kroger_def14a.htm
SCHEDULE 14A
 
(Rule 14a-101)
 
INFORMATION REQUIRED IN PROXY STATEMENT
 
SCHEDULE 14A INFORMATION
 
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Securities Exchange Act of 1934 (Amendment No. )
 
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  THE KROGER CO.  
  (Name of Registrant as Specified In Its Charter)  
     
       
 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
  

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________
 
PROXY
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 
PROXY STATEMENT
 
AND
 
2010 ANNUAL REPORT
 
________
 
 
 
 

 

 

 
 
 

FELLOW SHAREHOLDERS:
 
     In 2010, the Kroger team continued to grow our business and reward our Shareholders in a difficult economic and operating environment. We also further strengthened our position as the leading traditional grocery retailer in the U.S. Kroger’s competitive strengths include:
2010 Highlights
 
     Kroger’s Customer 1st strategy focuses on people, prices, service, selection, and shopping experience. The 338,000 Associates who bring this strategy to life prove every day that this combination is winning with Customers. Total 2010 sales increased 7.1 percent to $82.2 billion, and net earnings were $1.12 billion, or $1.74 per diluted share. This compares with 2009 total sales of $76.7 billion and reported net earnings of $70.0 million, or $0.11 per diluted share in 2009. Excluding the effect of the non-cash impairment charges taken in the third quarter of 2009, net earnings in the prior year would have been $1.12 billion, or $1.71 per diluted share.
 
   Significant scale.
 
     One measure of the success of Kroger’s Customer 1st strategy is our unparalleled reach within the regions in which we operate. Approximately one-half of all U.S. households have a Kroger loyalty card. Looking specifically at the markets where Kroger operates, nearly 85 percent of households hold a Kroger loyalty card and have shopped with us during the last year. Each and every one of our cardholders benefits from Kroger’s unique combination of value, selection, service, and convenience just by being a Kroger shopper.
 
     We believe in giving our Customers choices. Therefore, Kroger offers both a full complement of national brands and the most robust store-brand portfolio in the industry. Strong growth in Kroger’s Corporate Brand products continued across all three categories in 2010: Private Selection, our premium brands; Banner Brands like Kroger, Ralphs and King Soopers, which represent the majority of our own Corporate Brands; and Value brand items, aimed at our most price-sensitive Customers. Kroger’s 40 manufacturing plants supplied about 40 percent of the Corporate Brand units sold. During 2010, these Corporate Brands accounted for approximately one-third of Kroger’s total grocery unit sales.
 
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   Strong and growing market share.
 
     Our fundamental Customer 1st strategy continues to deliver positive market share results. We increased market share in 2010 by an estimated 80 basis points across 19 major marketing areas, according to Nielsen Homescan Data. More specifically, where Walmart supercenters are our primary competitor, we grew market share by 75 basis points in 17 of 19 major markets compared to the previous year. Our Associates’ dedication to satisfying one Customer at a time helps the Kroger family of stores compete effectively with retailers who sell both consumables and groceries.
 
     Kroger serves our Customers’ everyday needs for groceries and so much more. We offer discounts on fuel, convenient pharmacies with $4 and $10 generic drugs, The Little Clinic locations for everyday illnesses and physicals, and an abundance of gift cards. We have special cell phone offerings through i-wireless, healthy restaurant-quality take-home meals, and outstanding selections of seasonal floral, home décor, and celebration items. Kroger also offers our unique 1-2-3 Rewards MasterCard. This is one of the many products from Kroger Personal Finance that give our customers even more savings and rewards for their purchases, including items bought outside Kroger with the 1-2-3 Rewards MasterCard.
 
     We now have more than 1,000 supermarket fuel centers and over 1,900 pharmacies. By offering fuel savings and $4 and $10 generics – along with everyday savings and benefits from our loyalty program – we encourage our Customers to visit Kroger for all of their groceries, health and beauty products, prescriptions, other household items, and fuel.
 
   Proprietary consumer insights are driving strong customer loyalty.
 
     Kroger’s strategic partnership with dunnhumbyUSA helps us to continue to build our loyal household base. dunnhumbyUSA is a global leader in data management, customer analysis, and insight-led planning. Through the unique customer insights Kroger gains from our loyalty data, we are able to offer unparalleled personalized marketing plans that reward our most loyal Customers with greater value for the products they like and buy regularly.
 
     In 2010, our number of loyal households continued to increase, as did the number of their store visits. Total households shopping at our stores also increased year over year. As a result of the combination of higher household counts and more visits per household, we generated positive identical sales for both loyal and total households in 2010.
 
   Industry leading identical sales growth.
 
     Our strong 2010 results are the outcome of our consistent approach to managing Kroger’s business and executing our Customer 1st strategy, which creates a powerful connection with a broad range of shoppers. We focus on identical sales growth, excluding fuel, because it powers our business model and generates earnings and free cash flow that reward our Shareholders. Identical supermarket sales increased in 2010 by 2.8 percent, excluding fuel. Quarter after quarter of positive identical sales growth distinguishes Kroger from many other retailers. In fact, Kroger has produced positive identical sales for 29 consecutive quarters. We continued to have positive tonnage growth in the fiscal year on top of strong results in the prior year. Our promotional and pricing strategies are designed to deliver sustainable results by building long-term customer loyalty and expanding our competitive advantage.
 
2
  
 

   Consistent record of rewarding Shareholders.
 
     In 2010, we achieved solid positive identical supermarket sales and market share growth, which demonstrates that we can strengthen our business and reward shareholders by placing our customers’ needs first. Kroger’s return to our Shareholders has been strong. Our total payout to Shareholders during the past five years (combining dividends and share repurchases) has averaged nearly 70 percent of net income. In fiscal 2010, for example, Kroger repurchased $545 million of our Common Shares, on top of share repurchases of $218 million in 2009 and $637 million in 2008. That’s more than $1.1 billion of share repurchases during the last three years, and more than $6.4 billion since January 2000. And, on March 3, 2011, Kroger announced that our Board of Directors had authorized an additional $1 billion share repurchase program.
 
     We also paid dividends of $250 million in fiscal 2010, increasing the dividends paid to Shareholders in each of the years since we began paying a dividend in 2006. During the last five years, Kroger has paid more than $1.0 billion in dividends to our Shareholders. We’ve been able to accomplish this while maintaining our investment-grade credit rating and reducing long-term debt and annual interest expense.
 
   Strong balance sheet with significant flexibility.
 
     Kroger’s BBB investment-grade credit rating gives us significant financial flexibility. During 2010, Kroger reduced net total debt by $243.5 million, to $7.3 billion. In addition, at the end of fiscal 2010, our net total debt to EBITDA ratio, adjusted for the impairment charges in fiscal 2010 and 2009, was 1.89 compared with 1.97 at the end of fiscal 2009.
 
Living our Mission and Values
 
   Safety
 
     Safety is one of our core values. As a result of our Associates’ engagement in our safety programs, Kroger has reduced the accident rates in stores and plants by 74 percent during the past 15 years. We continue to make steady progress toward our goal of zero accidents.
 
   Partnering with our Customers and Associates to serve our communities.
 
     We have the privilege of touching the lives of millions of Customers daily in our 2,458 supermarkets, 786 convenience stores and 361 jewelry stores. Kroger is proud to partner with our Associates and Customers to help improve the communities in which we live and work. We are especially focused on helping Feeding America and more than 80 community organizations that feed the hungry. During the past five years, Kroger has donated the equivalent of 560 million meals to local food banks.
 
     The winners of The Kroger Co. Community Service Award for 2010 are listed after this letter. Their hard work and dedication are appreciated by us all, and we encourage all of our Associates to get involved in the communities where we work and live.
 
   Sustainability is a major focus.
 
     Kroger continues to make important progress on our sustainability agenda. We encourage you to read our latest sustainability report, which is available at www.thekrogerco.com.
 
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Executive Changes
 
     We note with deep sadness the unexpected passing on February 16, 2011 of our colleague, friend, and company executive, Donald E. Becker. Don was Kroger’s Executive Vice President since 2004. In that role, he led merchandising, marketing, and procurement.
 
     Don began his career with Kroger in 1969 as a clerk in the stores in Cincinnati where he met his future wife. In his 42 years with the Company, Don held many leadership positions including Vice President of the Cincinnati/Dayton division and President of Kroger’s Central division.
 
     Don was a “people person” who touched many lives. He was an avid promoter of diversity, and a mentor and friend to many.
 
     On February 22, 2011, more than 1,600 associates and friends gathered at the Duke Energy Convention Center to celebrate Don’s life in reflection, song, and meditation. Our Company’s success has been -- and will continue to be -- deeply influenced by Don’s unwavering focus on the Customer, his merchandising brilliance, and his abiding passion for people.
 
* * * * * * * * * * * *
 
     In 2010, Kroger announced several retirements, promotions and appointments at the corporate and division levels.
 
     Paul J. Scutt, Senior Vice President for Retail Operations, retired after 45 years with The Kroger Co. Paul began as a store clerk with Kroger in 1965. He left the Company to spend two years in the Army, serving in Vietnam for 15 months. Upon returning from the military and earning his college degree, Paul entered Kroger’s management training program. Paul quickly rose through the Company’s operations and merchandising positions, including Vice President of Dillon Companies (1997) and President of Kroger’s Central division (2000) based in Indianapolis. In his role as Senior Vice President of Retail Operations, Kroger significantly reduced employee accidents, improved management of product shrink and operating costs, and instituted process changes that have allowed the Company to invest in our Customer 1st Strategy.
 
     Della Wall, Group Vice President for Human Resources, retired after 39 years with Kroger. Kathleen S. Barclay was elected an officer of the Company and Senior Vice President for Human Resources in late 2009. Ms. Barclay joined Kroger after serving as the Global Human Resources executive for General Motors. Carver L. Johnson, who served as Kroger’s first Chief Diversity Officer, retired from the Company. John E. Bays, President of the Dillon Stores division, retired after 42 with the Company. Joseph A. Grieshaber, Jr. was appointed President of the Dillon Stores division, replacing Mr. Bays. Phyllis J. Norris, President of City Market, retired after 36 years with the Company.
 
     Jeffrey D. Burt was promoted to Group Vice President of Perishables. Geoffrey J. Covert, President of the Cincinnati/Dayton division, was elected an officer of the Company and was promoted to Senior Vice President, Retail Operations. Bryan H. Kaltenbach was promoted to President of the Food 4 Less division. Sukanya R. Madlinger was promoted to President of the Cincinnati/Dayton division.
 
     These men and women helped make Kroger a better place to shop and work, and we greatly appreciate their contributions.
 
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Best in Class Retailer – Long-Term Goals
 
     Our objective is to create value for Shareholders at industry leadership levels. More specifically, our goals are to:
     These are ambitious long-term goals. When I travel and visit our stores, Kroger Associates tell me they are inspired by what we can accomplish together. They believe in Customer 1st and see the results.
 
     While we are encouraged by the Company’s recent performance, I do not want to imply that we are satisfied. We still have significant opportunities for improvement. We need to continue our disciplined cost reductions and take more costs out of our business so we can invest more in areas that drive profitable growth.
 
     We also know there are challenges ahead for 2011 and beyond, including, an economic recovery that is weaker and slower than we hoped; customers who are concerned about rising fuel and food costs; continued high unemployment that is holding back consumer confidence; and rising pension and healthcare costs that we all must address together.
 
     Even with these challenges and others, I am confident in Kroger and our future. We have all the elements of success in place: outstanding Associates who are engaged in serving every Customer; a convenient and updated store base; passionate and seasoned leaders in stores, offices and facilities at every level of the company; a strong balance sheet and financial position; and a robust operating strategy that is working.
 
     It is my privilege to be a part of our dedicated team that I believe is the best in the industry. On behalf of all of us, thank you for your continued support and interest in Kroger.
 

David B. Dillon
Chairman of the Board and
Chief Executive Officer
 
5

 

     Congratulations to the winners of The Kroger Co. Community Service Award for 2010:
 
Division Recipient
Atlanta Jay Walker
Central Chuck Kumler
Cincinnati Store #829
City Market Tommy Romero
Columbus Don Rings
Delta Scott Knight
Dillon Stores Vernan L. Stout
Food 4 Less Phoebe Sime
Fred Meyer Kim Watson
Fry’s Terry A. Daane
Jay C Stores Eva Hobson
King Soopers Mary Goodson
Michigan Crystal Fenrich
Mid-Atlantic Fred Meredith
Mid-South Devin Hayes
QFC Scott Bergquist
Ralphs Amanda Sims
Smith’s Debbie and Jim Dye
Southwest Store #321 Cultural Council Team / District 1
______
 		  
Country Oven Bakery Chris Montgomery
Delight Products Alexis Smith
Winchester Farms Winchester Farms Recreation Committee
Vandervoort Dairy Joseph Wayne
______
 		  
General Office Mayro Kanning
______
 		  
C-Stores (Quik Stop) William Rankin
Turkey Hill Dairy Tammy Hynes and Genise Wade
Logistics Jack Hernandez, Jr.

6
 
 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 
Cincinnati, Ohio, May 13, 2011
 
To All Shareholders of The Kroger Co.:
 
     The annual meeting of shareholders of The Kroger Co. will be held at the MUSIC HALL BALLROOM, MUSIC HALL, 1241 Elm Street, Cincinnati, Ohio 45202, on June 23, 2011, at 11 a.m., eastern time, for the following purposes:
 
       1.       To elect the directors for the ensuing year;    
      
  2.   To consider and act upon a proposal to approve the 2011 Long-Term Incentive and Cash Bonus Plan;
   
  3.   To consider and act upon an advisory vote on executive compensation;
   
  4.   To consider and act upon an advisory vote on the frequency of future advisory votes on executive compensation;
   
  5.   To consider and act upon a proposal to ratify the selection of independent public accountants for the year 2011;
   
  6.   To act upon a shareholder proposal, if properly presented at the annual meeting; and
   
  7.   To transact such other business as may properly be brought before the meeting;

all as set forth in the Proxy Statement accompanying this Notice. Holders of common shares of record at the close of business on April 25, 2011, will be entitled to vote at the meeting.
 
ATTENDANCE
 
     Only shareholders and persons holding proxies from shareholders may attend the meeting. If you are attending the meeting, please bring the notice of the meeting that was separately mailed to you or the top portion of your proxy card, either of which will serve as your admission ticket.
 
     YOUR MANAGEMENT DESIRES TO HAVE A LARGE NUMBER OF SHAREHOLDERS REPRESENTED AT THE MEETING, IN PERSON OR BY PROXY. PLEASE VOTE YOUR PROXY ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE. IF YOU HAVE ELECTED TO RECEIVE PRINTED MATERIALS, YOU MAY SIGN AND DATE THE PROXY AND MAIL IT IN THE SELF-ADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
 
     If you are unable to attend the annual meeting, you may listen to a live webcast of the meeting, which will be accessible through our website, www.thekrogerco.com, at 11 a.m., eastern time.
 
  By order of the Board of Directors,
  Paul W. Heldman, Secretary

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PROXY STATEMENT
 
Cincinnati, Ohio, May 13, 2011
 
     Your proxy is solicited by the Board of Directors of The Kroger Co., and the cost of solicitation will be borne by Kroger. We will reimburse banks, brokers, nominees, and other fiduciaries for postage and reasonable expenses incurred by them in forwarding the proxy material to their principals. Kroger has retained D.F. King & Co., Inc., 48 Wall Street, New York, New York, to assist in the solicitation of proxies and will pay that firm a fee estimated at present not to exceed $15,000. Proxies may be solicited personally, by telephone, electronically via the Internet, or by mail.
 
     David B. Dillon, John T. LaMacchia, and Bobby S. Shackouls, all of whom are Kroger directors, have been named members of the Proxy Committee.
 
     The principal executive offices of The Kroger Co. are located at 1014 Vine Street, Cincinnati, Ohio 45202-1100. Our telephone number is 513-762-4000. This Proxy Statement and Annual Report, and the accompanying proxy, were first furnished to shareholders on May 13, 2011.
 
     As of the close of business on April 25, 2011, our outstanding voting securities consisted of 606,471,857 common shares, the holders of which will be entitled to one vote per share at the annual meeting. The shares represented by each proxy will be voted unless the proxy is revoked before it is exercised. Revocation may be in writing to Kroger’s Secretary, or in person at the meeting, or by appointment of a subsequent proxy. Shareholders may not cumulate votes in the election of directors.
 
     The effect of broker non-votes and abstentions on matters presented for shareholder vote is as follows:
 
     Item No. 1, Election of Directors – An affirmative majority of the total number of votes cast “for” or “against” a director nominee is required for election. Accordingly, broker non-votes and abstentions will have no effect on this proposal.
 
     Item No. 2, Approval of 2011 Long-Term Incentive and Cash Bonus Plan – Approval by shareholders of the Plan requires the affirmative vote of the majority of shares participating in the voting. Accordingly, broker non-votes and abstentions will have no effect on this proposal.
 
     Item No. 3, Advisory vote on executive compensation – Approval by shareholders of executive compensation requires the affirmative vote of the majority of shares participating in the voting. Accordingly, broker non-votes and abstentions will have no effect on this proposal.
 
     Item No. 4, Advisory vote on the frequency of the advisory vote on executive compensation – The option, be it every one, two, or three years, that receives the highest number of votes cast by shareholders will represent the vote on frequency of the advisory vote on executive compensation. Accordingly, broker non-votes and abstentions will have no effect on this proposal.
 
     Item No. 5, Selection of Auditors – Ratification by shareholders of the selection of independent public accountants requires the affirmative vote of the majority of shares participating in the voting. Accordingly, abstentions will have no effect on this proposal.
 
     Item No. 6, Shareholder Proposal – The affirmative vote of a majority of shares participating in the voting on a shareholder proposal is required for its adoption. Proxies will be voted AGAINST this proposal unless the Proxy Committee is otherwise instructed on a proxy properly executed and returned. Broker non-votes and abstentions will have no effect on this proposal.
 
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PROPOSALS TO SHAREHOLDERS
 
ELECTION OF DIRECTORS
(ITEM NO. 1)
 
     The Board of Directors, as now authorized, consists of fourteen members. All members are to be elected at the annual meeting to serve until the annual meeting in 2012, or until their successors have been elected by the shareholders or by the Board of Directors pursuant to Kroger’s Regulations, and qualified. Kroger’s Articles of Incorporation provide that the vote required for election of a director by the shareholders, except in a contested election or when cumulative voting is in effect, will be the affirmative vote of a majority of the votes cast for or against the election of a nominee.
 
