sustainability Goals. One of these goals specifically focuses on improvements in Goals, which include several targets to optimize Our Brands packaging:Goal: 100% Our Brands Packaging Optimization
By 2020, Kroger will optimize
product packaging in Our Brands by following a balanced, multi-pronged approach that considers design attributes including but not limited to food safety, shelf life, availability, quality, material type and source, function, recyclability and cost. Through the design optimization process, Kroger will strive to increaseapproach. These goals include:Improving the recyclability of plastic packaging and achieving 20% recycled content in packaging for Kroger manufactured products -- which also helps drive demand for recycled materials; Increasing communication with our customers about recyclability and helping expand recycling infrastructure because we cannot solve this problem alone; Increasing responsible fiber sourcing in paper packaging; and Reducing plastic in Our Brands manufactured plastic packaging.57
packaging by 10 million pounds.
This goal has many parts. The detailed packaging optimization goals for 2020 and an update on our progress through fiscal year 2018 can be found at http://sustainability.kroger.com/2020-goals.html.
Source Reduction
The focus2020-goals.html.
Kroger continues to accelerate progress on Our Brands packaging is intendedevery front during fiscal 2020 to reduce the amountachieve as many of plasticsthese targets as possible. We will report Kroger’s 2019 progress in our packaging, increase recycled content and certified virgin fiber, plus increase recyclability.The Our Brands packaging team is designing product packages that use less plastic, helping Kroger make significant progress on our goal to reduce plastic in Our Brands packaging by 10 million pounds by 2020.2020 Environmental, Social & Governance (ESG) report. By the end of 2017, we reached the9.8-million-pound mark. Hence, 2019:
Kroger is on track to achieveachieved 10.1 million pounds of reduced plastic in our manufactured plastic packaging since 2015 – achieving our goal well ahead of schedule.The biggest exampleschedule – with additional improvements planned for 2020.
We added post-consumer recycled (PCR) content to multiple plastic packaging items, including dairy products, bakery and produce products, which helps create demand for recycling markets. As examples, in 2019, we added 25% PCR content into two buttermilk products, up to 40% PCR in pie containers, and up to 20% PCR in several cake and cookie containers – all of source reduction is the redesignwhich we produce in our own Manufacturing plants. We raised awareness of Our Brands gallon milk jug. Our new milk jug still is made of the same 100% recyclable high density polyethylene as the old jugs, but our unique design allows us to use approximately 10% lessin-store plastic while retaining the same performance. This lighter-weight milk jug is currently in production at six Kroger dairies:Centennial Farms Dairy in Atlanta, Georgia;
Heritage Farms Dairy in Murfreesboro, Tennessee;
Jackson Hutchinson Dairy in Hutchinson, Kansas;
Michigan Dairy in Livonia, Michigan;
Vandervoort Dairy in Ft. Worth, Texas;film collection and
Westover Dairy in Lynchburg, Virginia.
We will continue to roll out the new jug throughout 2018 at additional facilities. We will also continue to identify other projects to reduce packaging at the source and promote sustainable packaging across our operations.
Recycling Solutions
We also offer a popularin-store plastics recycling program, for our customers – typically located in our store lobbies. We accept several types of Our Brands packaging, such as clean and dry plastic shopping bags, bread and produce bags, bottled water case wraps, and bathroom tissue and diaper plastic overwraps. We also accept national brand product packaging types that are compatible within-storedrop-off programs. In addition, Kroger associates use this program to recycle pallet shrink wrap. In 2017, we collected more than 37.9 million pounds of plastic through this program.
Customer Communication
We continue to improve our product labels as part of our packaging updates to help increase awareness among our customers about how to recycle our packaging. We label recyclable Our Brands products according to the Federal Trade Commission’s Green Guides, prompting our customers to “Please Recycle.” As we update our packaging labels, we clearly denote when packaging, such as plastic, paper and aluminum containers, is recyclable. Where a shrink sleeve may interfere with the recyclability of a plastic bottle, we are adding a tear perforation and the message “Remove Label to Recycle Bottle” to the labels. Similarly, where products use plastic overwrap that can be recycled through ourin-store plastics recycling programs, we are adding language to the overwrap that directs our customers to “Please Recycle at your local, Kroger Family of Storesdrop-off location.”
Reusable Bags and Plastic Containers
While helping recycle plastic bags, we strongly advocate for transitioning to reusable bags and encourage customers to change their habits by offeringwhich accepts a wide variety of reusable bags;plastic films not currently accepted in fact, each year, we sell millions of these reusablecurbside recycling programs, like plastic grocery bags, produce bags, bread bags, and plastic overwrap on household tissues, diapers and bottled water. Kroger will pilot new recycling programs for harder-to-recycle items in 2020 in order to our customers. Additionally, many parking lots at our Kroger Family of Stores have signs on the cart corrals that remind ourgive customers additional resources to bring their reusable bags into our stores. Simple reminders like these can furtherhelp reduce plastic bag waste in the environment.
We added ‘Please Recycle’ to additional product packages – for a total of more than 3,000 items showing this message. We are also in the process of joining the How2Recycle program so that we can provide widely adopted recycling instructions for Our Brands products moving forward. Kroger joined the U.S. Chamber of Commerce Foundation’s Beyond 34 initiative, which is aimed at finding scalable solutions to increase the national recycling rate (currently 34%). As a Champion of the second pilot, hosted in Cincinnati, our home city, Kroger is playing a key role in evaluating waste reduction and encourage customersrecovery opportunities that can potentially benefit our company-wide operations. | • | The majority of paper packaging items used in Kroger’s Manufacturing plants include recycled content and/or is certified to a responsible forestry standard. We also developed a Deforestation Commitment for Raw Material Sourcing (https://www.thekrogerco.com/wp-content/uploads/2020/02/Kroger-Deforestation-Commitment_Raw-Material-Sourcing_Final.pdf), which includes a commitment regarding paper packaging used in our plants. |
Recognizing that our customers’ interest in sustainable packaging will continue to change their shopping habits.evolve, in 2019 we became the exclusive U.S. grocery retail partner for Loop, an innovative circular packaging platform that aligns with Kroger’s zero-waste vision by reducing single-use plastics in the environment. We are working with our CPG partners and Our Brands team to pilot this new packaging system in select Kroger-operated stores in fall 2020. Kroger was also ship fresh producethe first major U.S. grocery retailer to our stores using reusable plastic containers (RPCs), which improve product quality and significantly reduce waste by eliminatingcommit to phase out the use of cardboard boxes.single-use plastic grocery shopping bags across the country by 2025. We learn more every day about the challenges of transitioning from single-use plastics to a more circular and sustainable economy. While there isn’t a single, easy answer to the issue of plastics in nature, Kroger remains committed to being part of the solution – in our stores and communities, and in our customers’ homes. For the year ahead, Kroger will continue to increase our volume of fresh produce shipped in RPCs, and used 140 million containers in 2017.Advocacy
We are actively engaging in industry collaboration groups and directly with our stakeholdersaccelerate progress on these topics. To accelerate efforts to achieve our packaging goals, Kroger joined the Sustainable Packaging Coalition in 2017.