     The experience, qualifications, attributes, and skills that led the Corporate Governance Committee and the Board to conclude that the following individuals should serve as directors are set forth opposite each individual’s name. The committee memberships stated below are those in effect as of the date of this proxy statement. It is intended that, except to the extent that authority is withheld, proxies will be voted for the election of the following persons:
 
Name Professional
Occupation (1)		 Age
Director
Since
NOMINEES FOR DIRECTOR FOR TERMS OF OFFICE
CONTINUING UNTIL 2012
Reuben V. Anderson
Mr. Anderson is a Senior Partner in the Jackson, Mississippi office of Phelps Dunbar, a regional law firm based in New Orleans. Prior to joining this law firm, he was a justice of the Supreme Court of Mississippi. Mr. Anderson is a director of AT&T Inc., and during the past five years was a director of BellSouth Corporation and Trustmark Corporation. He is a member of the Corporate Governance and Public Responsibilities Committees.
 
Mr. Anderson has extensive litigation experience, and he served as the first African-American Justice on the Mississippi Supreme Court. His knowledge and judgment gained through years of legal practice are of great value to the Board. In addition, as former Chairman of the Board of Trustees of Tougaloo College and a resident of Mississippi, he brings to the Board his insights into the African-American community and the southern region of the United States. Mr. Anderson has served on numerous board committees, including audit, public policy, finance, executive, and nominating committees.
 68 1991

9
 
 


Name Professional
Occupation (1)		 Age
Director
Since
Robert D. Beyer
Mr. Beyer is Chairman of Chaparal Investments LLC, a private investment firm and holding company that he founded in 2009. From 2005 to 2009, Mr. Beyer served as Chief Executive Officer of The TCW Group, Inc., a global investment management firm. From 2000 to 2005, he served as President and Chief Investment Officer of Trust Company of the West, the principal operating subsidiary of TCW. Mr. Beyer is a member of the Board of Directors of The Allstate Corporation. He is chair of the Financial Policy Committee and a member of the Compensation Committee.
 
Mr. Beyer brings to Kroger his experience as CEO of TCW, a global investment management firm serving many of the largest institutional investors in the U.S. He has exceptional insight into Kroger’s financial strategy, and his experience qualifies him to chair the Financial Policy Committee. While at TCW, he also conceived and developed the firm’s risk management infrastructure, an experience that is useful to the Kroger Board in performing its risk management oversight functions. His experience in managing compensation programs makes him a valued member of the Compensation Committee. His abilities and service as a director were recognized by his peers, who selected Mr. Beyer as an Outstanding Director in 2008 as part of the Outstanding Directors Program of the Financial Times.
 51 1999
       
David B. Dillon
Mr. Dillon was elected Chairman of the Board of Kroger in 2004, Chief Executive Officer in 2003, and President and Chief Operating Officer in 2000. He served as President in 1999, and as President and Chief Operating Officer from 1995 to 1999. Mr. Dillon was elected Executive Vice President of Kroger in 1990 and President of Dillon Companies, Inc. in 1986. He is a director of DIRECTV, and during the past five years was a director of Convergys Corporation.
 
Mr. Dillon brings to Kroger his extensive knowledge of the supermarket business, having over 30 years of experience with Kroger and Dillon Companies. In addition to his depth of knowledge of Kroger and the fiercely competitive industry in which Kroger operates, he has gained a wealth of experience by serving on audit, compensation, finance, and governance committees of another board.
 60 1995
 
10
 
 

Name Professional
Occupation (1)		 Age
Director
Since
Susan J. Kropf
 
Ms. Kropf was President and Chief Operating Officer of Avon Products Inc., a manufacturer and marketer of beauty care products, from 2001 until her retirement in January 2007. She joined Avon in 1970. Prior to her most recent assignment, Ms. Kropf had been Executive Vice President and Chief Operating Officer, Avon North America and Global Business Operations from 1998 to 2000. From 1997 to 1998 she was President, Avon U.S. Ms. Kropf was a member of Avon’s Board of Directors from 1998 to 2006. She currently is a member of the Board of Directors of Coach, Inc., MeadWestvaco Corporation, and Sherwin Williams Company. She is a member of the Audit and Public Responsibilities Committees.
 
Ms. Kropf has gained a unique consumer insight, having led a major beauty care company. She has extensive experience in manufacturing, marketing, supply chain operations, customer service, and product development, all of which assist her in her role as a member of Kroger’s Board. Ms. Kropf has a strong financial background, and has served on compensation, audit, and corporate governance committees of other boards. She was inducted into the YWCA Academy of Women Achievers.
 62 2007
       
John T. LaMacchia
 
Mr. LaMacchia served as Chairman of the Board of Tellme Networks, Inc., a provider of voice application networks, from September 2001 to May 2007. From September 2001 through December 2004 he was also Chief Executive Officer of Tellme Networks. From May 1999 to May 2000 Mr. LaMacchia was Chief Executive Officer of CellNet Data Systems, Inc., a provider of wireless data communications. From October 1993 through February 1999, he was President and Chief Executive Officer of Cincinnati Bell Inc. During the past five years, Mr. LaMacchia served on the board of Burlington Resources Inc. He is chair of the Compensation Committee and a member of the Corporate Governance Committee.
 
Mr. LaMacchia brings to Kroger his tenure leading both large and small companies. He has developed expertise in compensation and governance issues through his experience on compensation and corporate governance committees of Kroger and other boards.
 69 1990
 
11
 
 

Name Professional
Occupation (1)		 Age
Director
Since
David B. Lewis
 
Mr. Lewis is Chairman of Lewis & Munday, a Detroit based law firm with offices in Washington, D.C., Seattle, and New York City. He is a director of H&R Block and STERIS Corporation. Previously, Mr. Lewis has served on the Board of Directors of Conrail, Inc., LG&E Energy Corp., Lewis & Thompson Agency, Inc., M.A. Hanna, TRW, Inc., and Comerica, Inc. He is a member of the Financial Policy Committee and vice chair of the Public Responsibilities Committee.
 
In addition to his background as a practicing attorney and expertise in bond financing, Mr. Lewis brings to Kroger’s Board his financial background gained while earning his MBA in Finance as well as his service and leadership on Kroger’s and other audit committees. He is a former chairman of the National Association of Securities Professionals.
 66 2002
       
W. Rodney McMullen
 
Mr. McMullen was elected President and Chief Operating Officer of Kroger in August 2009. Prior to that he was elected Vice Chairman in 2003, Executive Vice President in 1999, and Senior Vice President in 1997. Mr. McMullen is a director of Cincinnati Financial Corporation.
 
Mr. McMullen has broad experience in the supermarket business, having spent his career spanning over 30 years with Kroger. He has a strong financial background and played a major role as architect of Kroger’s strategic plan. Mr. McMullen is actively involved in the day-to-day operations of Kroger. His service on the compensation, executive, and investment committees of Cincinnati Financial Corporation adds depth to his extensive retail experience.
 50 2003
 
12

 

Name Professional
Occupation (1)		 Age
Director
Since
Jorge P. Montoya
 
Mr. Montoya was President of The Procter & Gamble Company’s Global Snacks & Beverage division, and President of Procter & Gamble Latin America, from 1999 until his retirement in 2004. Prior to that, he was an Executive Vice President of Procter & Gamble, a provider of branded consumer packaged goods, from 1995 to 1999. Mr. Montoya is a director of The Gap, Inc., and served on the Board of Rohm & Haas Company during the past five years. He is chair of the Public Responsibilities Committee and a member of the Compensation Committee.
 
Mr. Montoya brings to Kroger’s Board over 30 years of leadership experience at a premier consumer products company. He has a deep knowledge of the Hispanic market, as well as consumer products and retail operations. Mr. Montoya has vast experience in marketing and general management, including international business. He was named among the 50 most important Hispanics in Business & Technology, in Hispanic Engineer & Information Technology Magazine.
 64 2007
       
Clyde R. Moore
 
Mr. Moore is the Chairman and Chief Executive Officer of First Service Networks, a national provider of facility and maintenance repair services. He is a director of First Service Networks. Mr. Moore is a member of the Compensation and Corporate Governance Committees.
 
Mr. Moore has over 25 years of general management experience in public and private companies. He has sound experience as a corporate leader overseeing all aspects of a facilities management firm and a manufacturing concern. Mr. Moore’s expertise broadens the scope of the Board’s experience to provide oversight to Kroger’s facilities and manufacturing businesses.
 57 1997
 
13
    
 

Name Professional
Occupation (1)		 Age Director
Since
Susan M. Phillips
Dr. Phillips is Professor of Finance at The George Washington University School of Business, a position she has held since 1998. She retired as Dean of that School of Business as of June 30, 2010. She was a member of the Board of Governors of the Federal Reserve System from December 1991 through June 1998. Before her Federal Reserve appointment, Dr. Phillips served as Vice President for Finance and University Services and Professor of Finance in The College of Business Administration at the University of Iowa from 1987 through 1991. She is a director of CBOE Holdings, Inc., State Farm Mutual Automobile Insurance Company, State Farm Life Insurance Company, State Farm Companies Foundation, National Futures Association, and the Chicago Board Options Exchange. Dr. Phillips also was a trustee of the Financial Accounting Foundation until the end of 2010. She is a member of the Audit and Financial Policy Committees.
 
Dr. Phillips brings to the Board strong financial acumen, along with a deep understanding of, and involvement with, the relationship between corporations and the government. Her experience in academia brings a unique and diverse viewpoint to the deliberations of the Board. Dr. Phillips has been designated an Audit Committee financial expert.
66
2003
       
Steven R. Rogel
Mr. Rogel was elected Chairman of the Board of Weyerhaeuser Company, a forest products company, in 1999 and was President and Chief Executive Officer and a director thereof from December 1997 to January 1, 2008 when he relinquished the role of President. He relinquished the CEO role in April of 2008 and retired as Chairman as of April 2009. Before that time Mr. Rogel was Chief Executive Officer, President and a director of Willamette Industries, Inc. He served as Chief Operating Officer of Willamette Industries, Inc. until October 1995 and, before that time, as an executive and group vice president for more than five years. Mr. Rogel is a director of Union Pacific Corporation and EnergySolutions, Inc. He is a member of the Corporate Governance and Financial Policy Committees.
 
Mr. Rogel has extensive experience in management of large corporations at all levels. He brings to the Board a unique perspective, having led a national supplier of paper products prior to his retirement. Mr. Rogel previously served as Kroger’s Lead Director, and has served on compensation, finance, audit, and governance committees of other corporations.
68
 1999
 
14 
 
 

Name Professional
Occupation (1)		 Age Director
Since
James A. Runde
Mr. Runde is a special advisor and a former Vice Chairman of Morgan Stanley, a financial services provider, where he has been employed since 1974. He was a member of the Board of Directors of Burlington Resources Inc. prior to its acquisition by ConocoPhillips in 2006. Mr. Runde serves as a trustee of Marquette University and the Pierpont Morgan Library. He is a member of the Compensation and Financial Policy Committees.
 
Mr. Runde brings to Kroger’s Board a strong financial background, having led a major financial services provider. He has served on the compensation committee of a major corporation.
64
2006
       
Ronald L. Sargent
Mr. Sargent is Chairman and Chief Executive Officer of Staples, Inc., a consumer products retailer, where he has been employed since 1989. Prior to joining Staples, Mr. Sargent spent 10 years with Kroger in various positions. In addition to serving as a director of Staples, Mr. Sargent is a director of Mattel, Inc., but has announced that he will not stand for re-election at Mattel’s 2011 annual meeting of shareholders. He has been nominated to stand for election to the Board of The Home Depot, Inc., at that company’s annual meeting of shareholders to be held on June 2, 2011. Mr. Sargent is chair of the Audit Committee and a member of the Public Responsibilities Committee.
 
Mr. Sargent has over 30 years of retail experience, first with Kroger and then with increasing levels of responsibility and leadership at Staples, Inc. His efforts helped carve out a new market niche for the international retailer that he leads. His understanding of retail operations and consumer insights are of particular value to the Board. Mr. Sargent has been designated an Audit Committee financial expert.
 55
2006

15
 
 

Name Professional
Occupation (1)		 Age Director
Since
Bobby S. Shackouls
Until the merger of Burlington Resources Inc. and ConocoPhillips, which became effective in 2006, Mr. Shackouls was Chairman of the Board of Burlington Resources Inc., a natural resources business, since July 1997 and its President and Chief Executive Officer since December 1995. He had been a director of that company since 1995 and President and Chief Executive Officer of Burlington Resources Oil and Gas Company (formerly known as Meridian Oil Inc.), a wholly-owned subsidiary of Burlington Resources, since 1994. Mr. Shackouls is a director of ConocoPhillips and of PNGS GP LLC, the general partner of PAA Natural Gas Storage, L.P. He has been appointed by Kroger’s Board to serve as Lead Director. Mr. Shackouls is chair of the Corporate Governance Committee and a member of the Audit Committee.
 
Mr. Shackouls brings to the Board the critical thinking that comes with a chemical engineering background. His guidance of a major natural resources company, coupled with his corporate governance expertise, forms the foundation of his leadership role on Kroger’s Board.
60
1999
____________________
 
(1)      
Except as noted, each of the directors has been employed by his or her present employer (or a subsidiary) in an executive capacity for at least five years.
 
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Information Concerning the Board of Directors
 
Committees of the Board
 
     The Board of Directors has a number of standing committees including Audit, Compensation, and Corporate Governance Committees. All standing committees are composed exclusively of independent directors. All Board committees have charters that can be found on our corporate website at www.thekrogerco.com under Guidelines on Issues of Corporate Governance. During 2010, the Audit Committee met five times, the Compensation Committee met five times, and the Corporate Governance Committee met two times. Committee memberships are shown on pages 9 through 16 of this Proxy Statement. The Audit Committee reviews financial reporting and accounting matters pursuant to its charter and selects our independent accountants. The Compensation Committee recommends for determination by the independent members of our Board the compensation of the Chief Executive Officer, determines the compensation of Kroger’s other senior management, and administers some of our incentive programs. Additional information on the Compensation Committee’s processes and procedures for consideration of executive compensation are addressed in the Compensation Discussion and Analysis below. The Corporate Governance Committee develops criteria for selecting and retaining members of the Board, seeks out qualified candidates for the Board, and reviews the performance of Kroger, the Board, and along with the other independent board members, the CEO.
 
     The Corporate Governance Committee will consider shareholder recommendations for nominees for membership on the Board of Directors. Recommendations relating to our annual meeting in June 2012, together with a description of the proposed nominee’s qualifications, background and experience, must be submitted in writing to Paul W. Heldman, Secretary, and received at our executive offices not later than January 13, 2012. The shareholder also should indicate the number of shares beneficially owned by the shareholder. The Secretary will forward the information to the Corporate Governance Committee for its consideration. The Committee will use the same criteria in evaluating candidates submitted by shareholders as it uses in evaluating candidates identified by the Committee. These criteria are:
     Racial, ethnic, and gender diversity is an important element in promoting full, open, and balanced deliberations of issues presented to the Board, and is considered by the Corporate Governance Committee. Some consideration also is given to the geographic location of director candidates in order to provide a reasonable distribution of members from the operating areas of the Company.
 
     The Corporate Governance Committee typically recruits candidates for Board membership through its own efforts and through suggestions from other directors and shareholders. The Committee on occasion has retained an outside search firm to assist in identifying and recruiting Board candidates who meet the criteria established by the Committee.
 
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Corporate Governance
 
     The Board of Directors has adopted Guidelines on Issues of Corporate Governance. These Guidelines, which include copies of the current charters for the Audit, Compensation, and Corporate Governance Committees, and the other committees of the Board of Directors, are available on our corporate website at www.thekrogerco.com. Shareholders may obtain a copy of the Guidelines by making a written request to Kroger’s Secretary at our executive offices.
 
Independence
 
     The Board of Directors has determined that all of the directors, with the exception of Messrs. Dillon and McMullen, have no material relationships with Kroger and therefore are independent for purposes of the New York Stock Exchange listing standards. The Board made its determination based on information furnished by all members regarding their relationships with Kroger. After reviewing the information, the Board determined that all of the non-employee directors were independent because (i) they all satisfied the independence standards set forth in Rule 10A-3 of the Securities Exchange Act of 1934, (ii) they all satisfied the criteria for independence set forth in Rule 303A.02 of the New York Stock Exchange Listed Company Manual, and (iii) other than business transactions between Kroger and entities with which the directors are affiliated, the value of which falls below the thresholds identified by the New York Stock Exchange listing standards, none had any material relationships with us except for those arising directly from their performance of services as a director for Kroger.
 
Lead Director
 
     The Lead Director presides over all executive sessions of the non-management directors, serves as the principal liaison between the non-management directors and management, and consults with the Chairman regarding information to be sent to the Board, meeting agendas, and establishing meeting schedules. Unless otherwise determined by the Board, the chair of the Corporate Governance Committee is designated as the Lead Director.
 
Audit Committee Expertise
 
     The Board of Directors has determined that Susan M. Phillips and Ronald L. Sargent, independent directors who are members of the Audit Committee, are “audit committee financial experts” as defined by applicable SEC regulations and that all members of the Audit Committee are “financially literate” as that term is used in the NYSE listing standards.
 
Code of Ethics
 
     The Board of Directors has adopted The Kroger Co. Policy on Business Ethics, applicable to all officers, employees and members of the Board of Directors, including Kroger’s principal executive, financial, and accounting officers. The Policy is available on our corporate website at www.thekrogerco.com. Shareholders may obtain a copy of the Policy by making a written request to Kroger’s Secretary at our executive offices.
 
Communications with the Board
 
     The Board has established two separate mechanisms for shareholders and interested parties to communicate with the Board. Any shareholder or interested party who has concerns regarding accounting, improper use of Kroger assets, or ethical improprieties may report these concerns via the
 
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toll-free hotline (800-689-4609) or email address (helpline@kroger.com) established by the Board’s Audit Committee. The concerns are investigated by Kroger’s Vice President of Auditing and reported to the Audit Committee as deemed appropriate by the Vice President of Auditing.
 
     Shareholders or interested parties also may communicate with the Board in writing directed to Kroger’s Secretary at our executive offices. The Secretary will consider the nature of the communication and determine whether to forward the communication to the chair of the Corporate Governance Committee. Communications relating to personnel issues or our ordinary business operations, or seeking to do business with us, will be forwarded to the business unit of Kroger that the Secretary deems appropriate. All other communications will be forwarded to the chair of the Corporate Governance Committee for further consideration. The chair of the Corporate Governance Committee will take such action as he or she deems appropriate, which may include referral to the Corporate Governance Committee or the entire Board.
 