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We believe our participation will accelerate our progress and help advance industry-wide and supply chain-wide initiatives to move the needle on recyclability and identify suppliers who can support our sustainable packaging goals.
Guided by our 2020 Sustainability Goals while also defining our strategy and long-term goals for the future. We are currently designing our Zero Hunger I Zero Waste social impact plan, Kroger will continue to support plastic waste reduction, find optimized solutions forfuture long-term packaging commitments and create opportunities for our associatesanticipate setting and customers to recycle plastics in our stores. We will continue to optimize Our Brands packaging in ways that support our financial, environmental and social responsibilities to our customers, shareholders and other stakeholders.
The proposal asks that Kroger issue a report on unrecyclable packaging material. Kroger publishes details on our sustainability goals, initiatives, and progress against our targets in our Sustainability Report and on our website (http://sustainability.kroger.com). Given our extensive reporting and our strong focus on ensuring we are responsible stewardssharing those by the end of the environment,year.(1)
For the Board believes that issuing a report on unrecyclable packaging would be unnecessary and would consume time and resources that are best spent on executing on our sustainability programs and targets.Weforegoing reasons, we urge you to support these efforts and voteAGAINST this proposal.
Item No. 75 Shareholder Proposal – Renewable EnergyHuman Rights Due Diligence We have been notified by one shareholder, 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:
“ WHEREAS: The long term interests of shareholders are best served by companies that operate their businesses in a sustainable manner, focused on long term value creation. This is particularly important in the context of climate change. To mitigate the worst impacts of climate change, global warming must be limited to under 2 degrees Celsius (IPCC 2013), a goal consistent with the internationally recognized Paris Agreement.Kroger is one of the world’s largest food retailers, exceeding $115 billion in revenue. It is listed 18th on Fortune’s Fortune 500 list and 40th on Fortune’s Global 500 list. Despite its size and significant carbon impact, Kroger lags behind its peers in establishing greenhouse gas emission reduction targets. Where most companies are reducing carbon, Kroger’s combined Scope 1 & 2 emissions have annually increased since 2013. (Kroger CDP Reports 2012-2017). Investors are concerned that Kroger’s globally significant carbon emissions are not being adequately addressed.
One meaningful way Kroger could reduce its carbon footprint is to expand its use of renewable energy. While making some inroads on energy and supply chain efficiency, Kroger has not instituted comprehensive programs to reduce the carbon impact of its power sourcing. Kroger’s failure to meaningfully invest in renewable energy is in strong contrast to its peers, which are rapidly and profitably scaling renewable energy. Competitor Walmart installed 145 MW of solar at 364 different sites; Target developed 147 MW of solar at 300 sites, and Costco 51 MW. (https://www.seia.org/ solar-means-business-report). Walmart has further committed to 100% renewable electricity, joining other major companies such as Whole Foods Market, IKEA, and Starbucks. (http://there100.org/companies). Target recently announced new science based targets including a 100% renewable energy commitment (https://cleantechnica.com/Resolved: 2017/10/19/target-announces-100-renewable-energy-target-amidst-new-climate-policy), aligning with existing goals to install distributed solar power on 500 more stores and distribution centers by 2020. (Target 2015 Corporate Social Responsibility Report).
According to Eric Schmidt, Executive Chairman of Alphabet Inc., “Much of corporate America is buying renewable energy [...] not just to be sustainable, because it makes business sense, helping companies diversify their power supply, hedge against fuel risks, and support innovation in an increasingly cost competitive way.” (Google Green Blog 2014).
While Kroger claims it is committed to reducing its carbon footprint, it has yet to make meaningful commitments to shift its massive energy consumption away from fossil fuel sources. Accelerating renewable energy adoption will help Kroger stay competitive and protect Kroger’s shareholder value into the future as intensifying climate change imposes growing costs on Kroger’s supply chain, physical assets, and shareholders.
RESOLVED: Shareholders request Kroger producethe Board of Directors prepare a report, with board oversight, assessing the climate change risk reduction benefits of adopting quantitative, time-bound, enterprise-wide targets for increasing its renewable energy sourcing. The report should be produced at reasonable cost and excludeomitting proprietary information.
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information, on Kroger's human rights due diligence (HRDD) process to identify, assess, prevent and mitigate actual and potential adverse human rights impacts in its operations and supply chain.SUPPORTING STATEMENT: Shareholders request
Supporting Statement: In line with the HRDD approach outlined by the UN Guiding Principles on Business and Human Rights,1 we recommend the report include: The human rights principles used to frame its risk assessments; The human rights impacts of Kroger's business activities, including company-owned operations and supply chain, and plans to mitigate adverse impacts; The types and extent of stakeholder consultation; and The company's plans to track effectiveness of measures to assess, prevent, mitigate, and remedy adverse human rights impacts. These HRDD measures reduce long-term risk to shareholders. Companies that proactively identify and mitigate human rights abuses avoid costly backlash from communities, customers, and government regulators. Indeed, risks exist not only for companies directly producing products connected to human rights violations, but also include discussionthose selling such products.2 For supermarkets, this creates an imperative not to cause or contribute to abuses to workers and farmers in their supply chain. Given Kroger's business relationship with suppliers operating in high-risk sectors, the company's current business model exposes investors to significant reputational – and in turn, financial – risk. Increased public scrutiny on industries reliant upon child and forced labor has magnified the reputational risk: media coverage by the NY Times detailed slave labor in Southeast Asia's shrimp industry;3 the Wall Street Journal revealed migrant labor abuses in Malaysia’s palm oil sector;4 and CNN chronicled rampant labor abuse among U.S. tomato producers.5 When these tainted products are connected to a brand, the reputational stain follows.6 Responsible companies must strive to identify, remedy and prevent such human rights violations. Kroger is not immune to these threats. The Department of Labor has identified dozens of food products that appear on Kroger's shelves produced from child or forced labor, including seafood, tea, palm oil and fresh produce.7 Transparency in supply chain sourcing can reduce these risks. Companies that know, show, and address supply chain risks not only garner positive attention and customer loyalty for sustainable practices, but head off potentially expensive reputational risks. Companies like Coca-Cola and Mondelez, and supermarkets Jumbo, Albert Heijn, and Tesco have all conducted or committed to implementing HRDD, including by conducting human rights impact assessments on their sourcing of agricultural commodities. Given the businesslow cost of integrating HRDD relative to the significant costs that companies bear when tied to human rights violations, shareholders urge the Board to adopt this measure as a cost-effective means of reducing exposure to risk Kroger faces from climate change; the potential for renewable energy procurement to reduce such risk; and options for increasing renewable energy adoption.maximizing long-term financial interest.”