Attendance
 
     The Board of Directors met five times in 2010. During 2010, all incumbent directors attended at least 75% of the aggregate number of meetings of the Board and committees on which that director served. Members of the Board are expected to use their best efforts to attend all annual meetings of shareholders. All fourteen members of the Board attended last year’s annual meeting.
 
Compensation Consultants
 
     The Compensation Committee directly engages a compensation consultant from Mercer Human Resource Consulting to advise the Committee in the design of compensation for executive officers. In 2010, Kroger paid that consultant $230,156 for work performed for the Committee. Kroger, on management’s recommendation, retained the parent and affiliated companies of Mercer Human Resource Consulting to provide other services for Kroger in 2010, for which Kroger paid $3,668,485. These other services primarily related to insurance claims (for which Kroger was reimbursed by insurance carriers as claims were adjusted), insurance brokerage and bonding commissions, and pension consulting. Kroger also made payments to affiliated companies for insurance premiums that were collected by the affiliated companies on behalf of insurance carriers, but these amounts are not included in the totals referenced above, as the amounts were paid over to insurance carriers for services provided by those carriers. Although neither the Committee nor the Board expressly approved the other services, the Committee determined that the consultant is independent because (a) he was first engaged by the Committee before he became associated with Mercer; (b) he works exclusively for the Committee and not for our management; (c) he does not benefit from the other work that Mercer’s parent and affiliated companies perform for Kroger; and (d) neither the consultant nor the consultant’s team perform any other services on behalf of Kroger.
 
Board Oversight of Enterprise Risk
 
     While risk management is primarily the responsibility of Kroger’s management team, the Board of Directors is responsible for the overall supervision of our risk management activities. The Board’s oversight of the material risks faced by Kroger occurs at both the full Board level and at the committee level.
 
19 
 
 

     The Board’s Audit Committee has oversight responsibility not only for financial reporting of Kroger’s major financial exposures and the steps management has taken to monitor and control those exposures, but also for the effectiveness of management’s processes that monitor and manage key business risks facing Kroger, as well as the major areas of risk exposure and management’s efforts to monitor and control that exposure. The Audit Committee also discusses with management its policies with respect to risk assessment and risk management.
 
     Management provides regular updates throughout the year to the respective committees regarding the management of the risks they oversee, and each of these committees reports on risk to the full Board at each regular meeting of the Board.
 
     In addition to the reports from the committees, the Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks as necessary. At each Board meeting, the Chairman and CEO addresses matters of particular importance or concern, including any significant areas of risk that require Board attention. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail Kroger’s short- and long-term strategies, including consideration of significant risks facing Kroger and their potential impact. The independent directors, in executive sessions led by the Lead Director, address matters of particular concern, including significant areas of risk, that warrant further discussion or consideration outside the presence of Kroger employees.
 
     We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions, and approach emerging risks in a proactive manner for Kroger. We also believe that our risk structure complements our current Board leadership structure, as it allows our independent directors, through the five fully independent Board committees, and in executive sessions of independent directors led by an independent Lead Director, to exercise effective oversight of the actions of management, led by Mr. Dillon as Chairman and CEO, in identifying risks and implementing effective risk management policies and controls.
 
Board Leadership Structure
 
     Our Board is composed of twelve independent directors and two management directors, Mr. Dillon, the Chairman of the Board and Chief Executive Officer, and Mr. McMullen, President and Chief Operating Officer. In addition, as provided in our Guidelines on Issues of Corporate Governance, the Board has designated one of the independent directors as Lead Director. The Board has established five standing committees — audit, compensation, corporate governance, financial policy, and public responsibilities. Each of the Board committees is composed solely of independent directors, each with a different independent director serving as committee chair. We believe that the mix of experienced independent and management directors that make up our Board, along with the independent role of our Lead Director and our independent Board committees, benefits Kroger and its shareholders.
 
     The Board believes that it is beneficial to Kroger and its shareholders to designate one of the directors as a Lead Director. The Lead Director serves a variety of roles, including reviewing and approving Board agendas, meeting materials and schedules to confirm the appropriate topics are reviewed and sufficient time is allocated to each; serving as liaison between the Chairman of the Board, management, and the non-management directors; presiding at the executive sessions of independent directors and at all other meetings of the Board of Directors at which the Chairman of the Board is not present; and calling an executive session of independent directors at any time. Bobby Shackouls, an independent director and the chair of the Corporate Governance Committee, is currently our Lead Director. Mr. Shackouls is an effective Lead Director for Kroger due to, among other things, his independence, his deep strategic and operational
 
20
 
 

understanding of Kroger obtained while serving as a Kroger director, his corporate governance knowledge acquired during his tenure as a member of our Corporate Governance Committee, his previous experience on other boards, and his prior experience as a CEO of a Fortune 500 company.
 
     With respect to the roles of Chairman and CEO, the Guidelines provide that the Board believes that it is in the best interests of Kroger and its shareholders for one person to serve as Chairman and CEO. The Board recognizes that there may be circumstances in which it is in the best interests of Kroger and its shareholders for the roles to be separated, and the Board exercises its discretion as it deems appropriate in light of prevailing circumstances. The Board believes that the combination or separation of these positions should continue to be considered as part of the succession planning process, as was the case in 2003 when the roles were separated. Since 2004, the roles have been combined.
 
     Our Board and each of its committees conduct an annual evaluation to determine whether they are functioning effectively. As part of this annual self-evaluation, the Board assesses whether the current leadership structure continues to be appropriate for Kroger and its shareholders. Our Guidelines provide the flexibility for our Board to modify our leadership structure in the future as appropriate. We believe that Kroger, like many U.S. companies, has been well-served by this flexible leadership structure.
 
21
 
 

Compensation Discussion and Analysis

Executive Compensation – Overview
 
     As the largest traditional food and drug retailer in the United States, our executive compensation philosophy is to attract and retain the best management talent and to motivate these employees to achieve business and financial goals that create value for shareholders in a manner consistent with our focus on our core values: honesty, integrity, respect, inclusion, diversity, and safety.
 
     To achieve our objectives, our Compensation Committee seeks to ensure that compensation is competitive and that there is a direct link between pay and performance, using the following guiding principles:
     Our 2010 fiscal year results compared against the compensation of senior executives demonstrated these principles, and illustrated how our compensation program responds to business challenges and the marketplace. While many companies have struggled unsuccessfully during this difficult economy, we have continued to deliver sales growth and positive earnings results.
22
 
 

     In sum, the Committee believes our management produced outstanding results in 2010, but we did not achieve our aggressive business plan objectives for sales, earnings, and our strategic plan. The compensation paid to our named executive officers reflected this fact as the performance-based cash bonus paid out at 53.868% of bonus potentials. Further, the equity-based portion, the value of which is tied to the return received by our shareholders in the stock market, grew in value only modestly during 2010. This is shown in the performance graph appearing at page A-3 of the accompanying annual report.
 
     In keeping with our overall compensation philosophy, we endeavor to ensure that our compensation practices conform to best practices when identified. In particular, over the past several years we have:
     The Compensation Committee of the Board has the primary responsibility for establishing the compensation of Kroger’s executive officers, including the named executive officers, with the exception of the Chief Executive Officer. The Committee’s role regarding the CEO’s compensation is to make recommendations to the independent members of the Board; those independent Board members establish the CEO’s compensation.
 
     The following discussion and analysis addresses the compensation of the named executive officers, and the factors considered by the Committee in setting compensation for the named executive officers and making recommendations to the independent Board members in the case of the CEO’s compensation. Additional detail is provided in the compensation tables and the accompanying narrative disclosures that follow this discussion and analysis.
 
Executive Compensation – Objectives
 
     The Committee has several related objectives regarding compensation. First, the Committee believes that compensation must be designed to attract and retain those best suited to fulfill the challenging roles that executive officers play at Kroger. Second, some elements of compensation should help align the interests of the officers with your interests as shareholders. Third, compensation should create strong incentives for the officers (a) to achieve the annual business plan targets established by the Board, and (b) to ensure that the officers achieve Kroger’s long-term strategic objectives. In developing compensation programs and amounts to meet these objectives, the Committee exercises judgment to ensure that executive officer compensation is appropriate and competitive in light of Kroger’s performance and the needs of the business.
 
     To meet these objectives, the Committee has taken a number of steps over the last several years, including the following:
23
 
 

Establishing Executive Compensation
 
     The independent members of the Board have the exclusive authority to determine the amount of the CEO’s salary; the bonus potential for the CEO; the nature and amount of any equity awards made to the CEO; and any other compensation questions related to the CEO. In setting the annual bonus potential for the CEO, the independent directors determine the dollar amount that will be multiplied by the percentage payout under the annual bonus plan generally applicable to all corporate management, including the named executive officers. The independent directors retain discretion to reduce the percentage payout the CEO would otherwise receive. The independent directors thus make a separate determination annually concerning both the CEO’s bonus potential and the percentage of bonus paid.
 
     The Committee performs the same function and exercises the same authority as to the other named executive officers. The Committee’s annual review of compensation for the named executive officers includes the following:
24
 
 

     In considering each of the factors above, the Committee does not make use of a formula, but rather subjectively reviews each in making its compensation determination.
 
The Committee’s Compensation Consultants and Benchmarking
 
     As referenced earlier in this proxy statement, the Committee directly engages a compensation consultant from Mercer Human Resource Consulting to advise the Committee in the design of compensation for executive officers.
 
     The Mercer consultant conducts an annual competitive assessment of executive positions at Kroger for the Committee. The assessment is one of several bases, as described above, on which the Committee determines compensation. The consultant assesses:
Costco Wholesale Supervalu
CVS Target
Great Atlantic & Pacific Tea Walgreens
Rite Aid Wal-Mart
Safeway  

This peer group is the same group as was used in 2009.
 
     The make-up of the compensation peer group is reviewed annually and modified as circumstances warrant. Industry consolidation and other competitive forces will change the peer group used over time. The consultant also provides the Committee data from companies in “general industry,” a representation of major publicly-traded companies. These data are reference points, particularly for senior staff positions where competition for talent extends beyond the retail sector.
 
     In 2009, the Committee directly engaged an additional compensation consultant to conduct a review of Kroger’s executive compensation. This consultant, from Frederic W. Cook & Co., Inc., examined the compensation philosophy, peer group composition, annual cash bonus, and long-term incentive compensation including equity awards. The consultant concluded that Kroger’s executive compensation program met the Committee’s objectives, and that it provides a strong linkage between pay and performance. The Committee expects to engage an additional compensation consultant from time to time as it deems advisable.
 
25
 
 

     Kroger is the second-largest company as measured by annual revenues when compared with the peer group referenced above and is the largest traditional food and drug retailer. The Committee has therefore sought to ensure that salaries paid to our executive officers are at or above the median paid by competitors for comparable positions and to provide an annual bonus potential to our executive officers that, if annual business plan objectives are achieved, would cause their total cash compensation to be meaningfully above the median.
 
Components of Executive Compensation at Kroger
 
     Compensation for our named executive officers is comprised of the following:
Salary
 
     We provide our named executive officers and other employees a fixed amount of cash compensation – salary – for their work. Salaries for named executive officers (with the exception of the CEO) are established each year by the Committee. The CEO’s salary is established by the independent directors. Salaries for the named executive officers were reviewed in June.
 
     The amount of each executive’s salary is influenced by numerous factors including:
     The assessment of individual contribution is based on a subjective determination, without the use of performance targets, in the following areas:
26
 
 

     The amounts shown below reflect the salaries of the named executive officers in effect following the annual review of their compensation in June of each year.
 
    Salaries
        2008       2009       2010
David B. Dillon   $ 1,220,000   $ 1,260,000   $ 1,260,000
J. Michael Schlotman   $ 545,000   $ 567,000   $ 610,000
W. Rodney McMullen   $ 860,000   $ 890,000   $ 890,000
Donald E. Becker   $ 620,000   $ 645,000   $ 660,000
Paul W. Heldman   $ 685,000   $ 710,000   $ 724,000

Performance-Based Annual Cash Bonus
 
     A large percentage of our employees at all levels, including the named executive officers, are eligible to receive a performance-based annual cash bonus based on Kroger or unit performance. The Committee establishes bonus potentials for each executive officer, other than the CEO whose bonus potential is established by the independent directors. Actual payouts, which can exceed 100% of the potential amounts, represent the extent to which performance meets or exceeds the thresholds established by the Committee.
 
     The Committee considers several factors in making its determination or recommendation as to bonus potentials. First, the individual’s level within the organization is a factor in that the Committee believes that more senior executives should have a substantial part of their compensation dependent upon Kroger’s performance. Second, the individual’s salary is a factor so that a substantial portion of a named executive officer’s total cash compensation is dependent upon Kroger’s performance. Finally, the Committee considers the reports of its compensation consultants to assess the bonus potential of the named executive officers in light of total compensation paid to comparable executive positions in the industry.
 
     The annual cash bonus potential in effect at the end of the year for each named executive officer is shown below. Actual bonus payouts are prorated to reflect changes, if any, to bonus potentials during the year.
 
    Annual Bonus Potential
        2008       2009       2010
David B. Dillon   $ 1,500,000   $ 1,500,000   $ 1,500,000
J. Michael Schlotman   $ 500,000   $ 500,000   $ 525,000
W. Rodney McMullen   $ 1,000,000   $ 1,000,000   $ 1,000,000
Donald E. Becker   $ 550,000   $ 550,000   $ 550,000
Paul W. Heldman   $ 550,000   $ 550,000   $ 550,000

     The amount of bonus that the named executive officers earn each year is determined by Kroger’s performance compared to targets established by the Committee based on the business plan adopted by the Board of Directors. In 2010, thirty percent of bonus was earned based on an identical sales target for Kroger’s supermarkets and other business operations; thirty percent was based on a target for EBITDA, excluding supermarket fuel; and forty percent was based on implementation and results of a set of measures under our strategic plan. An additional 5% would be earned if Kroger achieved three goals with respect to its supermarket fuel operations; achievement of at least 85% of the targeted fuel EBITDA as set forth in the business plan, increase of at least 3% in gallons sold at identical fuel centers, and achievement of the planned number of fuel centers placed in service.
 
27
 
 

     Over time the Committee has placed an increased emphasis on the strategic plan by making the target more difficult to achieve. The bonus plan allows for minimal bonus to be earned at relatively low levels to provide incentive for achieving even higher levels of performance.
 
     Following the close of the year, the Committee reviewed Kroger’s performance against the identical sales, EBITDA, and strategic plan objectives and determined the extent to which Kroger achieved those objectives. Kroger’s EBITDA for 2010 was $3.696 billion, and Kroger’s identical retail sales for 2010, excluding supermarket fuel, were 2.9%. In 2010, Kroger’s supermarket fuel EBITDA was $141.967 million, or 122.3% of the goal established at the beginning of the year, exceeding the 85% threshold necessary to earn a bonus for the fuel component. Kroger’s sale of fuel in identical supermarket fuel centers was 2.972 billion gallons, or 5.0% over the prior year. We operated 1,014 supermarket fuel centers as of the end of 2010, exceeding our goal of 1,000 centers. As a result, the officers earned the additional 5% fuel bonus. As a result of the Company’s performance when compared to the targets established by the Committee, and based on the business plan adopted by the Board of Directors, the named executive officers earned 53.868% of their bonus potentials, which percentage payout exceeds that of last year but is substantially lower than the bonus payouts over the previous several years. This principally reflects the degree to which Kroger achieved its aggressive EBITDA and sales goals.
 
     The 2010 targets established by the Committee for annual bonus amounts based on identical sales and EBITDA results, the actual 2010 results, and the bonus percentage earned in each of the components of named executive officer bonus, were as follows:
 
    Targets              
Component       Minimum       100%       Result       Amount Earned
Identical Sales   1.0%   3.0%/4.0%*   2.9%     14.235 %  
EBITDA   $3.279 Billion   $3.858 Billion**   $3.696 Billion     12.989 %  
Strategic Plan***                 21.644 %  
Fuel Bonus   [as described in the text above]     5.000 %  
                  53.868 %  
____________________
 
*   Identical sales of 3% pay at 100% if EBITDA and operating cost goals are achieved. If EBITDA and operating cost goals are not achieved, identical sales of 4% pay at 100%. Operating cost goals are not disclosed as they are competitively sensitive.
         
**   Payout is at 135% if identical sales and operating cost goals are achieved. Operating cost goals are not disclosed as they are competitively sensitive.
 
***   The Strategic Plan component also was established by the Committee but is not disclosed as it is competitively sensitive.
 
     In 2010, as in all years, the Committee retained discretion to reduce the bonus payout for all executive officers, including the named executive officers, if the Committee determined for any reason that the bonus payouts were not appropriate. The independent directors retained that discretion for the CEO’s bonus. Those bodies also retained discretion to adjust the targets under the plan should unanticipated developments arise during the year. No adjustments were made to the targets. Participants under the corporate plan, with the exception of the named executive officers, received a total bonus percentage payout that was 1.128% greater than the payout to the named executive officers due to adjustments made to the non-officer payouts.
 
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     The percentage paid for 2010 represented and resulted from performance that, due to a weak economy and persistent deflation, did not meet our original business plan objectives. A comparison of bonus percentages for the named executive officers in prior years demonstrates the variability of incentive compensation:
 
    Annual Cash Bonus
Fiscal Year       Percentage
2010     53.868%  
2009     38.450%  
2008     104.948%  
2007     128.104%  
2006     141.118%  
2005     132.094%  
2004     55.174%  
2003     24.100%  
2002     9.900%  
2001     31.760%  

     The actual amounts of annual performance-based cash bonuses paid to the named executive officers for 2010 are shown in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.” These amounts represent the bonus potentials for each named executive officer multiplied by the percentage earned in 2010. In no event can any participant receive a performance-based annual cash bonus in excess of $5,000,000. The maximum amount that a participant, including each named executive officer, can earn is further limited to 200% of the participant’s potential amount.
 
PERFORMANCE-BASED LONG-TERM BONUS
 
     After reviewing executive compensation with its consultant in 2005, the Committee determined that the long-term component, which was made up of equity awards, of Kroger’s executive compensation was not competitive. The Committee developed a plan to provide an incentive to the named executive officers to achieve the long-term goals established by the Board of Directors by conditioning a portion of compensation on the achievement of those goals. Approximately 140 Kroger executives, including the named executive officers, are eligible to participate in a performance-based cash bonus plan designed to reward participants for improving the long-term performance of Kroger. Bonuses are earned based on the extent to which Kroger advances its strategic plan.
 