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons: Human rights are a fundamentally important topic for Kroger is committedand something to environmental sustainability, andwhich we strive to reduce our impact on the environment by proactively reducing carbon emissions in our business over time. We believe the concerns of the proponent are addressed by a number of initiatives, including our 2020 Sustainability Goals and the commitments outlined in Kroger’s Zero Hunger I Zero Waste social impact plan, our vision to end hunger in the communities we call home and eliminate waste across our company by 2025.Kroger has a history of reducing carbon emissions across our footprint through investments in energy efficiency, renewable energy and refrigerant emissions reductions. We continue to expand the implementation of existing solutions that have proven successful, as well as identify and evaluate new technologies that have the potential to further improve sustainability. deeply committed.
As a result, we have demonstratedseveral governance assets and compliance procedures in place to assist in upholding this commitment. | • | Our Statement on Human Rights (https://www.thekrogerco.com/wp-content/uploads/2018/07/TheKrogerCo_Statement-on-Human-Rights_2018-July.pdf) articulates what we stand for regarding human rights. Protecting human rights is embedded in our company governance and culture. We expect to publish an expanded statement in 2020, specifically addressing some key topics of concern like recruitment fees, which can lead to workers becoming indebted to employers as a result of paying fees for employment. |
| • | Our Vendor Code of Conduct (https://www.thekrogerco.com/wp-content/uploads/2017/09/code-of-conduct.pdf) defines our expectations of our suppliers regarding protecting human rights in our supply chain. All suppliers are required to agree to this code of conduct in order to do business with Kroger. |
| • | Our Social Compliance Program, described in our Social Compliance Program Requirements (https://www.thekrogerco.com/wp-content/uploads/2018/07/The-Kroger-Co._Social-Compliance-Program_2018-July-1.pdf) and described in detail in our annual Environmental, Social & Governance report (http://sustainability.kroger.com/products-supply-chain-accountability.html) is our framework for ensuring Kroger suppliers are upholding our Vendor Code of Conduct. |
We have a long-term reduction trendzero-tolerance policy for human rights violations reported through our social compliance program audits or other means. Addressing violations includes documented corrective action plan(s) and corresponding improvements. Failure to complete the corrective action plan(s) within the agreed-upon timeline can result in carbon emissions intensity (metric tons CO2e per square foot) across our company.Our Commitments
In 2016, Kroger announced a set of 2020 Sustainability Goals (http://sustainability.kroger.com/2020-goals.html). We continue to make progress toward achieving these goals, which include several goals to address carbon emissions reductions. We will publish our annual Sustainability Report again this year to highlight key achievements and initiatives. More information on Kroger’s 2020 Sustainability Goals and Zero Hunger I Zero Waste can be found at www.thekrogerco.com.
The following is an overview of our key commitments and progress to date in emissions reductions:
Goal: Kroger will reduce cumulative electricity consumption in our stores by 40% by 2020, using 2000 as a baseline year.
Kroger has shown long-term success in reducing energy consumption through the maintenance of existing processes and technologies as well as testing and learning from new technologies. In 2017, we installed new LED lighting in more than 1,500 stores, and we will continue to retrofit remaining stores in 2018. We also participate in the U.S. EPA’s ENERGY STAR program and have more than 790 ENERGY STAR certified Kroger-operated stores to date. We continue to pursue additional ENERGY STAR certifications on an ongoing basis. In fact, we recently earned the 2018 ENERGY STAR Partnertermination of the Year award. Assupply contract. Through this management approach to supply chain accountability, a resultlimited number of these efforts, we made significant progress onsupplier contracts are terminated each year for failure to comply with our goalVendor Code of Conduct and/or correct zero tolerance and other violations in 2017.
Goal: Kroger will improve transportation efficiencya timely manner.
| • | Our Ethics Hotline phone number can be used anonymously by internal and external parties to report any potential human rights violations or other misconduct in our operations or supply chain. The Ethics Hotline is listed in our corporate policies—including our Statement on Human Rights and Vendor Code of Conduct, both available on Kroger’s website: https://www.thekrogerco.com/newsroom/statements-policies/—and on posters at Kroger facilities. |
Our work in this area is overseen by 20% by 2020, using 2010 as a baseline year.Our Logistics team continues to track our Ton Miles Per Gallon (TMPG), which effectively looks at how many miles we haul one tonKroger’s Vice President, Chief Ethics & Compliance Officer, Group Vice President of groceries on one gallonCorporate Affairs, Senior Vice President of fuel. By the endHuman Resources, Vice President of 2017, we had achieved an improvementSourcing, and Head of 8.1% due to ongoing evaluation of new technologies and increasing efficiencies in how we make deliveries and operate our equipment. In addition, Kroger has committed to adding Tesla Semi electric trucks to its distribution fleet, which require lower energy cost per mile in comparison to conventional diesel tractors.
Goal: Kroger will reduce refrigerant leaks in our supermarket refrigeration systems by 10% annually.
Kroger continues to reduce refrigerant leaks in our stores and sets annual reduction targets through the EPA’s GreenChill Program. In 2017, we achieved our goal to further reduce refrigerant emissions by 10% in our stores as a result of installing refrigerant leak protection systems and an active leak detection program. We are committed to an additional 9% reduction in 2018.
Goal: Kroger will be a Zero Waste Company by 2020 (90% or more of waste diverted away from landfills) and eliminate food waste across our company by 2025.
Kroger previously committed to achieve Zero Waste across our company asSustainability. This ensures that every part of our 2020 Sustainability Goals. Our current landfill diversion ratebusiness is greater than 75%, thanksclear about the responsibility to our Manufacturingrespect human rights. Board-level oversight is provided by the Audit Committee and Logistics teams –both above 90% diversion – and the success of our Zero Hunger I Zero Waste Food Rescue Program. As part of Kroger’s commitment to Zero Hunger I Zero Waste, we set a new industry-leading goal to eliminate food waste across our company by 2025. As a food manufacturer and retailer, the reduction of food waste is an important component of our scope 3 emissions – key to reducing the production of methane, one of the most potent greenhouse gases. We are working with the World Wildlife Fund to assess our food waste impacts, set goals to reduce waste and establish a framework for food waste reporting going forward.
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Innovative Approaches
Kroger continues to evaluate and launch solar power installations at our facilities. In 2017, we activated new solar power parking lot installations at three Fry’s supermarket locations. These combined solar power and shade technology projects generate renewable power for our stores as well as cover for our customers’ cars while they shop with us. Collectively, our solar and wind power installations generated more than 14.5 million kWh of power this past year.
In late 2017, Kroger completed installation and activated a new anaerobic wastewater treatment facility at our KB Specialty Foods food production plant in Greensburg, Indiana. This anaerobic digestion process converts the wastewater into renewable biogas, which is used to produce electricity. When running at maximum capacity, the digester can produce up to 30% of the electricity needed to operate the KB Specialty Foods plant. This is Kroger’s second anaerobic digester. The first is the Kroger Recovery System, an anaerobic digester at the Ralphs/Food 4 Less Distribution Center in Compton, California. This facility began operations in late 2012 and is designed to process inedible food and other organic waste into renewable biogas, and ultimately electricity. As with the Greensburg facility, the Compton digester can supply a portion of the distribution center’s power needs.
Looking Ahead
Finally, as part of our ongoing commitment to environmental sustainability, we continue to evaluate the next steps in our carbon reduction strategy. We continue to engage internal and external stakeholders in this discussion, as well as benchmark other companies with leading carbon reduction targets and initiatives. While we remain focused on achieving our 2020 and 2025 goals, we are also reviewing the means and opportunities for further carbon emission reductions in the future.
The proposal asks that Kroger issue a report on renewable energy. Kroger publishes details on our sustainability goals, initiatives, and progress against our targets in our Sustainability Report and on our website (sustainability.kroger.com). Given our extensive reporting and our strong focus on ensuring we are responsible stewards of the environment, the Board believes that issuing a report on renewable energy would be unnecessary and would consume time and resources that are best spent on executing on our sustainability programs and targets.
We urge you to support the furthering of our current programs and vote AGAINST this proposal.
Item No. 8 Shareholder Proposal – Independent Chairman
We have been notified by one shareholder, 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: ShareownersPublic Responsibilities Committee of The Kroger Co. (“Kroger”) ask the Board of DirectorsDirectors.
Kroger’s supplier base is diverse across geographies and by type of product produced, and as a result, Kroger takes measures to adopt a policy,understand and amendprioritize the bylaws as necessary, to requirehighest human rights risks in our supply chain. To determine the Chairscope of the Boardvendors and facilities that are to be an independent memberaudited in our Social Compliance Program and how often, Kroger evaluates our supplier base against multiple criteria, such as where facilities are located, what products they produce and documented industry risks. We also use risk indicators such as the United Nations Human Development Index, the U.S. State Department Trafficking in Persons Report and The World Bank Worldwide Governance Indicators. In addition, Kroger’s social compliance team plans to begin in 2020 a risk assessment initiative with ELEVATE, Kroger’s primary social compliance audit company, to better understand social risks in the supply chain. Results from this process will be used to refine our auditing approach. Kroger carefully reviews other social certification standards and auditing requirements to identify cases where Kroger can adopt another standard as a proxy for our own social compliance audits, which allows us to redistribute Kroger auditing capacity to more suppliers. And finally, we recognize the value of stakeholder engagement, including with our suppliers, to identify and better understand human rights risks in our supply chain. Our social compliance team conducts multiple site visits with our suppliers around the globe to witness working conditions first-hand, and to ensure our audit protocols are being effectively implemented. In 2019, Kroger visited several general merchandise and seafood suppliers across Asia as well as produce suppliers in Mexico and South America. We also conduct engagements with stakeholders such as investors, research groups and NGOs, and we benchmark peer companies to ensure we are incorporating best practices in our approach. In fact, Kroger has actively participated with other produce buyers in a working group aimed at encouraging implementation of the Board. This policy shall apply prospectively so as notPMA/United Fresh-sponsored Ethical Charter – a universal code of conduct to violate any contractual obligation. The policy should provide that (i) ifprotect human rights in the Board determines that a Chair who was independent when selected is no longer independent,produce supply chain. Kroger supports 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,communities from 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?”
Inwe source through 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 we believe is better able to oversee the executives of the Company and set apro-shareholder agenda without the management conflicts that exist when a CEO or other executive also serves as Chairman.”(www.glasslewis.com/wp-content/uploads/2016/03/2016-In-Depth-Report-INDEPENDENT-BOARD-CHAIRMAN.pdf)
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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, 48% of S&P 500 company boards have also implemented this best practice.(www.spencerstuart.comt-/media/pdr/020files/research%20and%20insight%20pdfs/spencer-stuart-us-board-index-2016.pdf)
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 theday-to-day management to see these issues over longer time horizons.”(www.ssga.com/investment-topics/environmental-social-governance/2017/long-term-value-begins-at-the-board-eu.pdf)
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 improved policies and practices to mitigate these business risks.
We urge shareholders to vote for this proposal.”
The Board of Directors Recommends a VoteAgainst This Proposal for the Following Reasons:
The Board should have the flexibility to determine the Board’s structure tailored to Kroger’s needs at any time, including separating or combining the roles of Chairman and CEO.