     The Committee adopted a 2008 long-term bonus plan under which cash bonuses are earned based on the extent to which Kroger advances its strategic plan by:
     The 2008 plan measures improvements through fiscal year 2011. Participants receive a 1% payout for each point by which the performance in the key categories increases, a 0.25% payout for each percentage reduction in operating costs, and a 1% payout based on improvement in associate engagement measures.
 
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Total operating costs as a percentage of sales, excluding fuel, at the commencement of the 2008 plan were 27.89%. Actual payouts are based on the degree to which improvements are achieved, and will be awarded based on the participant’s salary at the end of fiscal year 2007. In no event can any participant receive a performance-based long-term cash bonus in excess of $5,000,000.
 
     The Committee adopted a long-term plan in 2010, which measures improvements through fiscal year 2012. Participants receive a 1% payout for each point by which the performance in the key categories increases, a 0.25% payout for each percentage reduction in operating costs, and a 2% payout based on improvement in associate engagement measures. Total operating costs as a percentage of sales, excluding fuel, at the commencement of the 2010 plan were 27.62%. Cash bonus payouts are based on the degree to which improvements are achieved, and will be awarded based on the participant’s salary at the end of fiscal year 2009. In no event can any participant receive a performance-based long-term cash bonus in excess of the lesser of $5,000,000 and the participant’s salary at the end of fiscal year 2009. In addition to a cash bonus, under the 2010 plan participants also receive performance units, more particularly described under “Equity” below.
 
     The Committee adopted a new long-term plan in 2011, which measures improvements through fiscal year 2013. Participants receive a 2% payout for each point by which the performance in the key categories increases, a 0.50% payout for each percentage reduction in operating costs, and a 2% payout based on improvement in associate engagement measures. Total operating costs as a percentage of sales, excluding fuel, at the commencement of the 2011 plan were 27.51%. Cash bonus payouts are based on the degree to which improvements are achieved, and will be awarded based on the participant’s salary at the end of fiscal year 2010. In no event can any participant receive a performance-based long-term cash bonus in excess of the lesser of $5,000,000 and the participant’s salary at the end of fiscal year 2010. In addition to a cash bonus, under the 2011 plan participants also receive performance units, more particularly described under “Equity” below.
 
     The Committee anticipates adopting a new plan each year, measuring improvement over successive three-year periods.
 
EQUITY
 
     Awards based on Kroger’s common shares are granted periodically to the named executive officers and a large number of other employees. Equity participation aligns the interests of employees with your interest as shareholders, and Kroger historically has distributed equity awards widely. In 2010, Kroger granted 3,692,785 stock options to approximately 7,340 employees, including the named executive officers, under one of Kroger’s long-term incentive plans. 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. The Committee adopted a policy of granting options only at one of the four Committee meetings conducted within a week following Kroger’s public release of its quarterly earnings results.
 
     Kroger’s long-term incentive plans also provide for other equity-based awards, including restricted stock. During 2010, Kroger awarded 2,440,368 shares of restricted stock to approximately 18,450 employees, including the named executive officers. This amount is comparable to amounts awarded over the past few years as we began reducing the number of stock options granted and increasing the number of shares of restricted stock awards. The change in Kroger’s broad-based equity program from predominantly stock options to a mixture of options and restricted shares was precipitated by (a) the perception of increased value that restricted shares offer, (b) the retention benefit to Kroger of restricted shares, and (c) changes in accounting conventions that permitted the change without added cost.
 
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     Beginning in 2010, as a part of the 2010 long-term plan, the Committee also awarded performance units to the same individuals that receive the long-term performance-based cash bonus described in the previous section. During 2010, Kroger awarded 355,525 performance units to 136 employees, including the named executive officers. The number of shares of restricted stock that participants otherwise would have received was reduced by 50% in order to make a larger share of the participants’ equity compensation be tied to Kroger performance. Under the 2010 plan, participants receive a 1% payout for each point by which the performance in the key categories increases, a 0.25% payout for each percentage reduction in operating costs, and a 2% payout based on improvement in associate engagement measures. Total operating costs as a percentage of sales, excluding fuel, at the commencement of the 2010 plan were 27.62%. Actual payouts are based on the degree to which improvements are achieved, will be earned in Kroger common shares, and cannot exceed 100% of the number of performance units awarded. In addition to shares earned under performance units, participants receive a cash payment equal to the cash dividends that would have been earned on that number of shares had the participant owned the shares during the performance period.
 
     The Committee considers several factors in determining the amount of options, restricted shares, and performance units awarded to the named executive officers or, in the case of the CEO, recommending to the independent directors the amount awarded. These factors include:
     The Committee has long recognized that the amount of compensation provided to the named executive officers through equity-based pay is often below the amount paid by our competitors. Lower equity-based awards for the named executive officers and other senior management permit a broader base of Kroger employees to participate in equity awards.
 
     Amounts of equity awards issued and outstanding for the named executive officers are set forth in the tables that follow this discussion and analysis.
 
RETIREMENT AND OTHER BENEFITS
 
     Kroger maintains a defined benefit and several defined contribution retirement plans for its employees. The named executive officers 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 on benefits to highly compensated individuals under qualified plans. Additional details regarding retirement benefits available to the named executive officers can be found in the 2010 Pension Benefits table and the accompanying narrative description that follows this discussion and analysis.
 
     Kroger also maintains an executive deferred compensation plan in which some of the named executive officers participate. This plan is a nonqualified plan under which participants can elect to defer up to 100% of their cash compensation each year. Compensation deferred bears interest, until paid out, at the rate representing Kroger’s cost of ten-year debt in the year the rate is set, as determined by Kroger’s CEO prior to the beginning of each deferral year. In 2010, that rate was 6.32%. Deferred amounts are paid out only in cash, in accordance with a deferral option selected by the participant at the time the deferral election is made.
 
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     We adopted The Kroger Co. Employee Protection Plan, or KEPP, during fiscal year 1988. That plan was amended and restated in 2007. All of our management employees and administrative support personnel whose employment is not covered by a collective bargaining agreement, with at least one year of service, are covered. KEPP 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 in control of Kroger (as defined in the plan). Participants are entitled to severance pay of up to 24 months’ salary and 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.
 
     Stock option and restricted stock agreements with participants in Kroger’s long-term incentive plans provide that those awards “vest,” with options becoming immediately exercisable and restrictions on restricted stock lapsing, upon a change in control as described in the agreements.
 
     None of the named executive officers is party to an employment agreement.
 
PERQUISITES
 
     The Committee does not believe that it is necessary for the attraction or retention of management talent to provide the named executive officers a substantial amount of compensation in the form of perquisites. In 2010, the only perquisites provided were payments of premiums of:
     The life insurance benefit was offered beginning several years ago to replace a split-dollar life insurance benefit that was substantially more costly to Kroger. Currently, 147 active executives, including the named executive officers, and 69 retired executives, receive this benefit.
 
     In addition, the named executive officers are entitled to the following benefit that does not constitute a perk as defined by SEC rules:
     The total amount of perquisites furnished to the named executive officers is shown in the Summary Compensation Table and described in more detail in footnote 4 to that table.
 
EXECUTIVE COMPENSATION RECOUPMENT POLICY
 
     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 bonus or a long-term bonus in an amount higher than otherwise would have been paid, as determined by the Committee, then the officer, upon demand from the 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 Committee will take into consideration all factors that it deems appropriate, including:
32

 

SECTION 162(M) OF THE INTERNAL REVENUE CODE
 
     Tax laws place a limit of $1,000,000 on the amount of some types of compensation for the CEO and the next four most highly compensated officers that is tax deductible by Kroger. Compensation that is deemed to be “performance-based” is excluded for purposes of the calculation and is tax deductible. Awards under Kroger’s long-term incentive plans, when payable upon achievement of stated performance criteria, should be considered performance-based and the compensation paid under those plans should be tax deductible. Generally, compensation expense related to stock options awarded to the CEO and the next four most highly compensated officers should be deductible. On the other hand, Kroger’s awards of restricted stock that vest solely upon the passage of time are not performance-based. As a result, compensation expense for those awards to the CEO and the next four most highly compensated officers is not deductible, to the extent that the related compensation expense, plus any other expense for compensation that is not performance-based, exceeds $1,000,000.
 
     Kroger’s bonus plans rely on performance criteria, and have been approved by shareholders. As a result, bonuses paid under the plans to the CEO and the next four most highly compensated officers will be deductible by Kroger. In Kroger’s case, this group of individuals is not identical to the group of named executive officers.
 
     Kroger’s policy is, primarily, to design and administer compensation plans that support the achievement of long-term strategic objectives and enhance shareholder value. Where it is material and supports Kroger’s compensation philosophy, the Committee also will attempt to maximize the amount of compensation expense that is deductible by Kroger.
 
COMPENSATION COMMITTEE REPORT
 
     The Compensation Committee has reviewed and discussed with management of the Company 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 Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement and incorporated by reference into its annual report on Form 10-K.
 
Compensation Committee:
     John T. LaMacchia, Chair
     Robert D. Beyer
     Jorge P. Montoya
     Clyde R. Moore
     James A. Runde
 
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EXECUTIVE COMPENSATION
 
SUMMARY COMPENSATION TABLE
 
     The following table shows the compensation of the Chief Executive Officer, Chief Financial Officer and each of the Company’s three most highly compensated executive officers other than the CEO and CFO (the “named executive officers”) during the fiscal years presented:
 
SUMMARY COMPENSATION TABLE
                                        Change in                
                                        Pension                
                                        Value and                
                                        Nonqualified                
                              Non-Equity   Deferred                
                  Stock   Option   Incentive Plan   Compensation   All Other      
Name and Principal       Salary   Bonus   Awards   Awards   Compensation   Earnings   Compensation   Total
Position     Year     ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)
                  (1)   (2)   (3)   (4)   (5)      
David B. Dillon   2010   $ 1,256,548   —   $ 2,070,880   $ 1,201,240     $ 808,020       $ 2,156,625       $ 58,027     $ 7,551,340
       Chairman and CEO   2009   $ 1,239,822   —   $ 2,569,100   $ 1,494,000     $ 1,234,000       $ 3,637,731       $ 172,430     $ 10,347,083
    2008   $ 1,204,758   —   $ 3,290,150   $ 2,015,123     $ 1,574,220       $ 2,198,683       $ 170,307     $ 10,453,241
                                                               
J. Michael Schlotman   2010   $ 590,295   —   $ 225,096   $ 130,570     $ 277,368       $ 578,541       $ 13,815     $ 1,815,685
       Senior Vice President   2009   $ 556,280   —   $ 223,400   $ 132,800     $ 461,125       $ 795,146       $ 42,609     $ 2,211,360
       and CFO   2008   $ 537,124   —   $ 286,100   $ 179,122     $ 524,740       $ 292,491       $ 41,135     $ 1,860,712
                                                               
W. Rodney McMullen   2010   $ 887,562   —   $ 630,268   $ 365,595     $ 538,680       $ 953,159       $ 20,875     $ 3,396,139
       President and COO   2009   $ 875,062   —   $ 2,345,700   $ 431,600     $ 846,368       $ 1,335,103       $ 56,639     $ 5,890,472
    2008   $ 848,686   —   $ 1,001,350   $ 582,147     $ 1,049,480       $ 378,685       $ 59,900     $ 3,920,248
                                                               
Donald E. Becker   2010   $ 651,901   —   $ 1,278,115   $ 156,684     $ 296,274       $ 1,120,094       $ 40,890     $ 3,543,958
       Executive Vice   2009   $ 632,816   —   $ 279,250   $ 166,000     $ 534,125       $ 1,773,062       $ 127,165     $ 3,512,418
       President   2008   $ 611,712   —   $ 1,215,925   $ 233,903     $ 577,214       $ 902,879       $ 120,668     $ 3,662,301
                                                               
Paul W. Heldman(6)   2010   $ 716,044   —   $ 270,115   $ 156,684     $ 296,274       $ 875,646       $ 33,777     $ 2,348,540
       Executive Vice   2009   $ 697,638   —   $ 279,250   $ 166,000     $ 580,730       $ 1,275,773       $ 99,199     $ 3,098,590
       President, Secretary                                                              
       and General Counsel                                                              
____________________
 
(1)       The stock awards reflected in the table consist of both time-based and performance-based awards granted under the Company’s long-term incentive plans. With respect to time-based awards, or restricted stock, the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 is as follows: Mr. Dillon: $1,738,800; Mr. Schlotman: $189,000; Mr. McMullen: $529,200; Mr. Becker: $1,234,800; and Mr. Heldman: $226,800.
     
    The value of the performance-based awards, or performance units, reflected in the table is as follows: Mr. Dillon: $332,080; Mr. Schlotman: $36,096; Mr. McMullen: $101,068; Mr. Becker: $43,315; and Mr. Heldman: $43,315. The reported amounts reflect the aggregate fair value at the grant date based on the probable outcome of the performance conditions. These amounts are consistent with the estimate of aggregate compensation cost to be recognized by the Company over the three-year service period of the award determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. In the case of Mr. Becker, the aggregate fair value at grant date based on probable outcome of the performance conditions reduces to $15,056, as of February 16, 2011, due to Mr. Becker’s death on that date.

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        Assuming that the highest level of performance conditions are achieved, the value of the performance-based awards at the grant date is as follows: Mr. Dillon: $1,229,925; Mr. Schlotman: $133,688; Mr. McMullen: $374,325; Mr. Becker: $160,425; and Mr. Heldman: $160,425.These amounts are not reflected in the table.
     
(2)   These amounts represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718.
     
(3)   Non-equity incentive plan compensation for 2010 consists of payments under an annual cash bonus program. In accordance with the terms of the 2010 performance-based annual cash bonus program, Kroger paid 53.868% of bonus potentials for the executive officers including the named executive officers.
     
(4)   Amounts are attributable to change in pension value and preferential earnings on nonqualified deferred compensation. During 2010, pension values increased primarily due to: (i) a decrease in the discount rate for the plans, as determined by the plan actuary; (ii) increases in final average earnings used in determining pension benefits; (iii) an additional year of credited service; and (iv) an increase in present value due to participant aging. Since the benefits are based on final average earnings and service, the effect of the final average earnings increase is larger for those with longer service. Please refer to the 2010 Pension Benefits Table for further information regarding credited service.
     
    Under the Company’s deferred compensation plan, deferred compensation earns interest at the rate representing Kroger’s cost of ten-year debt as determined by Kroger’s CEO prior to the beginning of each deferral year. For each participant, a separate deferral account is created each year, and the interest rate established under the plan for that year is applied to that deferral account until the deferred compensation is paid out. If the interest rate established by the Company for a particular year exceeds 120% of the applicable federal long-term interest rate that corresponds most closely to the Company rate, the amount by which the Company rate exceeds 120% of the corresponding federal rate is deemed to be above-market or preferential. In ten of the seventeen years in which at least one named executive officer deferred compensation, the Company rate set under the plan for that year exceeds 120% of the corresponding federal rate. For each of the deferral accounts in which the Company rate is deemed to be above-market, the Company 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.
     
    The amount listed for Mr. Dillon includes change in pension value in the amount of $2,146,081 and preferential earnings on nonqualified deferred compensation in the amount of $10,544. The amount listed for Mr. McMullen includes change in pension value in the amount of $909,667 and preferential earnings on nonqualified deferred compensation in the amount of $43,492. The amount listed for Mr. Heldman includes change in pension value in the amount of $867,905 and preferential earnings on nonqualified deferred compensation in the amount of $7,741. The amounts listed for the remaining named executive officers represent only change in pension value.
     
(5)   The following table provides the items and amounts included in All Other Compensation for 2010:

              Accidental          
              Death and   Long-Term
    Life   Dismemberment   Disability
    Insurance   Insurance   Insurance
        Premium       Premium       Premium
Mr. Dillon     $ 57,894       $ 133         —  
Mr. Schlotman     $ 13,682       $ 133         —  
Mr. McMullen     $ 17,964       $ 133       $ 2,778  
Mr. Becker     $ 37,750       $ 133       $ 3,007  
Mr. Heldman     $ 30,866       $ 133       $ 2,778  

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        The life insurance premium payment by Kroger has been offered over the past several years to a large number of executives, including the named executive officers, in substitution for split-dollar life insurance coverage that was substantially more costly to Kroger. Excluded from the amounts shown in the table is income imputed to the named executive officer when accompanied on our aircraft during business travel by non-business travelers. These amounts for Mr. Dillon, Mr. Schlotman, and Mr. Becker, calculated using the applicable terminal charge and Standard Industry Fare Level (SIFL) mileage rates, were $3,634, $4,510, and $586, respectively. The other named executive officers had no such imputed income for 2010. Separately, we require that officers who make personal use of our aircraft reimburse us for the average variable cost associated with the operation of the aircraft on such flights in accordance with a time-sharing arrangement consistent with FAA regulations.
     
(6)   Mr. Heldman was not a named executive officer in 2008. In accordance with applicable reporting requirements, compensation information is provided only for 2009 and 2010.

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GRANTS OF PLAN-BASED AWARDS
 
     The following table provides information about equity and non-equity awards granted to the named executive officers in 2010:
 
        Estimated Future                            
        Payouts Under   Estimated Future   Exercise   Grant
        Non-Equity   Payouts Under   or Base   Date Fair
        Incentive Plan   Equity Incentive   Price of   Value of
        Awards   Plan Awards   Option   Stock and
    Grant   Target   Maximum   Target   Maximum   Awards   Option
Name       Date       ($)       ($)       (#)       (#)       ($/Sh)       Awards
David B. Dillon       $ 1,500,000 (1)   $ 3,000,000 (1)                            
        $ 1,260,000 (2)   $ 1,260,000 (2)                            
    6/24/2010                   86,250 (3)                 $ 1,738,800  
    6/24/2010                   230,000 (4)         $ 20.16 (4)   $ 1,201,240  
    6/24/2010                   15,525 (5)   57,500 (5)           $ 332,080 (5)
                                                 
J. Michael Schlotman       $ 525,000 (1)   $ 1,050,000 (1)                            
        $ 567,000 (2)   $ 567,000 (2)                            
    6/24/2010                   9,375 (3)                 $ 189,000  
    6/24/2010                   25,000 (4)         $ 20.16 (4)   $ 130,570  
    6/24/2010                   1,688 (5)   6,250 (5)           $ 36,096 (5)
                                                 
W. Rodney McMullen       $ 1,000,000 (1)   $ 2,000,000 (1)                            
        $ 890,000 (2)   $ 890,000 (2)                            
    6/24/2010                   26,250 (3)                 $ 529,200  
    6/24/2010                   70,000 (4)         $ 20.16 (4)   $ 365,595  
    6/24/2010                   4,725 (5)   17,500 (5)           $ 101,068 (5)
                                                 
Donald E. Becker       $ 550,000 (1)   $ 1,100,000 (1)                            
        $ 645,000 (2)   $ 645,000 (2)                            
    6/24/2010                   61,250 (3)                 $ 1,234,800  
    6/24/2010                   30,000 (4)         $ 20.16 (4)   $ 156,684  
    6/24/2010                   2,025 (5)   7,500 (5)           $ 43,315 (5)
                                                 
Paul W. Heldman       $ 550,000 (1)   $ 1,100,000 (1)                            
        $ 710,000 (2)   $ 710,000 (2)                            
    6/24/2010                   11,250 (3)                 $ 226,800  
    6/24/2010                   30,000 (4)         $ 20.16 (4)   $ 156,684  
    6/24/2010                   2,025 (5)   7,500 (5)           $ 43,315 (5)
____________________
 
(1)       The amount listed under “Target” for each named executive officer represents the bonus potential of the named executive officer under the Company’s 2010 performance-based annual cash bonus program. By the terms of this plan, payouts are limited to no more than 200% of a participant’s bonus potential; accordingly, the amount listed under “Maximum” equals two times that officer’s bonus potential amount. The amount actually earned under this plan is shown in the Summary Compensation Table for 2010.
     
(2)   This amount represents the bonus potential of the named executive officer under the Company’s performance-based 2010 Long-Term Bonus Plan, a performance-based long-term cash bonus program. The “Target” amount equals the annual base salary of the named executive officer as of the last day

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        of fiscal year 2009. Bonuses are determined upon completion of the performance period as of fiscal year ending 2012. The “Target” amount is also the “Maximum” amount payable under this program, as participants can earn no more than 100% of their bonus potentials.
     
(3)   This amount represents the number of restricted shares awarded under one of the Company’s long-term incentive plans.
     
(4)   This amount represents the number of stock options granted under one of the Company’s long-term incentive plans. Options are granted at fair market value of Kroger common shares on the date of the grant. Fair market value is defined as the closing price of Kroger shares on the date of the grant.
     
(5)   Performance units were granted under one of the Company’s long-term incentive plans. The “Maximum” amount represents the maximum number of common shares that can be earned by the named executive officer under the grant. Because the target amount of common shares is not determinable, the amount listed under “Target” reflects a representative amount based on the previous year’s performance. This performance unit award is subject to performance conditions; accordingly the dollar amount listed in the grant date fair value column is the value at the grant date based on the probable outcome of these conditions. This amount is consistent with the estimate of aggregate compensation cost to be recognized by the Company over the three-year service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures.

     The Compensation Committee of the Board of Directors, and the independent members of the Board in the case of the CEO, established bonus potentials, shown in this table as “target” amounts, for the performance-based annual and long-term cash bonus awards for the named executive officers. Amounts were payable to the extent that performance met specific objectives established at the beginning of the performance period. As described in the Compensation Discussion and Analysis, actual earnings under the annual cash bonus can exceed the target amounts if performance exceeds the thresholds. The Compensation Committee of the Board of Directors, and the independent members of the Board in the case of the CEO, also determined the number of performance units to be awarded to each named executive officer, under which common shares are earned to the extent performance meets objectives established at the beginning of the performance period. The performance units are more particularly described in the Compensation Discussion and Analysis.
 
     Restrictions on restricted stock awards made to the named executive officers normally lapse, as long as the officer is then in our employ, in equal amounts on each of the five anniversaries of the date the award is made, except that: restrictions on 30,000 shares awarded to Mr. Becker in 2008 would have lapsed in 2011, and 50,000 shares awarded to Mr. Becker in 2010 would have lapsed as follows: 16,667 on 6/24/2011 and 33,333 on 6/24/2012. By the express terms of the restricted stock agreements, all of Mr. Becker’s restrictions lapsed on his death on February 16, 2011. 70,000 shares awarded to Mr. McMullen in 2009 vest as follows: 15,000 shares on 6/25/2012, 20,000 shares on 6/25/2013, and 35,000 shares on 6/25/2014; 8,000 shares awarded to Mr. Heldman in 2006 vest on 5/4/2011; and 30,000 shares awarded to Mr. Heldman in 2008 vest as follows: 6,000 shares on 6/26/2011, 12,000 shares on 6/26/2012, and 12,000 shares on 6/26/2013. Any dividends declared on Kroger common shares are payable on restricted stock. Nonqualified stock options granted to the named executive officers normally vest in equal amounts on each of the five anniversaries of the date of grant. Those options were granted at the fair market value of Kroger common shares on the date of the grant. By the express terms of the stock option agreement, all of Mr. Becker’s options vested on his death on February 16, 2011. Options are granted only on one of the four dates of regularly scheduled Compensation Committee meetings conducted shortly following Kroger’s public release of its quarterly earnings results.
 
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 
     The following table discloses outstanding equity-based incentive compensation awards for the named executive officers as of the end of fiscal year 2010. Each outstanding award is shown separately. Option awards include performance-based nonqualified stock options. The vesting schedule for each award is described in the footnotes to this table.
 
    Option Awards   Stock Awards
                                                                Equity
                                                          Equity   Incentive
                      Equity                             Incentive   Plan
                      Incentive                             Plan   Awards:
                      Plan                             Awards:   Market
                      Awards:                       Market   Number of   or
    Number of   Number of   Number of                       Value of   Unearned   Payout Value
    Securities   Securities   Securities                 Number of   Shares or   Shares,   of Unearned
    Underlying   Underlying   Underlying                 Shares or   Units of   Units or   Shares,
    Unexercised   Unexercised   Unexercised   Option       Units of Stock   Stock That   Other   Units or
    Options   Options   Unearned   Exercise   Option   That Have   Have Not   Rights That   Other Rights
    (#)   (#)   Options   Price   Expiration   Not Vested   Vested   Have   That Have
Name   Exercisable   Unexercisable   (#)   ($)   Date   (#)   ($)   Not Vested   Not Vested
David B. Dillon     35,000                           $ 24.43     5/10/2011   24,000 (7)   $ 510,960                
      35,000                           $ 24.43     5/10/2011   44,000 (8)   $ 936,760                
      70,000                           $ 23.00     5/9/2012   69,000 (9)   $ 1,469,010                
                        35,000 (6)       $ 23.00     5/9/2012   92,000 (10)   $ 1,958,680                
      210,000                           $ 14.93     12/12/2012   86,250 (11)   $ 1,836,263                
      300,000                           $ 17.31     5/6/2014               57,500 (18)     $ 330,527  
      300,000                           $ 16.39     5/5/2015                            
      192,000       48,000 (1)                 $ 19.94     5/4/2016                            
      132,000       88,000 (2)                 $ 28.27     6/28/2017                            
      90,000       135,000 (3)                 $ 28.61     6/26/2018                            
      45,000       180,000 (4)                 $ 22.34     6/25/2019                            
              230,000 (5)                 $ 20.16     6/24/2020                            
                                                                       
J. Michael Schlotman     10,000                           $ 24.43     5/10/2011   2,000 (7)   $ 42,580                
      10,000                           $ 24.43     5/10/2011   4,000 (8)   $ 85,160                
      20,000                           $ 23.00     5/9/2012   6,000 (9)   $ 127,740                
                        10,000 (6)       $ 23.00     5/9/2012   8,000 (10)   $ 170,320                
      40,000                           $ 17.31     5/6/2014   9,375 (11)   $ 199,594                
      40,000                           $ 16.39     5/5/2015               6,250 (18)     $ 35,927  
      16,000       4,000 (1)                 $ 19.94     5/4/2016                            
      12,000       8,000 (2)                 $ 28.27     6/28/2017                            
      8,000       12,000 (3)                 $ 28.61     6/26/2018                            
      4,000       16,000 (4)                 $ 22.34     6/25/2019                            
              25,000 (5)                 $ 20.16     6/24/2020                            

39

 

    Option Awards   Stock Awards
                                                                Equity
                                                          Equity   Incentive
                      Equity                             Incentive   Plan
                      Incentive                             Plan   Awards:
                      Plan                             Awards:   Market
                      Awards:                       Market   Number of   or
    Number of   Number of   Number of                       Value of   Unearned   Payout Value
    Securities   Securities   Securities                 Number of   Shares or   Shares,   of Unearned
    Underlying   Underlying   Underlying                 Shares or   Units of   Units or   Shares,
    Unexercised   Unexercised   Unexercised   Option       Units of Stock   Stock That   Other   Units or
    Options   Options   Unearned   Exercise   Option   That Have   Have Not   Rights That   Other Rights
    (#)   (#)   Options   Price   Expiration   Not Vested   Vested   Have   That Have
Name   Exercisable   Unexercisable   (#)   ($)   Date   (#)   ($)   Not Vested   Not Vested
W. Rodney McMullen     25,000                           $ 24.43     5/10/2011   6,000 (7)   $ 127,740                
      25,000                           $ 24.43     5/10/2011   12,000 (8)   $ 255,480                
      50,000                           $ 23.00     5/9/2012   21,000 (9)   $ 447,090                
                        25,000 (6)       $ 23.00     5/9/2012   28,000 (10)   $ 596,120                
      150,000                           $ 14.93     12/12/2012   26,250 (11)   $ 558,863                
      75,000                           $ 17.31     5/6/2014   70,000 (12)   $ 1,490,300                
      75,000                           $ 16.39     5/5/2015                17,500 (18)     $ 100,595  
      48,000       12,000 (1)                 $ 19.94     5/4/2016                            
      36,000       24,000 (2)                 $ 28.27     6/28/2017                            
      26,000       39,000 (3)                 $ 28.61     6/26/2018                            
      13,000       52,000 (4)                 $ 22.34     6/25/2019                            
              70,000 (5)                 $ 20.16     6/24/2020                            
                                                                       
Donald E. Becker     12,500                           $ 24.43     5/10/2011   2,500 (7)   $ 53,225                
      12,500                           $ 24.43     5/10/2011   5,000 (8)   $ 106,450                
      26,667                           $ 23.00     5/9/2012   7,500 (9)   $ 159,675                
                        13,333 (6)       $ 23.00     5/9/2012   10,000 (10)   $ 212,900                
      80,000                           $ 14.93     12/12/2012   11,250 (13)   $ 239,513                
      40,000                           $ 17.31     5/6/2014   30,000 (14)   $ 638,700                
      40,000                           $ 16.39     5/5/2015   50,000 (15)   $ 1,064,500                
      20,000       5,000 (1)                 $ 19.94     5/4/2016               7,500 (18)     $ 43,112  
      15,000       10,000 (2)                 $ 28.27     6/28/2017                            
      10,000       15,000 (3)                 $ 28.61     6/26/2018                            
      5,000       20,000 (4)                 $ 22.34     6/25/2019                            
              30,000 (5)                 $ 20.16     6/24/2020                            
                                                                       
Paul W. Heldman     12,500                           $ 24.43     5/10/2011   2,500 (7)   $ 53,225                
      12,500                           $ 24.43     5/10/2011   5,000 (8)   $ 106,450                
      26,667                           $ 23.00     5/9/2012   7,500 (9)   $ 159,675                
                        13,333 (6)       $ 23.00     5/9/2012   10,000 (10)   $ 212,900                
      80,000                           $ 14.93     12/12/2012   11,250 (11)   $ 239,513                
      40,000                           $ 17.31     5/6/2014   8,000 (16)   $ 170,320                
      40,000                           $ 16.39     5/5/2015   30,000 (17)   $ 638,700                
      20,000       5,000 (1)                 $ 19.94     5/4/2016               7,500 (18)     $ 43,112  
      15,000       10,000 (2)                 $ 28.27     6/28/2017                            
      10,000       15,000 (3)                 $ 28.61     6/26/2018                            
      5,000       20,000 (4)                 $ 22.34     6/25/2019                            
              30,000 (5)                 $ 20.16     6/24/2020                            

40

 

____________________
 
(1)       Stock options vest on 5/4/2011.
(2)   Stock options vest in equal amounts on 6/28/2011 and 6/28/2012.
(3)   Stock options vest in equal amounts on 6/26/2011, 6/26/2012, and 6/26/2013.
(4)   Stock options vest in equal amounts on 6/25/2011, 6/25/2012, 6/25/2013, and 6/25/2014.
(5)   Stock options vest in equal amounts on 6/24/2011, 6/24/2012, 6/24/2013, 6/24/2014, and 6/24/2015.
(6)   Performance stock options vest on 11/9/2011 or earlier if performance criteria is satisfied prior to such date.
(7)   Restricted stock vests on 5/4/2011.
(8)   Restricted stock vests in equal amounts on 6/28/2011 and 6/28/2012.
(9)   Restricted stock vests in equal amounts on 6/26/2011, 6/26/2012, and 6/26/2013.
(10)   Restricted stock vests in equal amounts on 6/25/2011, 6/25/2012, 6/25/2013, and 6/25/2014.
(11)   Restricted stock vests in equal amounts on 6/24/2011, 6/24/2012, 6/24/2013, 6/24/2014, and 6/24/2015.
(12)   Restricted stock vests as follows: 15,000 shares on 6/25/2012, 20,000 shares on 6/25/2013, and 35,000 shares on 6/25/2014.
(13)   Restricted stock vests in equal amounts on 6/24/2011, 6/24/2012, 6/24/2013, and 6/24/2014.
(14)   Restricted stock vests as follows: 30,000 shares on 6/26/2011.
(15)   Restricted stock vests as follows: 16,667 on 6/24/2011 and 33,333 on 6/24/2012.
(16)   Restricted stock vests as follows: 8,000 shares on 5/4/2011.
(17)   Restricted stock vests as follows: 6,000 shares on 6/26/2011, 12,000 shares on 6/26/2012, and 12,000 shares on 6/26/2013.
(18)   Performance units are earned as of the last day of fiscal year 2012, to the extent that the performance goals are achieved.

     Pursuant to the provisions of his stock option and restricted stock agreements, Mr. Becker’s stock options vested and restrictions on his restricted stock lapsed, earlier than the previously stated periods due to his death on February 16, 2011.
 
     From 1997 through 2002, Kroger granted to the named executive officers performance-based nonqualified stock options. These options, having a term of ten years, vest six months prior to their date of expiration unless earlier vesting because Kroger’s stock price achieved the specified annual rate of appreciation set forth in the stock option agreement. That rate ranged from 13% to 16%. To date, only the performance-based options granted in 1997, 1998, 1999, 2000, and 2001 vested, and those granted in 1997, 1998, 1999, and 2000 expired if not earlier exercised.
 
41

 

OPTION EXERCISES AND STOCK VESTED
 
     The following table provides the stock options exercised and restricted stock vested during 2010.
 
2010 OPTION EXERCISES AND STOCK VESTED
    Option Awards   Stock Awards
    Number of                        
    Shares             Number of   Value
    Acquired   Value Realized   Shares Acquired   Realized
    on Exercise   on Exercise   on Vesting   on Vesting
Name       (#)       ($)       (#)       ($)
David B. Dillon                       92,000     $ 1,921,080
J. Michael Schlotman     60,000       $ 406,200       8,000     $ 166,840
W. Rodney McMullen     125,000       $ 567,025       26,000     $ 540,980
Donald E. Becker                       10,000     $ 208,550
Paul W. Heldman                       13,000     $ 276,620

     Options granted under our various long-term incentive plans have a ten-year life and expire if not exercised within that ten-year period.
 
PENSION BENEFITS
 
     The following table provides information on pension benefits as of 2010 year-end for the named executive officers.
 
2010 PENSION BENEFITS
        Number   Present   Payments
        of Years   Value of   During
        Credited   Accumulated   Last Fiscal
        Service   Benefit   Year
Name       Plan Name       (#)       ($)       ($)
David B. Dillon   The Kroger Consolidated Retirement Benefit Plan   15   $ 507,578   $0
    The Kroger Co. Excess Benefit Plan   15   $ 6,355,080   $0
    Dillon Companies, Inc. Excess Benefit Pension Plan   20   $ 7,257,697   $0
                   
J. Michael Schlotman   The Kroger Consolidated Retirement Benefit Plan   25   $ 596,004   $0
    The Kroger Co. Excess Benefit Plan   25   $ 2,349,293   $0
                   
W. Rodney McMullen   The Kroger Consolidated Retirement Benefit Plan   25   $ 528,033   $0
    The Kroger Co. Excess Benefit Plan   25   $ 4,226,831   $0
                   
Donald E. Becker   The Kroger Consolidated Retirement Benefit Plan   36   $ 1,399,059   $0
    The Kroger Co. Excess Benefit Plan   36   $ 6,505,881   $0
                   
Paul W. Heldman   The Kroger Consolidated Retirement Benefit Plan   28   $ 956,017   $0
    The Kroger Co. Excess Benefit Plan   28   $ 4,786,456   $0

42

 

     The named executive officers all participate in The Kroger Consolidated Retirement Benefit Plan (the “Consolidated Plan”), which is a qualified defined benefit pension plan. The Consolidated Plan generally determines accrued benefits using a cash balance formula, but retains benefit formulas applicable under prior plans for certain “grandfathered participants” who were employed by Kroger on December 31, 2000. Each of the named executive officers is eligible for these grandfathered benefits under the Consolidated Plan. Their benefits, therefore, are determined using formulas applicable under prior plans, including the Kroger formula covering service to The Kroger Co. and the Dillon Companies, Inc. Pension Plan formula covering service to Dillon Companies, Inc.
 
     The named executive officers also are eligible to receive benefits under The Kroger Co. Excess Benefit Plan (the “Kroger Excess Plan”), and Mr. Dillon also is eligible to receive benefits under the Dillon Companies, Inc. Excess Benefit Pension Plan (the “Dillon Excess Plan”). These plans are collectively referred to as the “Excess Plans.” The Excess Plans are each considered to be nonqualified deferred compensation plans as defined in Section 409A of the Internal Revenue Code. The purpose of the Excess Plans is to make up the shortfall in retirement benefits caused by the limitations on benefits to highly compensated individuals under qualified plans in accordance with the Internal Revenue Code.
 