Kroger’s Board is structuredinitiative to provide Fair Trade-certified products to our customers. Annually, we purchase more than 17 million pounds of Fair Trade-certified
ingredients such as coconut, coffee, sugar and tea for Kroger’s Our Brands products. Fair trade helps ensure responsible practices and safe, healthy working conditions on the most effective leadership for our shareholders. Our shareholders’ interestsfarms where products are best served whengrown. For every product sold, the company retains the flexibility to select the appropriate person to serve in the Chairman’s role given the changing circumstanceslabor force earns an additional amount of the retail food marketplace. The Board believesmoney that the proponent’s rigid “one size fits all” proposal is not in the best interest of shareholders and should be rejected.goes into a farm worker-controlled Community Development Fund at origin. | • | In early 2020, we are updating our environmental, social and governance materiality assessment—originally conducted in early 2018 and shared in our 2018 Sustainability Report (http://sustainability.kroger.com/Kroger_CSR2018.pdf)—to ensure we are capturing relevant stakeholder perspectives in our reporting and approach to sustainability. We anticipate findings from the ongoing assessment will be reflected in our 2020 Environmental, Social & Governance report. |
Moving forward, Kroger has a balanced governance structure in which independent directors, including an independent Lead Director, exercise meaningful and vigorous oversight. Kroger’s Board is led by a strong independent Lead Director who serves the same functions as a Chairman and provides the safeguards that the proposal seeks.Kroger’s independent Lead Director has robust responsibilities that ensure a strong, independent and active board that complements the Chairman’s role.
The Lead Director’s robust duties and responsibilities are addressed in detail in the Guidelines which are available at ir.kroger.com. The Lead Director serves a variety of roles, including:
Reviewing and approving all Board meeting agendas, meeting materials, and schedule;
Serving as a liaison between the Chairman and the independent directors;
Presiding at the regularly conducted executive sessions of independent directors and meetings of the Board when the Chairman is not present;
Calling an executive session of the independent directors at any time; and
Serving as the Board’s representative for any consultation and direct communication if requested by major shareholders.
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 would not be best served by separation the roles at this time given the important skills and industry expertise that our CEO brings to the Board, particularly given Kroger’s current transformation under theRestock Kroger plan. However, 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.
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:
all of Kroger’s Board members are independent, except for the CEO;
all members, including chairpersons, of each of the Board committees are independent;
the full Board of independent directors annually evaluate the CEO’s performance, led by the independent Lead Director;
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the full Board and each committee performs annual self-assessments;
the Board is committed to board refreshment and diversity; and
the Board and each of its committees have unfettered access to management and the authority to retain independent advisors, as they deem appropriate.
Contrary to the assertions in the proponent’s supporting statement, there is no established consensus that separating the roles of the Chairman and the CEO is a best practice or that such a separation enhances returns for shareholders. The authors of a 2004 Wharton School of Business article entitled “Splitting Up the Roles of CEO and Chairman: Reform or Red Herring?” (http://knowledge.wharton.upenn.edu/article.cfm?articleid=987) concluded that there is no evidence that separating the positions of Chairman and CEO improves corporate performance. In “Corporate Governance Update: Analyzing Aspects of Board Composition,” David A Katz and Laura A. McIntosh, New York Law Journal, January 26, 2012, the authors concluded that from a board effectiveness perspective, there is no need to separate the roles of Chairman and CEO so long as there is an effective lead director in place. In addition, the majority of U.S. companies have not implemented the structure recommended by the proposal.
The Board will continue using our engagement channels to review Kroger’s leadership structure to ensure that the structure best addresses Kroger’s evolvingidentify, assess and dynamic business in consultation with the current Board andaddress human rights concerns affecting our shareholders. The Board believes that eliminating the flexibility to determine which type of leadership structure is not in our shareholders’ best interests.
Company. For the foregoing reasons, we urge you to vote AGAINST this proposal. 63
Shareholder Proposals and Director Nominations – 20192021 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 20192021 should be addressed to Kroger’s Secretary and must be received at our executive offices not later than January 15, 2019.12, 2021. 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 20192021 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 20192021 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 31, 201928, 2021 and comply with the requirements of the Regulations. If Item No. 3 on proxy access is approved by the requisite vote at the 2018 Annual Meeting, eligible Eligible shareholders will have the ability tomay also submit director nominees for inclusion in our proxy statement for the 20192021 annual meeting of shareholders. As described in more detail in Item No. 3, toTo be eligible, shareholders must have owned at least 3%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 16, 201813, 2020 and no later than January 15, 2019.12, 2021. Shareholder proposals, director nominations, including, if applicable pursuant to proxy access, and advance notices shouldmust be addressed in writing, and addressed and delivered timely to: Corporate Secretary, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100. 2017 Annual Report
Attached to this Proxy Statement is our 2017 Annual Report which includes a brief description of our business, including the general scope and nature thereof during fiscal year 2017, together with the audited financial information contained in our 2017 Annual Report on Form10-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 calling513-762-1220. 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. By order of the Board of Directors,
Christine S. Wheatley, Secretary
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Appendix A
Proposed Proxy Access Provision
(3) (a) Subject to the requirements of this Section 2, the Company shall include in its proxy statement and on its proxy card for any annual meeting of shareholders the name of any director nominee proposed by a shareholder for election to the Board of directors who is properly submitted pursuant to this Section 2(B)(3) (each a “Proxy Access Nominee”) provided that (i) timely written notice of such Proxy Access Nominee satisfying this Section 2(B)(3) (“Proxy Access Nomination Notice”) is delivered to the Company by or on behalf of a shareholder or group of shareholders that, at the time the Proxy Access Nomination Notice is delivered, satisfy the ownership and other requirements of this Section 2(B)(3) (such shareholder or shareholders, and any person on whose behalf they are acting, the “Eligible Shareholder”), (ii) the Eligible Shareholder expressly elects in writing at the time of providing the Proxy Access Nomination Notice to have its nominee included in the Company’s proxy statement pursuant to this Section 2(B)(3), and (iii) the Eligible Shareholder and the Proxy Access Nominee otherwise satisfy the requirements of this Section 2(B)(3) and the criteria for Board membership set forth in the Board of directors’ Guidelines on Issues of Corporate Governance or other document(s) setting forth qualifications for directors (the “Board Qualifications”).
(b) To be timely, the Eligible Shareholder must deliver to the secretary of the Company at the principal office of the Company the Proxy Access Nomination Notice not later than the close of business on the 120th calendar day nor earlier than the close of business on the 150th calendar day prior to the date on which the Company’s proxy statement for the prior year’s annual meeting of shareholders was first mailed to shareholders provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date of the preceding year’s annual meeting, to be timely, notice by the shareholder must be delivered by the 10th day following the day on which a public announcement of the subject meeting is first made by the Company. In no event shall the public announcement of an adjournment or postponement of an annual meeting of shareholders commence a new time period (or extend any time period) for the submission of such Proxy Access Nomination.
(c) In addition to including the name of the Proxy Access Nominee in the Company’s proxy statement for the annual meeting of shareholders, the Company also shall include (i) the information concerning the Proxy Access Nominee and the Eligible Shareholder that is required to be disclosed in the Company’s proxy statement pursuant to the proxy rules of the Securities and Exchange Commission (the “SEC”) and (ii) a Statement (defined below) (collectively, the “Required Information”). To be timely, the Required Information must be received by the secretary of the Company at the principal office of the Company within the time period specified in Section 2(B)(3)(b). Nothing in this Section 2(B)(3) shall limit the Company’s ability to solicit against and include in its proxy statement its own statements relating to any Proxy Access Nominee.
(d) The number of Proxy Access Nominees (including Proxy Access Nominees who were (i) submitted by an Eligible Shareholder for inclusion in the Company’s proxy statement pursuant to this Section 2(B)(3) that the Board of directors decides to nominate or (ii) previously elected based upon a nomination pursuant to this Section 2(B)(3) at any of the preceding two annual meetings and are being recommended for reelection by the Board of directors at the upcoming annual meeting) shall not exceed the greater of two or twenty percent of the number of directors in office as of the last day on which notice of a nomination may be delivered pursuant to this Section 2(B)(3) (the “Final Proxy Access Nomination Date”) or, if such amount is not a whole number, the closest whole number below twenty percent (the “Permitted Number”); provided, however, that the Permitted Number shall be reduced (but not below one) by the number of director nominees for which the Company received one or more valid notices that a shareholder intends to nominate a person or persons for election to the Board of directors at an annual meeting of shareholders pursuant to Section 2B(2). In the event that, for any reason, one or more vacancies on the Board of directors occurs at any time after the Final Proxy Access Nomination Date and before the date of the annual meeting of shareholders and the Board of directors resolves to reduce the size of the Board of directors in connection therewith, the Permitted Number shall be calculated based on the number of directors in office as so reduced. In the event that the number of Proxy Access Nominees submitted by Eligible Shareholders pursuant to this Section 2(B)(3) exceeds the Permitted Number, each Eligible Shareholder shall select one Proxy Access Nominee for inclusion in the Company’s proxy statement until the Permitted Number is reached, going in order of the amount (greatest to least) of voting power of the shares of the Company entitled to vote on the election of directors as disclosed in the Notice. If the Permitted Number is not reached after each Eligible Shareholder has selected one Proxy Access Nominee, this selection process shall continue as many times as necessary, following the same order each time, until the Permitted Number is reached.
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(e) An Eligible Shareholder must have owned (as defined below) continuously for at least three years a number of shares that represents three percent or more of the total voting power of the Company’s outstanding shares entitled to vote in the election of directors as of the most recent date prior to the submission of the Proxy Access Nomination Notice for which such amount is given in any filing by the Company with the SEC (the “Required Shares”) as of both the date the Proxy Access Nomination Notice is received by the Company in accordance with this Section 2(B)(3) and the record date for determining shareholders entitled to vote at the annual meeting of shareholders and must continue to own the Required Shares through the meeting date. For purposes of satisfying the ownership requirement under this Section 2(B)(3), the voting power represented by the shares of the Company owned by one or more shareholders, or by the person or persons who own shares of the Company and on whose behalf any shareholder is acting, may be aggregated, provided that the number of shareholders and other persons whose ownership of shares is aggregated for such purpose shall not exceed twenty, and a group of two or more funds that are (i) under common management and investment control, (ii) under common management and funded primarily by the same employer (or by a group of related employers that are under common control), or (iii) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, shall be treated as one shareholder or person for this purpose. With respect to any annual meeting of shareholders, no person may be a member of more than one group of persons constituting an Eligible Shareholder under this Section 2(B)(3).
(f) For purposes of this Section 2(B)(3), an Eligible Shareholder shall be deemed to “own” only those outstanding shares of the Company as to which the person possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares (1) sold by such person or any of its affiliates in any transaction that has not been settled or closed, (2) borrowed by such person or any of its affiliates for any purposes or purchased by such person or any of its affiliates pursuant to an agreement to resell, or (3) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such person or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of the Company’s outstanding shares, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of reducing in any manner, to any extent or at any time in the future, such person’s or affiliates’ full right to vote or direct the voting of any such shares and/or hedging, offsetting or altering to any degree gain or loss arising from the full economic ownership of such shares by such person or affiliate. A person shall “own” shares held in the name of a nominee or other intermediary so long as the person retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. A person’s ownership of shares shall be deemed to continue during any period in which the person has loaned such shares, provided that the person has the power to recall such loaned shares on five business days’ notice and provides a representation that it will promptly recall such loaned shares upon being notified that any of its Proxy Access Nominees will be included in the Company’s proxy statement, or the person has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement that is revocable at any time by the person. The terms “owned,” “owning,” and other variations of the word “own” shall have correlative meanings. For purposes of this Section 2(B)(3), the term “affiliate” shall have the meaning ascribed thereto pursuant to the proxy rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(g) Within the time period specified in Section 2(B)(3)(b) for the Proxy Access Nomination Notice, an Eligible Shareholder must provide in writing to the secretary of the Company, with respect to the Shareholder Nominee, in addition to the information and representations required to be provided in the shareholder’s notice pursuant to Section 2(B)(2), representations and agreements that such person: (i) has read and agrees to adhere to the Company’s code of conduct, corporate governance guidelines, conflict of interest, confidentiality and share ownership and securities trading policies, and any other policies and guidelines applicable to directors, as well as any applicable law, rule or regulation or listing requirement; (ii) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Company, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Company, and (iii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Company with respect to any direct or indirect compensation, reimbursement or indemnification (a “Compensation Arrangement”) in connection with such person’s nomination for director and/or service as a director, that has not been disclosed to the Company. At the request of the Company, the Proxy Access Nominee must complete, sign and submit all questionnaires required of the Board of directors within five business days of receipt of each such questionnaire from the Company and provide within five business days of the Company’s request such additional information as
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the Company determines may be necessary to permit the Board of directors to determine whether such Proxy Access Nominee meets the requirements of this Section 2(B)(3) and/or satisfies the Board Qualifications, including whether: (1) such Proxy Access Nominee is independent under the listing standards of each principal U.S. exchange upon which the Company’s shares are listed, any applicable rules of the SEC, and any publicly disclosed standards used by the Board of directors in determining and disclosing the independence of members of the Board of directors (the “Independence Standards”), (2) such Proxy Access Nominee has any direct or indirect relationship with the Company, and (3) such Proxy Access Nominee is not and has not been subject to any event specified in Item 401(f) of RegulationS-K under the Securities Act of 1933, as amended (the “Securities Act”), or any order of the type specified in Rule 506(d) of Regulation D under the Securities Act.