     Each of the named executive officers will receive benefits under the Consolidated Plan and the Excess Plans, determined as follows:
     Although participants generally receive credited service beginning at age 21, those participants who commenced employment prior to 1986, including all of the named executive officers, began to accrue credited service after attaining age 25. In the event of a termination of employment, Messrs. Dillon and Heldman currently are eligible for a reduced early retirement benefit, as they each have attained age 55.
 
     Mr. Dillon also participates in the Dillon Employees’ Profit Sharing Plan (the “Dillon Plan”). The Dillon Plan 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 then allocated to each participant’s account. Participation in the Dillon Plan was frozen effective January 1, 2001. Participants in the Dillon Plan 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. Prior to July 1, 2000, participants could elect to make voluntary contributions under the Dillon Plan, but that option was discontinued effective as of July 1, 2000. Participants can elect to receive their Dillon Plan benefit in the form of either a lump sum payment or installment payments.
 
     Due to offset formulas contained in the Consolidated Plan and the Dillon Excess Plan, Mr. Dillon’s accrued benefit under the Dillon Plan offsets a portion of the benefit that would otherwise accrue for him under those plans for his service with Dillon Companies, Inc. Although benefits that accrue under defined contribution plans are not reportable under the accompanying table, we have added narrative disclosure of the Dillon Plan because of the offsetting effect that benefits under that plan has on benefits accruing under the Consolidated Plan and the Dillon Excess Plan.
 
43

 

     The assumptions used in calculating the present values are set forth in Note 13 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2010 ended January 29, 2011. The discount rate used to determine the present values is 5.6%, which is the same rate used at the measurement date for financial reporting purposes.
 
NONQUALIFIED DEFERRED COMPENSATION
 
     The following table provides information on nonqualified deferred compensation for the named executive officers for 2010.
 
2010 NONQUALIFIED DEFERRED COMPENSATION
    Executive   Registrant   Aggregate   Aggregate   Aggregate
    Contributions   Contributions   Earnings   Withdrawals/   Balance at
    in Last FY   in Last FY   in Last FY   Distributions   Last FYE
Name       ($)       ($)       ($)       ($)       ($)
David B. Dillon   $ 80,000 (1)   $0   $ 56,595   $0   $ 846,428
J. Michael Schlotman   $ 0     $0   $ 0   $0   $ 0
W. Rodney McMullen   $ 76,900 (1)   $0   $ 339,144   $0   $ 5,073,371
Donald E. Becker   $ 0     $0   $ 0   $0   $ 0
Paul W. Heldman   $ 369,255 (2)   $0   $ 50,590   $0   $ 922,514
____________________
 
(1)       These amounts represent the deferral of annual bonus earned in fiscal year 2009 and paid in March 2010. These amounts are included in the Summary Compensation Table for 2009.
 
(2)   This amount represents the deferral of long-term bonus earned in fiscal year 2009 and paid in March 2010. This amount is included in the Summary Compensation Table for 2009.

     Eligible 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 Internal Revenue Code Section 125 plan deductions, as well as 100% of their annual and long-term bonus compensation. Deferral account amounts are credited with interest at the rate representing Kroger’s cost of ten-year debt as determined by Kroger’s CEO 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. 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.
 
44

 

DIRECTOR COMPENSATION
 
     The following table describes the fiscal year 2010 compensation for non-employee directors. Employee directors receive no compensation for their Board service.
 
2010 DIRECTOR COMPENSATION
                              Change in                
                              Pension Value                
                              and                
    Fees                       Nonqualified                
    Earned                   Non-Equity   Deferred   All      
    or Paid   Stock   Option   Incentive Plan   Compensation   Other      
    in Cash   Awards   Awards   Compensation   Earnings   Compensation   Total
Name       ($)       ($)       ($)       ($)       ($)       ($)       ($)
          (1)   (1)                             (11)      
Reuben V. Anderson   $ 74,795   $ 67,470 (2)   $ 34,958 (3)   —       — (8)          $ 114          $ 177,337
Robert D. Beyer   $ 86,762   $ 67,470 (2)   $ 34,958 (3)   —     $ 4,701 (9)     $ 114     $ 194,005
Susan J. Kropf   $ 84,767   $ 67,470 (2)   $ 34,958 (4)   —       N/A       $ 114     $ 187,309
John T. LaMacchia   $ 86,762   $ 67,470 (2)   $ 34,958 (3)   —     $ 343 (10)     $ 114     $ 189,647
David B. Lewis   $ 74,795   $ 67,470 (2)   $ 34,958 (5)   —       N/A       $ 114     $ 177,337
Jorge P. Montoya   $ 86,762   $ 67,470 (2)   $ 34,958 (4)   —       N/A       $ 114     $ 189,304
Clyde R. Moore   $ 74,795   $ 67,470 (2)   $ 34,958 (3)   —       — (8)     $ 114     $ 177,337
Susan M. Phillips   $ 84,767   $ 67,470 (2)   $ 34,958 (6)   —     $ 1,360 (9)     $ 114     $ 188,669
Steven R. Rogel   $ 74,795   $ 67,470 (2)   $ 34,958 (3)   —       N/A       $ 114     $ 177,337
James A. Runde   $ 74,795   $ 67,470 (2)   $ 34,958 (7)   —       N/A       $ 114     $ 177,337
Ronald L. Sargent   $ 96,734   $ 67,470 (2)   $ 34,958 (7)   —     $ 940 (9)     $ 114     $ 200,216
Bobby S. Shackouls   $ 116,679   $ 67,470 (2)   $ 34,958 (3)   —       N/A       $ 114     $ 219,221
____________________
 
(1)         These amounts represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718.
(2)   Aggregate number of stock awards outstanding at fiscal year end was 4,875 shares.
(3)   Aggregate number of stock options outstanding at fiscal year end was 51,500 shares.
(4)   Aggregate number of stock options outstanding at fiscal year end was 24,500 shares.
(5)   Aggregate number of stock options outstanding at fiscal year end was 49,500 shares.
(6)   Aggregate number of stock options outstanding at fiscal year end was 39,500 shares.
(7)   Aggregate number of stock options outstanding at fiscal year end was 29,500 shares.
(8)   This amount reflects the change in pension value for the applicable directors. Only those directors elected to the Board prior to July 17, 1997 are eligible to participate in the outside director retirement plan. Mr. Anderson’s pension value decreased by $2,815 and Mr. Moore’s pension value decreased by $2,692. In accordance with SEC rules, negative amounts are required to be disclosed, but not reflected in the sum of total compensation.
(9)   This amount reflects preferential earnings on nonqualified deferred compensation. For a complete explanation of preferential earnings, please refer to footnote 4 to the Summary Compensation Table.
(10)   This amount reflects preferential earnings on nonqualified deferred compensation in the amount of $343. Mr. LaMacchia also participates in the outside director retirement plan, and his 2010 pension value is unchanged from 2009.
(11)   This amount reflects the cost to the Company per director for providing accidental death and dismemberment insurance coverage for non-employee directors. These premiums are paid on an annual basis in February.
 
45

 

     Each non-employee director receives an annual retainer of $75,000. The chair of each committee receives an additional annual retainer of $12,000. Each member of the Audit Committee receives an additional annual retainer of $10,000. The director designated as the “Lead Director” receives an additional annual retainer of $20,000. Each non-employee director also has received annually, at the regularly scheduled Board meeting held in December, restricted stock and nonqualified stock option awards. On December 9, 2010, each non-employee director received 3,250 shares of restricted stock and an award of 6,500 nonqualified stock options. Beginning in 2011, these awards will be made at the regularly scheduled Board meeting held in June, as this is the date for general awards to be made to Kroger employees.
 
     Non-employee directors first elected prior to July 17, 1997 receive a major medical plan benefit as well as an unfunded retirement benefit. The retirement benefit equals the average cash compensation for the five calendar years preceding retirement. Participants who retire from the Board prior to age 70 will be credited with 50% vesting after five years of service, and 10% for each additional year up to a maximum of 100%. Benefits for participants who retire prior to age 70 begin at the later of actual retirement or age 65.
 
     We also maintain a deferred compensation plan, in which all non-employee members of the Board are eligible to participate. Participants may defer up to 100% of their cash compensation. They may elect from either or both of the following two alternative methods of determining benefits:
     In both cases, deferred amounts are paid out only in cash, based on deferral options selected by the participants at the time the deferral elections are made. Participants can elect to have distributions made in a lump sum or in quarterly installments, and may make comparable elections for designated beneficiaries who receive benefits in the event that deferred compensation is not completely paid out upon the death of the participant.
 
     The Board has determined that compensation of non-employee directors must be competitive on an on-going basis to attract and retain directors who meet the qualifications for service on Kroger’s Board. Non-employee director compensation will be reviewed from time to time as the Corporate Governance Committee deems appropriate.
 
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
 
     Kroger has no contracts, agreements, plans or arrangements that provide for payments to the named executive officers in connection with resignation, severance, retirement, termination, or change in control, except for those available generally to salaried employees. The Kroger Co. Employee Protection Plan, or KEPP, applies to all management employees and administrative support personnel who are not covered by a collective bargaining agreement, with at least one year of service, and provides severance benefits when a participant’s employment is terminated actually or constructively within two years following a change in control of Kroger. For purposes of KEPP, a change in control occurs if:
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     Assuming that a change in control occurred on the last day of Kroger’s fiscal year 2010, and the named executive officers had their employment terminated, they would receive a maximum payment, or, in the case of group term life insurance, a benefit having a cost to Kroger, in the amounts shown below:
 
          Additional   Accrued                              
    Severance   Vacation and   and Banked   Group Term   Tuition   Outplacement
Name       Benefit       Bonus       Vacation       Life Insurance         Reimbursement       Reimbursement
David B. Dillon   $ 4,620,000      $ 99,615         $ 678,462             $ 29                 $ 5,000                $ 10,000      
J. Michael Schlotman   $ 1,955,000     $ 36,490       $ 328,462       $ 29       $ 5,000       $ 10,000  
W. Rodney McMullen   $ 3,180,000     $ 66,891       $ 479,231       $ 29       $ 5,000       $ 10,000  
Donald E. Becker   $ 2,090,000     $ 38,430       $ 507,692       $ 29       $ 5,000       $ 10,000  
Paul W. Heldman   $ 2,218,000     $ 39,212       $ 181,000       $ 29       $ 5,000       $ 10,000  

     Each of the named executive officers also is entitled to continuation of health care coverage for up to 24 months at the same contribution rate as existed prior to the change in control. The cost to Kroger cannot be calculated, as Kroger self insures the health care benefit and the cost is based on the health care services utilized by the participant and eligible dependents.
 
     Under KEPP benefits will be reduced, to the extent necessary, so that payments to an executive officer will in no event exceed 2.99 times the officer’s average W-2 earnings over the preceding five years.
 
     Kroger’s change in control benefits under KEPP and under stock option and restricted stock agreements are discussed further in the Compensation Discussion and Analysis section under the “Retirement and Other Benefits” heading.
 
COMPENSATION POLICIES AS THEY RELATE TO RISK MANAGEMENT
 
     Kroger’s compensation policies and practices for its employees are designed to attract and retain highly qualified and engaged employees, and to minimize risks that would have a material adverse effect on Kroger. One of these policies, the executive compensation recoupment policy, is more particularly described in the Compensation Discussion and Analysis. Kroger does not believe that its compensation policies and practices create risks that are reasonably likely to have a material adverse effect on Kroger.
 
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BENEFICIAL OWNERSHIP OF COMMON STOCK
 
     As of February 16, 2011, Kroger’s directors, the named executive officers, and the directors and executive officers as a group, beneficially owned Kroger common shares as follows:
 
    Amount and Nature
    of
Name       Beneficial Ownership
Reuben V. Anderson   80,915 (1)
Donald E. Becker   576,788 (2)(3)(4)
Robert D. Beyer   122,962 (1)
David B. Dillon   2,393,309 (2)(3)(5)
Paul W. Heldman   572,364 (2)(3)
Susan J. Kropf   21,150 (6)
John T. LaMacchia   93,750 (1)
David B. Lewis   54,875 (7)
W. Rodney McMullen   1,200,446 (2)(3)
Jorge P. Montoya   17,311 (6)
Clyde R. Moore   71,350 (1)
Susan M. Phillips   55,185 (8)
Steven R. Rogel   70,178 (1)
James A. Runde   28,650 (9)
Ronald L. Sargent   27,650 (9)
J. Michael Schlotman   268,968 (2)(3)
Bobby S. Shackouls   57,150 (1)
Directors and Executive Officers as a group (including those named above)   7,786,855 (2)(3)

(1)         This amount includes 32,900 shares that represent options that are or become exercisable on or before April 17, 2011.
(2)   This amount includes shares that represent options that are or become exercisable on or before April 17, 2011, in the following amounts: Mr. Becker, 341,667; Mr. Dillon, 1,409,000; Mr. Heldman, 261,667; Mr. McMullen, 523,000; Mr. Schlotman, 160,000; and all directors and executive officers as a group, 4,345,534. Pursuant to his stock option agreements, all of Mr. Becker’s options, with the exception of 13,333 performance stock options, became exercisable on his death on February 16, 2011.
(3)   The fractional interest resulting from allocations under Kroger’s defined contribution plans has been rounded to the nearest whole number.
(4)   This amount includes 10,228 shares owned by Mr. Becker’s wife.
(5)   This amount includes 110,318 shares owned by Mr. Dillon’s wife, and 18,008 shares in his children’s trust. Mr. Dillon disclaims beneficial ownership of these shares.
(6)   This amount includes 6,900 shares that represent options that are or become exercisable on or before April 17, 2011.
(7)   This amount includes 30,900 shares that represent options that are or become exercisable on or before April 17, 2011.
(8)   This amount includes 20,900 shares that represent options that are or become exercisable on or before April 17, 2011.
(9)   This amount includes 10,900 shares that represent options that are or become exercisable on or before April 17, 2011.
 
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     No director or officer owned as much as 1% of the common shares of Kroger. The directors and executive officers as a group beneficially owned 1% of the common shares of Kroger.
 
     No director or officer owned Kroger common shares pledged as security.
 
     As of February 16, 2011, the following reported beneficial ownership of Kroger common shares based on reports on Schedule 13G filed with the Securities and Exchange Commission or other reliable information as follows:
 
        Amount and    
        Nature of   Percentage
Name       Address of Beneficial Owner       Ownership       of Class
BlackRock, Inc.   55 East 52nd Street   44,647,374     7.0%
    New York, NY 10055          
               
The Kroger Co. Savings Plan   1014 Vine Street   32,322,323 (1)   5.2%
    Cincinnati, OH 45202          
____________________
 
(1)        Shares beneficially owned by plan trustees for the benefit of participants in employee benefit plan.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
     Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Those officers, directors and shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
 
     Based solely on our review of the copies of forms received by Kroger, and any written representations from certain reporting persons that no Forms 5 were required for those persons, we believe that during fiscal year 2010 all filing requirements applicable to our officers, directors and 10% beneficial owners were timely satisfied, with the following exceptions. In December 2010, Reuben Anderson, Robert Beyer, Susan Kropf, John LaMacchia, David Lewis, Jorge Montoya, Clyde Moore, Susan Phillips, Steven Rogel, James Runde, Ronald Sargent, and Bobby Shackouls were all one day late in the filing of Forms 4 to report two equity awards received in connection with a long-term incentive plan due to the Company’s inadvertent delay in furnishing details of the awards to the third party administrator. Also, in November 2010, Mr. Lewis filed a delinquent Form 4 to report dividend reinvestments occurring in his private brokerage account during 2008 and 2009 that inadvertently were not reported on two prior Forms 5.
 
RELATED PERSON TRANSACTIONS
 
     Pursuant to our Statement of Policy with Respect to Related Person Transactions and the rules of the SEC, Kroger has the following related person transactions, which were approved by Kroger’s Audit Committee, to disclose:
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     Director independence is discussed above under the heading “Information Concerning the Board of Directors.” Kroger’s policy on related person transactions is as follows:
 
STATEMENT OF POLICY
WITH RESPECT TO
RELATED PERSON TRANSACTIONS
 
A. INTRODUCTION
 
     It is the policy of Kroger’s Board of Directors that any Related Person Transaction may be consummated or may continue only if the Committee approves or ratifies the transaction in accordance with the guidelines set forth in this policy. The Board of Directors has determined that the Audit Committee of the Board is best suited to review and approve Related Person Transactions.
 
     For the purposes of this policy, a “Related Person” is:
 
        1.         any person who is, or at any time since the beginning of Kroger’s last fiscal year was, a director or executive officer of Kroger or a nominee to become a director of Kroger;
   
  2.   any person who is known to be the beneficial owner of more than 5% of any class of Kroger’s voting securities; and
   
  3.   any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter- in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner.
 
     For the purposes of this policy, a “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) since the beginning of Kroger’s last fiscal year in which Kroger (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $120,000, and in which any Related Person had, has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity).
 
     Notwithstanding the foregoing, the Audit Committee has reviewed the following types of transactions and has determined that each type of transaction is deemed to be pre-approved, even if the amount involved exceeds $120,000.
 
         1.         Certain Transactions with Other Companies. Any transaction for property or services in the ordinary course of business involving payments to or from another company at which a Related Person’s only relationship is as an employee (including an executive officer), director, or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved in any fiscal year does not exceed the greater of $1,000,000 or 2 percent of that company’s annual consolidated gross revenues.
   
  2.   Certain Company Charitable Contributions. Any charitable contribution, grant or endowment by Kroger (or one of its foundations) to a charitable organization, foundation, university or other not for profit organization at which a Related Person’s only relationship is as an employee (including an executive officer) or as a director, if the aggregate amount involved does not exceed $250,000 or 5 percent, whichever is lesser, of the charitable organization’s latest publicly available annual consolidated gross revenues.
 
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        3.         Transactions where all Shareholders Receive Proportional Benefits. Any transaction where the Related Person’s interest arises solely from the ownership of Kroger common stock and all holders of Kroger common stock received the same benefit on a pro rata basis.
   
  4.   Executive Officer and Director Compensation. (a) Any employment by Kroger of an executive officer if the executive officer’s compensation is required to be reported in Kroger’s proxy statement, (b) any employment by Kroger of an executive officer if the executive officer is not an immediate family member of a Related Person and the Compensation Committee approved (or recommended that the Board approve) the executive officer’s compensation, and (c) any compensation paid to a director if the compensation is required to be reported in Kroger’s proxy statement.
   
  5.   Other Transactions. (a) Any transaction involving a Related Person where the rates or charges involved are determined by competitive bids, (b) any transaction with a Related Person involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority, or (c) any transaction with a Related Person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services.
 
B. AUDIT COMMITTEE APPROVAL
 
     In the event management becomes aware of any Related Person Transactions that are not deemed pre-approved under paragraph A of this policy, those transactions will be presented to the Committee for approval at the next regular Committee meeting, or where it is not practicable or desirable to wait until the next regular Committee meeting, to the Chair of the Committee (who will possess delegated authority to act between Committee meetings) subject to ratification by the Committee at its next regular meeting. If advance approval of a Related Person Transaction is not feasible, then the Related Person Transaction will be presented to the Committee for ratification at the next regular Committee meeting, or where it is not practicable or desirable to wait until the next regular Committee meeting, to the Chair of the Committee for ratification, subject to further ratification by the Committee at its next regular meeting.
 
     In connection with each regular Committee meeting, a summary of each new Related Person Transaction deemed pre-approved pursuant to paragraphs A(1) and A(2) above will be provided to the Committee for its review.
 
     If a Related Person Transaction will be ongoing, the Committee may establish guidelines for management to follow in its ongoing dealings with the Related Person. Thereafter, the Committee, on at least an annual basis, will review and assess ongoing relationships with the Related Person to see that they are in compliance with the Committee’s guidelines and that the Related Person Transaction remains appropriate.
 
     The Committee (or the Chair) will approve only those Related Person Transactions that are in, or are not inconsistent with, the best interests of Kroger and its shareholders, as the Committee (or the Chair) determines in good faith in accordance with its business judgment.
 
     No director will participate in any discussion or approval of a Related Person Transaction for which he or she, or an immediate family member (as defined above), is a Related Person except that the director will provide all material information about the Related Person Transaction to the Committee.
 
C. DISCLOSURE
 
     Kroger will disclose all Related Person Transactions in Kroger’s applicable filings as required by the Securities Act of 1933, the Securities Exchange Act of 1934 and related rules.
 
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AUDIT COMMITTEE REPORT
 
     The primary function of the Audit Committee is to represent and 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 this report that SEC rules require be included in the Company’s annual proxy statement. 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 2011 and is available on the Company’s website at http://www.thekrogerco.com/documents/GuidelinesIssues.pdf. 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 Committee’s charter. The Audit Committee held five meetings during fiscal year 2010. This number is less than the number held in 2009 because two meetings, held to review the Company’s quarterly reports on Form 10-Q, were combined with other regularly scheduled meetings. The Audit Committee meets separately with the Company’s internal auditor and PricewaterhouseCoopers LLP, the Company’s independent public accountants, without management present, to discuss the results of their audits, their evaluations of the Company’s internal controls over financial reporting, and the overall quality of the Company’s financial reporting. The Audit Committee also meets separately with the Company’s Chief Financial Officer and General Counsel when needed. Following these separate discussions, the Audit Committee meets in executive session.
 
     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 the performance of its oversight function, the Audit Committee has reviewed and discussed with management and PricewaterhouseCoopers LLP the audited financial statements for the year ended January 29, 2011, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of January 29, 2011, and PricewaterhouseCoopers’ evaluation of the Company’s internal control over financial reporting as of that date. The Audit Committee has also discussed with the independent public accountants the matters that the independent public accountants must communicate to the Audit Committee under applicable requirements of the Public Company Accounting Oversight Board.
 
     With respect to the Company’s independent public accountants, the Audit Committee, among other things, discussed with PricewaterhouseCoopers LLP matters relating to its independence and has received the written disclosures and the letter from the independent public accountants required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent public accountants’ communications with the Audit Committee concerning independence. The Audit Committee has reviewed and approved in advance all services provided to the Company by PricewaterhouseCoopers LLP. The Audit Committee conducted a review of services provided by PricewaterhouseCoopers LLP which included an evaluation by management and members of the Audit Committee.
 
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     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 January 29, 2011, as filed with the SEC.
 
     This report is submitted by the Audit Committee.
 
Ronald L. Sargent, Chair
Susan J. Kropf
Susan M. Phillips
Bobby S. Shackouls
 
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APPROVAL OF THE 2011 LONG-TERM INCENTIVE AND CASH BONUS PLAN
(ITEM NO. 2)
 
     The Board of Directors has adopted, subject to shareholder approval, The Kroger Co. 2011 Long-Term Incentive and Cash Bonus Plan (“Plan”) for which a maximum of 25,000,000 shares were reserved. The purpose of the Plan is to assist in attracting and retaining employees and directors of outstanding ability and to align their interests with those of the shareholders of Kroger. If approved, the Plan will be effective as of June 23, 2011.
 
DESCRIPTION OF THE PLAN
 
     General. The Plan consists of two separate equity-based programs; the Insider Program and the Non-Insider Program. Officers and directors of Kroger subject to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) are eligible for grants or awards under the Insider Program while all other employees of Kroger are eligible for grants or awards under the Non-Insider Program. As of the date of this proxy statement, 27 employees and directors are eligible to participate in the Insider Program and the remaining approximately 338,000 employees of Kroger are eligible to participate in the Non-Insider Program. In addition, the Plan provides for a performance-based Cash Bonus Program in which all 338,000 employees are eligible to participate.
 
     Administration. The Insider Program will be administered by a committee of the Board of Directors that meets the standards of Rule 16b-3(d)(1) under the Exchange Act and initially will be the Compensation Committee of the Board of Directors, made up exclusively of independent directors. The Non-Insider Program will be administered by a committee of three officers appointed by the Chief Executive Officer, the members of which are ineligible to receive grants or awards under the Non-Insider Program. The administering committee in each case is referred to as the “Committee.” The Cash Bonus Program will be administered by the Committee under the Insider Program. The Plan is drafted to maintain the maximum amount of flexibility with the Committee determining the ultimate provisions of each grant or award.
 
     The Committee is authorized to award or grant nonstatutory stock options, stock appreciation rights, performance units, restricted stock and incentive shares to participants under the Insider Program and the Non-Insider Program, and to award performance-based cash bonuses under the Cash Bonus Program. The Committee will determine the types and amounts of awards or grants, the recipients of awards or grants, vesting schedules, restrictions, performance criteria, and other provisions of the grants or awards. All of these provisions will be set forth in a written instrument.
 
     In addition to other rights of indemnification they may have as directors or employees of Kroger, members of the Committee will be indemnified by Kroger for reasonable expenses incurred in connection with defense of any action brought against them by reason of action taken or failure to act under or in connection with the Plan or any grant or award thereunder, if the members acted in good faith and in a manner that they believed to be in the best interest of Kroger.
 
     The Board of Directors may terminate or amend the Plan at any time without shareholder approval, except that it may not amend the Plan without shareholder approval if required by applicable law, regulations, or rules of the principal exchange or interdealer quotation system on which Kroger’s common shares are listed or quoted. Unless earlier terminated by the Board of Directors, the Plan will terminate on March 10, 2021. Termination of the Plan will have no effect on the validity of any options, stock appreciation rights, performance units, restricted stock or incentive shares outstanding on the date of termination.
 
     Unless otherwise provided in the agreement, awards and grants will not be transferable other than by will or the laws of descent and distribution.
 
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     Shares Subject to Grant. Under the Plan up to 25,000,000 authorized but unissued or reacquired common shares may be issued upon the exercise of stock options, stock appreciation rights, performance units, or awarded as restricted stock or incentive shares. In no event may any participant receive awards and grants totaling more than 3,750,000 common shares in the aggregate under the Plan. The maximum number of shares that may be issued as restricted stock, incentive shares, or performance units under the Plan is 10,000,000 in the aggregate. However, the Committee under the Insider Program may increase this number, but for each share issued for such purpose in excess of 10,000,000, the number of shares that may be issued under the Plan will be reduced by four shares.
 
     If an option, stock appreciation right, or performance unit expires or terminates without having been fully issued, or if restricted stock or incentive shares are not issued or are forfeited prior to the payment of a dividend on those shares to a participant, the shares not exercised, unissued or forfeited, as the case may be, will generally become available for other grants or awards under the Plan.
 
     Stock Options. Nonstatutory stock options granted under the Plan will have exercise prices not less than the greater of the fair market value per common share or the par value of a common share, a term of not more than 10 years after the date of grant, and may not be exercised before six months from the date of grant. The Plan prohibits the “repricing” of stock options. Subject to the terms of the Plan, the Committee determines the vesting schedule and other terms and conditions applicable to stock options granted to employees. In recent years, option grants generally have not become exercisable earlier than one year from the date of grant. An eligible participant may receive more than one grant of options.
 
     The Committee may in its discretion provide for the payment of the option exercise price otherwise than in cash, including by delivery of common shares, valued at their fair market value on the date of exercise, or by a combination of both cash and common shares.
 
     Stock Appreciation Rights. Stock appreciation rights may be granted in connection with the grant of a nonstatutory option under the Plan (“related rights”). In the Committee’s sole discretion, a related right may apply to all or a portion of the common shares subject to the related option. Stock appreciation rights may also be granted independently of any option granted under the Plan. A stock appreciation right entitles the grantee upon exercise to elect to receive in cash, common shares or a combination thereof, the excess of the fair market value of a specified number of common shares at the time of exercise over the fair market value of such number of shares at the time of grant, or, in the case of a related right, the exercise price provided in the related option. To the extent required to comply with the requirements of Rule 16b-3 under the Exchange Act or otherwise provided in an agreement under the Plan, the Committee will have sole discretion to consent to or disapprove the election of any grantee to receive cash in full or partial settlement of a right. A stock appreciation right generally will not be exercisable until at least six months from the date of grant and will have a term of not more than ten years from the date of grant (or, in the case of a related right, not beyond the expiration of the related option). The Plan prohibits the “repricing” of stock appreciation rights.
 
     Performance Units. Performance units may be granted in connection with the grant of a nonstatutory stock option under the Plan (“related performance unit”). In the Committee’s sole discretion, a related performance unit may apply to all or a portion of the common shares subject to the related option. Performance units may also be granted independently of any option granted under the Plan. In connection with the grant of performance units, the Committee will establish Performance Goals (as defined below) for a specified period.
 
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     Upon the exercise of performance units, a grantee will be entitled to receive the payment of such units in accordance with the terms of the award in common shares, cash, or a combination thereof, as the Committee may determine. The values generally will depend upon the extent to which the performance goals for the specified period have been satisfied, as determined by the Committee. Performance goals may be particular to a grantee or the department, branch, subsidiary or other unit in which the grantee works, or may be based on the performance of Kroger generally and may cover such periods as may be specified by the Committee. For purposes of the Plan, “Performance Goals” means performance goals established by the Committee which may be based on (i) earnings or earnings per share of Kroger, a unit of Kroger, or designated projects; (ii) total sales, identical sales, or comparable sales of Kroger, a unit of Kroger, or designated projects; (iii) cash flow; (iv) cash flow from operations; (v) operating profit or income; (vi) net income; (vii) operating margin; (viii) net income margin; (ix) return on net assets; (x) economic value added; (xi) return on total assets; (xii) return on common equity; (xiii) return on total capital; (xiv) total shareholder return; (xv) revenue; (xvi) revenue growth; (xvii) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (xviii) EBITDA growth; (xix) funds from operations per share and per share growth; (xx) cash available for distribution; (xxi) cash available for distribution per share and per share growth; (xxii) share price performance on an absolute basis and relative to an index of earnings per share or improvements in Kroger’s attainment of expense levels; (xxiii) reduction in operating costs as a percentage of sales; (xxiv) performance in key categories; (xxv) implementing or completion of strategic initiatives or critical projects; and (xxvi) key category performance as measured by the results of surveys of customers or associates, or any other objective goals established by the Committee, and may be absolute in their terms or measured against or in relationship to other companies similarly or otherwise situated. Performance units may be exercised only upon the achievement of minimum Performance Goals during the period as determined by the Committee. The Committee will determine the period during which performance units are exercisable and specifically set forth such period in any agreement granting performance units to a participant in the Plan, provided, however, that a performance unit generally may not be exercised until the expiration of at least six months from the date of grant. Performance units will expire no later than ten years from the date of grant (or in the case of a related performance unit, the expiration of the related option). Any performance units paid in the form of cash are deemed to be paid in common shares, with the number of shares being deemed paid equal to the amount of cash paid to the employee divided by the fair market value of a common share on the date of payment.
 
     Restricted Stock. The Committee may award restricted stock to participants. The stock will be subject to forfeiture, restrictions on transferability, and other restrictions as specified in the agreement. The Committee has authority to impose other terms and conditions as it may determine in its discretion including making the vesting of awards contingent on the achievement of Performance Goals. During the period that a restricted stock award is subject to restrictions, an employee has the right to vote the shares and receive dividends.
 
     Incentive Shares. The Committee may grant incentive shares to participants. Incentive share awards will consist of common shares issued or to be issued at such times, subject to achievement of such Performance Goals or other goals and on such other terms and conditions as the Committee deems appropriate and specifies in an agreement relating thereto.
 
     Cash Bonuses. Two types of bonuses can be awarded under the Cash Bonus Program; an annual bonus award for each fiscal year, and a long-term bonus award for measurement periods in excess of one year. Bonus payments are based on Kroger’s performance measured against Performance Goals established by the Committee. The Committee establishes a bonus “potential” for each bonus payable under the Cash Bonus Program for each participant, based on the participant’s level within Kroger, and actual payouts can exceed that amount when Kroger’s performance exceeds the pre-established thresholds. Initially the
 
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Performance Goals for annual bonuses will include the following components: (i) EBITDA; (ii) identical sales; (iii) achievement of strategic initiatives; and (iv) achievement of supermarket fuel center goals for EBITDA, gallons sold, and number of fuel centers. Initially the Performance Goals for long-term bonuses will include the following components: (i) performance in four key categories in Kroger’s strategic plan, (ii) reduction in operating costs as a percentage of sales, and (iii) performance in categories designed to measure associate engagement. No single Cash Bonus to a participant may exceed $5,000,000.
 
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
 
     Nonstatutory Stock Options, Stock Appreciation Rights, and Performance Units. A grantee will not recognize income on the grant of a nonstatutory stock option, stock appreciation right or performance unit, but generally will recognize ordinary income upon the exercise thereof. The amount of income recognized upon the exercise of a nonstatutory stock option generally will be measured by the excess, if any, of the fair market value of the shares at the time of exercise over the exercise price, provided the shares issued are either transferable or not subject to a substantial risk of forfeiture. The amount of income recognized upon the exercise of a stock appreciation right or a performance unit, in general, will be equal to the amount of cash received and the fair market value of any shares received at the time of exercise, provided the shares issued are either transferable or not subject to a substantial risk of forfeiture, plus the amount of any taxes withheld. Under certain circumstances, income on the exercise of a performance unit will be deferred if the grantee makes a proper election to defer such income. In some cases the recognition of income by a grantee from the exercise of a performance unit may be delayed for up to six months if a sale of the shares would subject the grantee to suit under Section 16(b) of the Exchange Act unless the grantee elects to recognize income at the time of receipt of such shares. In either case, the amount of income recognized is measured with respect to the fair market value of the common stock at the time the income is recognized.
 
     In the case of ordinary income recognized by a grantee as described above in connection with the exercise of a nonstatutory stock option, a stock appreciation right, or a performance unit, Kroger will be entitled to a deduction in the amount of ordinary income so recognized by the grantee, provided Kroger satisfies certain federal income tax withholding requirements.
 
     Incentive Shares and Restricted Stock. A grantee of incentive shares or restricted stock is not required to include the value of such shares in ordinary income until the first time the grantee’s rights in the shares are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, unless the grantee elects to be taxed on receipt of the shares. In either case, the amount of such income will be equal to the excess of the fair market value of the stock at the time the income is recognized over the amount paid for the stock. Kroger will be entitled to a deduction in the amount of the ordinary income recognized by the grantee for Kroger’s taxable year which includes the last day of the grantee’s taxable year in which such grantee recognizes the income, provided Kroger satisfies certain federal income tax withholding requirements.
 
     General. The rules governing the tax treatment of options, stock appreciation rights, performance units, incentive shares and restricted stock and stock acquired upon the exercise of options, stock appreciation rights and performance units are quite technical, so that the above description of tax consequences is necessarily general in nature and does not purport to be complete. Moreover, statutory provisions are, of course, subject to change, as are their interpretations, and their application may vary in individual circumstances. Finally, the tax consequences under applicable state law may not be the same as under the federal income tax laws.
 
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     Tax Deductibility Cap. Section 162(m) of the Code provides that certain compensation received in any year by a “covered employee” in excess of $1,000,000 is non-deductible by Kroger for federal income tax purposes. Section 162(m) provides an exception, however, for “performance-based compensation.” To the extent practicable under the circumstances, the Committee currently intends to structure grants and awards made under the Plan to “covered employees” as performance-based compensation that is exempt from Section 162(m).
 
     This summary of the 2011 Long-Term Incentive and Cash Bonus Plan is qualified in its entirety by the complete text of the Plan that is set forth in Appendix 1 of this Proxy Statement.
 
EXISTING PLANS
 
     As of our fiscal year ended January 29, 2011, there were 12,241,518 shares remaining for future issuance under existing equity compensation plans. Of these shares, 3,755,087 shares were available for awards other than options or stock appreciation rights. Under some of these plans, this sublimit on full value shares can be increased by decreasing by four the total number of shares issuable under the plan for each such increased share.
 
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
 
NEW PLAN BENEFITS
 
    2011 Long-Term Incentive and Cash Bonus Plan
Name and Position (1)       Dollar value ($)       Number of Units
All Groups   (1)   (1)
____________________
 
(1)       
Awards, values and benefits not determinable for any Group.
 
EQUITY COMPENSATION PLAN INFORMATION
 
     The following table provides information regarding shares outstanding and available for issuance under the Company’s existing equity compensation plans.
 
    (a)   (b)   (c)
                      Number of securities
    Number of securities             remaining for future
    to be issued             issuance under equity
    upon exercise of   Weighted-average   compensation plans
    outstanding options,   exercise price of   (excluding securities
    warrants and rights   outstanding options,   reflected in column
Plan Category       (1)       warrants and rights       (a))(2)
Equity compensation plans approved                                                          
       by security holders     36,239,494       $ 21.45       12,241,518  
Equity compensation plans not                          
       approved by security holders     —       $ —       —  
Total     36,239,494       $ 21.45       12,241,518  

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____________________
 
(1)         The total number of securities reported includes the maximum number of common shares, 355,525, that may be issued under performance units granted under one or more long-term incentive plans. The nature of the awards is more particularly described in the Equity section of the Compensation Discussion and Analysis. The weighted-average exercise price in column (b) does not take these performance unit awards into account. Based on historical data, the Company’s best estimate of the number of securities that will be issued under the performance unit agreements is approximately 96,000.
 