(h) Within the time period specified in Section 2(B)(3)(b) for the Proxy Access Nomination Notice, an Eligible Shareholder must provide the following information, representations and agreements: (i) the information and representations that would be required to be set forth in shareholder’s notice of a nomination pursuant to Section 2(B)(1); (ii) one or more written statements from the record holder of the shares (and from each intermediary through which the shares are or have been held during the requisite three-year holding period) verifying that, as of a date within seven calendar days prior to the date the Proxy Access Nomination Notice is received by the secretary of the Company, the Eligible Shareholder owns, and has owned continuously for the preceding three years, the Required Shares, and the Eligible Shareholder’s agreement to provide (1) written statements from the record holder and intermediaries verifying the Eligible Shareholder’s continuous ownership of the Required Shares through the record date by not later than the close of business on the fifth business day after (A) the record date (if, prior to the record date, the Company (x) disclosed such date by press release or any filing with the SEC or (y) delivered a written notice of the record date (including by electronic mail) to the Eligible Shareholder) or (B) the date on which the Company delivered to the Eligible Shareholder written notice (including by electronic mail) of the record date (if such notice is provided after the record date); and (2) immediate notice if the Eligible Shareholder ceases to own any of the Required Shares prior to the date of the annual meeting of shareholders; (iii) documentation satisfactory to the Company demonstrating that a group of funds are entitled to be treated as one shareholder or person for purposes of this Section 2(B)(3); (iv) a representation that the Eligible Shareholder (including each member of any group of shareholders that together is an Eligible Shareholder hereunder): (1) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Company, and does not presently have such intent, (2) has not nominated and will not nominate for election to the Board of directors at the meeting any person other than the Proxy Access Nominee(s) being nominated pursuant to this Section 2(B)(3), (3) has not engaged and will not engage in, and has not and will not be, a “participant” in another person’s “solicitation” within the meaning of Rule14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting of shareholders other than its Proxy Access Nominee(s) or a nominee of the Board of directors, (4) will not distribute to any shareholder any form of proxy for the annual meeting of shareholders other than the form distributed by the Company, and (5) has provided and will provide facts, statements and other information in all communications with the Company and its shareholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; (v) a description of all agreements, arrangements or understandings between the Eligible Shareholder and each Shareholder Nominee and any other person or persons, including the Shareholder Nominee, such beneficial owners and control persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Eligible Shareholder or that would be required to be disclosed pursuant to Rule 404 promulgated under RegulationS-K of the Exchange Act if the Eligible Shareholder making the nomination and any beneficial owner or control person on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Shareholder Nominee were a director or executive officer of such registrant (the “Related Person Agreements”); (vi) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the shareholder’s notice by, or on behalf of, such shareholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the Company, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the Company; (vii) a representation as to whether the shareholder intends to be or is part of a group that intends to deliver a proxy statement and/or form of proxy to holders of at least 10% of the shares entitled to vote or otherwise solicit proxies from shareholders in support of such proposal or nomination; and (viii) the written consent of each Proxy Access Nominee to be named in the Company’s proxy statement as a nominee and to serve as a director if elected; (ix) a copy of the Schedule 14N that
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has been filed with the SEC as required by Rule14a-18 under the Exchange Act; (x) in the case of a nomination by a group of shareholders that together is is an Eligible Shareholder, the designation by all group members of one group member that is authorized to act on behalf of all members of the nominating shareholder group with respect to the nominations and matters related thereto, including withdrawal of the nomination; and (xi) an undertaking that the Eligible Shareholder agrees to: (1) assume all liability stemming from any legal or regulatory violation arising out of the Eligible Shareholder’s communications with the Company’s shareholders or out of the information that the Eligible Shareholder provides to the Company, (2) indemnify and hold harmless the Company and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Company or any of its directors, officers or employees arising out of any solicitation or other activity by the Eligible Shareholder in connection with its efforts to elect the Proxy Access Nominee pursuant to this Section 2(B)(3), (3) file with the SEC any solicitation with the Company’s shareholders relating to the meeting at which the Proxy Access Nominee will be nominated, regardless of whether any such filing is required pursuant to the proxy rules of the Securities and Exchange Commission or whether any exemption from filing is available for such solicitation pursuant to the proxy rules of the SEC, and (4) comply with all other applicable laws, rules, regulations and listing standards with respect to any solicitation in connection with the meeting.
(i) The Eligible Shareholder may with its Proxy Access Nomination Notice, provide to the secretary of the Company, a written statement for inclusion in the Company’s proxy statement for the annual meeting of shareholders, not to exceed 500 words per Proxy Access Nominee, in support of each Proxy Access Nominee it names in its Notice (the “Statement”). Notwithstanding anything to the contrary contained in this Section 2(B)(3), the Company may omit from its proxy statement any information or Statement that it believes would violate any applicable law, rule, regulation, or listing standard.
(j) In the event that any information or communications provided by the Eligible Shareholder or Proxy Access Nominee to the Company or its shareholders ceases to be true and correct in any respect or omits a fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, each Eligible Shareholder or Proxy Access Nominee, as the case may be, shall promptly notify the secretary of the Company of any such inaccuracy or omission in such previously provided information and of the information that is required to make such information or communication true and correct.
(k) The Company shall not be required to include pursuant to this Section 2(B)(3), any Proxy Access Nominee in its proxy materials (or, if the proxy materials have already been filed, to allow the nomination of a Proxy Access Nominee, notwithstanding that proxies in respect of such vote may have been received by the Company) if (i) the Eligible Shareholder has or is engaged in, or has been or is a “participant” in another person’s, “solicitation” within the meaning of Rule14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting of shareholders other than its Proxy Access Nominee(s) or any other nominee of the Board of directors, (ii) the Proxy Access Nominee is determined by the Board of directors not to be independent under the Independence Standards, (iii) the Proxy Access Nominee’s election as a director would cause the Company to be in violation of these Regulations, the Company’s certificate of incorporation, the Board Qualifications, the listing standards of the principal exchange upon which the Company’s shares are traded, or any applicable state or federal law, rule or regulation, (iv) the Proxy Access Nominee is or becomes a party to any undisclosed Voting Commitment or Compensation Arrangement, (v) the Proxy Access Nominee is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (vi) the Proxy Access Nominee is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past ten years, (vii) the Proxy Access Nominee is subject to any order of the type specified in Rule 506(d) of Regulation D under the Securities Act, or (viii) the Proxy Access Nominee or the applicable Eligible Shareholder shall have provided information to the Company in respect of such nomination that was untrue in any material respect or omitted to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading or shall have breached its or their agreements, representations, undertakings, and/or obligations pursuant to this Section 2(B)(3).
(l) Notwithstanding anything to the contrary set forth herein, if (a) the Proxy Access Nominee and/or the applicable Eligible Shareholder shall have breached its or their agreements, representations, undertakings and/or obligations pursuant to this Section 2(B)(3), as determined by the Board of directors or the person presiding at the meeting, or (b) the Eligible Shareholder (or a qualified representative thereof) does not appear at the meeting to present any nomination pursuant to this Section 2(B)(3), the Board of directors or the person presiding at the
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meeting shall be entitled to declare a nomination by an Eligible Shareholder to be invalid, and such nomination shall be disregarded notwithstanding that proxies in respect of such vote may have been received by the Company and the Company shall not be required to include in its proxy statement any successor or replacement nominee proposed by the applicable Eligible Shareholder or any other Eligible Shareholder.
(m) Any Shareholder Nominee who is included in the Company’s proxy materials for a particular annual meeting of shareholders but either (A) withdraws from or becomes ineligible or unavailable for election at the meeting, or (B) does not receive at least twenty percent of the votes cast in favor of the Proxy Access Nominee’s election, shall be ineligible to be a Proxy Access Nominee pursuant to this Section 2(B)(3) for the next two annual meetings of shareholders following the meeting for which the Shareholder Nominee has been nominated for election.
(n) This Section 2(B)(3) provides the exclusive method for shareholders to include nominees for director in the Company’s proxy materials with respect to an annual meeting of shareholders.
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| | | | | | | 
THE KROGER CO.
1014 VINE STREET
CINCINNATI, OH 45202
| | VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE -1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. 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. If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
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| | | | | | | TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | | | | | E47733-P09449 | | | KEEP THIS PORTION FOR YOUR RECORDS | |
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| | | | | | | DETACH AND RETURN THIS PORTION ONLY | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | THE KROGER CO.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | 1.
| | Election of Directors
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nominees:
| | | | | For | | | | Against | | | | Abstain | | | | | | | | | | | | | | | | | | | | 1a. Nora A. Aufreiter
| | | ☐
| | | | ☐
| | | | ☐
| | | The Board of Directors recommends that you vote FOR proposals 2, 3, 4 and 5.
| | For
| | Against
| | Abstain
| | | | | | | 1b. Robert D. Beyer
| | | ☐
| | | | ☐
| | | | ☐
| | | 2.
| | Approval, on an advisory basis, of Kroger’s executive compensation.
| | ☐
☐
| | ☐
☐
| | ☐
☐
| | | | | | | 1c. Anne Gates
| | | ☐
| | | | ☐
| | | | ☐
| | | 3.
| | Approval of an amendment to Kroger’s Regulations to adopt proxy access.
| | | | | | | | | 1d. Susan J. Kropf
| | | ☐
| | | | ☐
| | | | ☐
| | | 4.
| | Approval of an amendment to Kroger’s Regulations to permit Board amendments in accordance with Ohio law.
| | ☐
| | ☐
| | ☐
| | | | | | 1e. W. Rodney McMullen
| | | ☐
| | | | ☐
| | | | ☐
| | | 5.
| | Ratification of PricewaterhouseCoopers LLP, as auditors.
| | ☐
| | ☐
| | ☐
| | | | | | | 1f. Jorge P. Montoya
| | | ☐
| | | | ☐
| | | | ☐
| | | The Board of Directors recommends that you vote AGAINST proposals 6, 7 and 8.
| | For
| | Against
| | Abstain
| | | | | | 1g. Clyde R. Moore
| | | ☐
| | | | ☐
| | | | ☐
| | | 6.
| | A shareholder proposal, if properly presented, to issue a report assessing the climate benefits and feasibility of adopting enterprise-wide, quantitative, time bound targets for increasing renewable energy sourcing.
| | ☐
| | ☐
| | ☐
| | | | | | 1h. James A. Runde
| | | ☐
| | | | ☐
| | | | ☐
| | | | | | | | | | | | 1i. Ronald L. Sargent
| | | ☐
| | | | ☐
| | | | ☐
| | | 7.
| | A shareholder proposal, if properly presented, to issue a report providing quantitative metrics on supply chain impacts on deforestation, including progress on time bound goals for reducing such impacts.
| | ☐
| | ☐
| | ☐
| | | | | | 1j. Bobby S. Shackouls
| | | ☐
| | | | ☐
| | | | ☐
| | | | | | | | | | | | | 1k. Mark S. Sutton
| | | ☐
| | | | ☐
| | | | ☐
| | | 8.
| | A shareholder proposal, if properly presented, to adopt a policy and amend the bylaws as necessary to require the Chair of the Board to be independent.
| | ☐
| | ☐
| | ☐
| | | | | | | | | | | | | | | | | | | | | NOTE:Holders of common shares of record at the close of business on May 2, 2018, 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 atwww.proxyvote.com.
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E47734-P09449
| | | | | | | | | | | | | | | | | | | | | | | | | | | THE KROGER CO.
2018 Annual Meeting of Shareholders
June 28, 2018 11:00 AM Eastern Time
This proxy is solicited by the Board of Directors
| | | | | | | The undersigned hereby appoints each of ROBERT D. BEYER, 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 Proposals 2, 3, 4 and 5, and AGAINST Proposals 6, 7 and 8.
If you wish to vote in accordance with the recommendations of the Board of Directors, all you need to do is sign and return this card. The above named proxies cannot vote the shares unless you vote your proxy by Internet or telephone, or sign and return this card.
Only shareholders and persons holding proxies from shareholders may attend the meeting.If you are attending the meeting, you must bring either: (1) the notice of the meeting that was separately mailed to you or (2) the top portion of your proxy card, either of which will be your admission ticket.You must also bring valid photo identification, such as a driver’s license or passport. We reserve the right to exclude any person who cannot provide an admission ticket and valid photo identification.
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 AM Eastern Time on June 28, 2018.
| | | | | | | | | | | | | Continued and to be signed on reverse side
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