(2)   The plans include initial limitations on the number of shares that can be issued as incentive shares or restricted stock. The Company may increase this amount by decreasing the total number of securities that can be issued by four for each stock share issued in excess of the stated initial limitation.
 
ADVISORY VOTE ON EXECUTIVE COMPENSATION
(ITEM NO. 3)
 
     The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, and Section 14A of the Securities Exchange Act require that we give our shareholders the right to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed earlier in this proxy statement in accordance with the SEC’s rules.
 
     As discussed earlier in our Compensation Discussion and Analysis, our compensation philosophy is to:
     Furthermore, as previously disclosed, an increased percentage of total potential compensation is performance-based as opposed to time-based as half of the compensation previously awarded to the named executive officers as restricted stock (and earned based on the passage of time) is now only earned to the extent that performance goals are achieved. In addition, annual and long-term cash bonuses are performance-based and earned only to the extent that performance goals are achieved. In tying a large portion of executive compensation to achievement of short-term and long-term strategic and operational goals, we seek to closely align the interests of our named executive officers with the interests of our shareholders.
 
     The vote on this resolution is not intended to address any specific element of compensation. Rather, the vote relates to the compensation of our named executive officers as described in this proxy statement. The vote is advisory. This means that the vote is not binding on Kroger. The Compensation Committee of our Board of Directors is responsible for establishing executive compensation. In so doing that Committee will consider, along with all other relevant factors, the results of this vote.
 
     The affirmative vote of a majority of the shares present and represented in person or by proxy is required to approve this proposal. Broker non-votes and abstentions will have no effect on the outcome of this vote.
 
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     We ask our shareholders to vote on the following resolution:
 
“RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
 
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
 
ADVISORY VOTE ON THE FREQUENCY OF AN
ADVISORY VOTE ON EXECUTIVE COMPENSATION
(ITEM NO. 4)
 
     The Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act also require that shareholders be given the right to vote, again on a nonbinding, advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our named executive officers. You may indicate whether you prefer future advisory votes every one, two, or three years. You also may, if you prefer, abstain from casting a vote on this proposal.
 
     Our Board of Directors believes that an advisory vote on executive compensation that occurs once every three years is the most appropriate alternative for Kroger and it therefore recommends that you vote for the three-year alternative. Because a large portion of total potential compensation for our named executive officers is based on performance of our long-term strategic goals, measured over three-year periods, it is appropriate for our shareholders to consider executive compensation over a longer timeframe. Providing a vote on an annual basis, we believe, will result in shareholders placing a greater emphasis on short-term performance over long-term business results consistent with our strategy.
 
     The vote is advisory. This means that the vote is not binding on Kroger. Our Board of Directors will determine the actual voting frequency for approval of executive compensation. In so doing the Board will consider, along with all other relevant factors, the results of this vote. The Board may decide to hold an advisory vote on executive compensation more or less frequently than the frequency receiving the most votes cast by shareholders.
 
     The proxy card provides shareholders the opportunity to choose among four options for the frequency of the advisory vote; every one, two, or three years, or abstaining from casting a vote. Shareholders will not be voting to approve or to disapprove the recommendation of the Board of Directors. The option receiving the most affirmative votes will be the outcome of the advisory vote. Broker non-votes and abstentions will have no effect on the outcome of this vote.
 
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE OPTION OF ONCE EVERY THREE YEARS AS THE PREFERRED FREQUENCY FOR ADVISORY VOTES ON EXECUTIVE COMPENSATION.
 
SELECTION OF AUDITORS
(ITEM NO. 5)
 
     The Audit Committee of the Board of Directors is responsible for the appointment, compensation and retention of Kroger’s independent auditor, as required by law and by applicable NYSE rules. On March 9, 2011, the Audit Committee appointed PricewaterhouseCoopers LLP as Kroger’s independent public accountants for the fiscal year ending January 28, 2012. While shareholder ratification of the selection of PricewaterhouseCoopers LLP as Kroger’s independent public accountants 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
 
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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 Kroger and its shareholders.
 
     A representative of PricewaterhouseCoopers LLP is expected to be present at the meeting to respond to appropriate questions and to make a statement if he or she desires to do so.
 
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
 
DISCLOSURE OF AUDITOR FEES
 
     The following describes the fees billed to Kroger by PricewaterhouseCoopers LLP related to the fiscal years ended January 29, 2011 and January 30, 2010:
 
        Fiscal Year 2010       Fiscal Year 2009
Audit Fees     $ 4,035,300       4,155,234  
Audit-Related Fees       —       38,254  
Tax Fees       140,476       —  
All Other Fees       —       —  
Total     $ 4,175,776       4,193,488  
                   
     Audit Fees for the years ended January 29, 2011 and January 30, 2010, respectively, were for professional services rendered for the audits of Kroger’s consolidated financial statements, the issuance of comfort letters to underwriters, consents, and assistance with the review of documents filed with the SEC.
 
     Audit-Related Fees for the year ended January 30, 2010 were for assurance and related services pertaining to accounting consultation in connection with attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. We did not engage PricewaterhouseCoopers LLP for any audit-related services for the year ended January 29, 2011.
 
     Tax Fees for the year ended January 29, 2011 were for an analysis of Kroger’s contribution of inventory to non-profit entities. We did not engage PricewaterhouseCoopers LLP for other tax services for the year ended January 30, 2010.
 
     All Other Fees. We did not engage PricewaterhouseCoopers LLP for other services for the years ended January 29, 2011 and January 30, 2010.
 
     The Audit Committee requires that it approve in advance all audit and non-audit work performed by PricewaterhouseCoopers LLP. On March 9, 2011, the Audit Committee approved services to be performed by PricewaterhouseCoopers LLP for the remainder of fiscal year 2011 that are related to the audit of Kroger or involve the audit itself. 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.
 
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SHAREHOLDER PROPOSAL
(ITEM NO. 6)
 
     We have been notified by three shareholders, the names and shareholdings of which will be furnished promptly to any shareholder upon request to Kroger’s Secretary at Kroger’s executive offices, that they intend to propose the following resolution at the annual meeting:
 
KROGER COMPANY – HUMAN RIGHTS STANDARDS
 
     Whereas, we believe Kroger purchases significant amounts of produce, such as tomatoes, and
 
     Whereas, the United States Department of Justice has successfully prosecuted several cases of modern-day slavery in the U.S. agricultural industry since 1996, involving over 1,000 workers, (see, for example, US v. Ramos; US v. Lee; US v. Flores; US v. Cuello; U.S. v. Navarrete) and there are additional modern-day slavery cases involving agricultural workers in the U.S. currently under federal prosecution (see, for example, US v. Bontemps, US v. Global Horizons), and
 
     Whereas, there is increasing public awareness and media coverage of modern-day slavery, sweatshop conditions and abuses that many agricultural workers face, and
 
     Whereas, we believe violations of human rights in Kroger’s supply chain can lead to negative publicity, public protests, and a loss of consumer confidence that can have a negative impact on shareholder value, and
 
     Whereas, Kroger’s current vendor Code of Conduct is based heavily on compliance with the law, and U.S. agricultural workers are excluded from many labor laws that apply to other U.S. workers (for example, National Labor Relations Act of 1935, 29 U.S.C. § 151 et seq.; portions of the Fair Labor Standards Act of 1938, 29 U.S.C. § 201, 213), and
 
     Whereas, other multi-national corporations, including other large produce purchasers, have implemented enforceable and meaningful codes of conduct for their supply chains based on international human rights standards, such as the International Labor Organization’s (“ILO”) standards, and
 
     Whereas, in our opinion as shareholders, enforceable human rights codes of conduct based on the ILO’s Declaration on Fundamental Principles and Rights at Work and other conventions and are essential if consumer and investor confidence in our company’s commitment to human rights is to be maintained,
 
     Therefore, be it resolved that the shareholders urge the Board of Directors to adopt, implement, and enforce a revised company-wide Code of Conduct, inclusive of suppliers and sub-contractors, based on the International Labor Organization’s (“ILO”) Declaration on Fundamental Principles and Rights at Work and the following other relevant ILO conventions:
 
      *       Employment shall be freely chosen. There shall be no use of forced labor, including bonded or voluntary prison labor (ILO Conventions 29 and 105);
   
  *   Workers are entitled to overtime pay when working more than 8 hours per day (ILO Convention 1);
   
  *   All workers have the right to form and join trade unions and to bargain collectively. (ILO Conventions 11, 87, 98, 110);
   
  *   Worker representatives shall not be the subject of discrimination and shall have access to all workplaces necessary to enable them to carry out their representation functions (ILO Convention 135).

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     The Board should also prepare a report at reasonable cost to shareholders and the public concerning the implementation and enforcement of this policy.
 
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
 
     Kroger recognizes the importance of ensuring basic human rights are respected by those seeking to do business with us. Kroger has in place a comprehensive code of conduct that is applicable to those that furnish goods or services to us, as well as their contractors. That code of conduct has been published and is available on our website at www.thekrogerco.com. While Kroger’s code of conduct for vendors covers the issues addressed by the proposal, it is substantially more comprehensive. Our existing code of conduct requires compliance with all applicable labor laws, regulations, and orders, including the Fair Labor Standards Act. In addition, the code of conduct:
     The proponents request that Kroger adopt a revised code of conduct, applicable to all suppliers and contractors, that provides for the following:
     Kroger has developed its own code of conduct that not only deals with the basic tenets of the shareholder proposal, but also requires those that do business with us to respect their workers’ basic human rights in other respects not covered by the proposal. We believe that our existing code of conduct is appropriate and comprehensive, and that adoption of the proposal is unnecessary.
 
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——————
 
     SHAREHOLDER PROPOSALS – 2012 ANNUAL MEETING. Shareholder proposals intended for inclusion in our proxy material relating to Kroger’s annual meeting in June 2012 should be addressed to the Secretary of Kroger and must be received at our executive offices not later than January 13, 2012. These proposals must comply with the proxy rules established by the SEC. In addition, the proxy solicited by the Board of Directors for the 2012 annual meeting of shareholders will confer discretionary authority to vote on any shareholder proposal presented at the meeting unless we are provided with notice of the proposal on or before March 30, 2012. Please note, however, that Kroger’s Regulations require a minimum of 45 days’ advance notice to Kroger in order for a matter to be brought before shareholders at the annual meeting. As a result, any attempt to present a proposal without notifying Kroger on or before March 30, 2012, will be ruled out of order and will not be permitted.
 
——————
 
     Attached to this Proxy Statement is Kroger’s 2010 Annual Report which includes a brief description of Kroger’s business, including the general scope and nature thereof during 2010, together with the audited financial information contained in our 2010 report to the SEC on Form 10-K. A copy of that report is available to shareholders on request by writing to: Scott M. Henderson, Treasurer, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100 or by calling 1-513-762-1220. Our SEC filings are available to the public from the SEC’s web site at www.sec.gov.
 
     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,      
Paul W. Heldman, Secretary  

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Appendix 1
 
THE KROGER CO.
2011 LONG-TERM INCENTIVE AND CASH BONUS PLAN
 
1. Definitions
 
     In this Plan the following definitions will apply:
 
     1.1 “Agreement” means a written instrument implementing a grant of an Option, Right or Performance Unit, an award of Restricted Stock or Incentive Shares, or setting forth the terms of a Cash Bonus.
 
     1.2 “Board” means the Board of Directors of the Company.
 
     1.3 “Cash Bonus” means an annual or long-term bonus awarded to a participant under the Cash Bonus Program and determined by the Committee based on performance measured against Performance Goals established by the Committee.
 
     1.4 “Cash Bonus Program” means that portion of the Plan under which a participant is awarded a Cash Bonus.
 
     1.5 “Code” means the Internal Revenue Code of 1986, as amended.
 
     1.6 “Committee” means the committee appointed to administer each of the Programs under the Plan. For purposes of the Insider Program and the Cash Bonus Program the Committee will be a committee of the Board meeting the standards of Rule 16b-3(d)(1) under the Exchange Act, or any similar successor rule, appointed by the Board to administer the Insider Program and the Cash Bonus Program, which initially will be composed of those members of the Compensation Committee of the Board who qualify as “outside directors” under Section 162(m) of the Code. For purposes of the Non-Insider Program, the Committee will be the Stock Option Committee.
 
     1.7 “Company” means THE KROGER CO.
 
     1.8 “Date of Exercise” means the date on which the Company receives notice of the exercise of an Option, Right or Performance Unit in accordance with the terms of Article 9.
 
     1.9 “Date of Grant” means the date on which an Option, Right or Performance Unit is granted or Restricted Stock or Incentive Shares are awarded by the Committee.
 
     1.10 “Director” means a non-Employee member of the Board of the Company.
 
     1.11 “Employee” means any person, excluding Directors, to whom awards or grants can be made pursuant to the securities laws of the United State and to whom such awards or grants are made by the Committee.
 
     1.12 “Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
     1.13 “Fair Market Value” of a Share means the amount equal to the fair market value of a Share determined pursuant to a reasonable method adopted by the Committee in good faith for such purpose. Unless otherwise provided in an Agreement to the contrary, the Fair Market Value of a Share will be the closing price on the date of determination on the New York Stock Exchange--Composite Transactions, or if no sales are made on such date, on the most recent prior date for which sales are reported.
 
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     1.14 “Grantee” means an Employee or a Director to whom Restricted Stock has been awarded pursuant to Article 11 or to whom Incentive Shares have been awarded pursuant to Article 12.
 
     1.15 “Incentive Share” means a Share awarded pursuant to Article 12.
 
     1.16 “Insider” means an officer of the Company subject to Section 16(a) of the Exchange Act.
 
     1.17 “Insider Program” means that portion of the Plan under which grants or awards are made to Insiders and Directors.
 
     1.18 “Non-Insider Program” means that portion of the Plan under which grants or awards are made to Employees, excluding Insiders.
 
     1.19 “Option” means a nonstatutory stock option granted under the Plan that does not qualify as an incentive stock option under Section 422 of the Code.
 
     1.20 “Option Period” means the period during which an Option may be exercised.
 
     1.21 “Option Price” means the price per Share at which an Option may be exercised. The Option Price will be determined by the Committee, but in no event will the Option Price of an Option be less than the Fair Market Value per Share determined as of the Date of Grant.
 
     1.22 “Optionee” means an Employee or Director to whom an Option, Right or Performance Unit has been granted.
 
     1.23 “Performance Goals” means performance goals established by the Committee that may be based on: (i) earnings or earnings per share of Kroger, a unit of Kroger, or designated projects; (ii) total sales, identical sales, or comparable sales of Kroger, a unit of Kroger, or designated projects; (iii) cash flow; (iv) cash flow from operations; (v) operating profit or income; (vi) net income; (vii) operating margin; (viii) net income margin; (ix) return on net assets; (x) economic value added; (xi) return on total assets; (xii) return on common equity; (xiii) return on total capital; (xiv) total shareholder return; (xv) revenue; (xvi) revenue growth; (xvii) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (xviii) EBITDA growth; (xix) funds from operations per share and per share growth; (xx) cash available for distribution; (xxi) cash available for distribution per share and per share growth; (xxii) share price performance on an absolute basis and relative to an index of earnings per share or improvements in Kroger’s attainment of expense levels; (xxiii) reduction in operating costs as a percentage of sales; (xxiv) performance in key categories; (xxv) implementing or completion of strategic initiatives or critical projects, and (xxvi) key category performance as measured by the results of surveys of customers or associates; or any other objective goals established by the Committee, and may be absolute in their terms or measured against or in relationship to other companies similarly or otherwise situated. Performance goals may be particular to an employee or the department, branch, Subsidiary or other division in which he or she works, or may be based on the performance of the Company generally, and may cover such period as may be specified by the Committee.
 
     1.24 “Performance Unit” means a performance unit granted under the Plan in accordance with Article 8.
 
     1.25 “Performance Unit Period” means the period during which a Performance Unit is outstanding.
 
     1.26 “Plan” means THE KROGER CO. 2011 Long-Term Incentive and Cash Bonus Plan.
 
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     1.27 “Related Option” means the Option in connection with which a specified Right or Performance Unit is granted.
 
     1.28 “Related Performance Unit” means the Performance Unit granted in connection with a specified Option.
 
     1.29 “Related Right” means the Right granted in connection with a specified Option.
 
     1.30 “Restricted Stock” means Shares awarded pursuant to Article 11.
 
     1.31 “Right” means a stock appreciation right granted under the Plan pursuant to Article 7.
 
     1.32 “Right Period” means the period during which a Right may be exercised.
 
     1.33 “Share” means an authorized but unissued common share, par value $1.00 per share, of the Company, or a reacquired previously issued common share.
 
     1.34 “Stock Option Committee” means a committee of three or more members appointed by the Chief Executive Officer of the Company to administer the Non-Insider Program, each of whom is ineligible to receive grants or awards under the Non-Insider Program, and has been so ineligible for at least one year.
 
     1.35 “Subsidiary” means a corporation at least 50% of the total combined voting power of all classes of stock of which is owned by the Company, either directly or through one or more other Subsidiaries.
 
2. Purpose
 
     The Plan is intended to assist in attracting and retaining Employees and Directors of outstanding ability and to promote the identification of their interests with those of the shareholders of the Company.
 
3. Administration
 
     The Plan will be administered by the Committee. In addition to any other powers granted to the Committee, it will have the following powers, subject to the express provisions of the Plan:
 
     3.1 to determine in its discretion the Employees to whom Options, Performance Units or Rights will be granted, to whom Restricted Stock and Incentive Shares will be awarded, and those Employees eligible to receive Cash Bonuses; the number of Shares to be subject to each Option, Right, Performance Unit, Restricted Stock or Incentive Share award, and the terms upon which Options, Rights or Performance Units may be acquired and exercised and the terms and conditions of Restricted Stock and Incentive Share awards and Cash Bonuses;
 
     3.2 to determine all other terms and provisions of each Agreement, which need not be identical;
 
     3.3 without limiting the generality of the foregoing, to provide in its discretion in an Agreement:
 
          (a) for an agreement by the Optionee or Grantee to render services to the Company or a Subsidiary upon such terms and conditions as may be specified in the Agreement, provided that the Committee will not have the power to commit the Company or any Subsidiary to employ or otherwise retain any Optionee or Grantee;
 
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          (b) for restrictions on the transfer, sale or other disposition of Shares issued to the Optionee upon the exercise of an Option, Right or Performance Unit, for other restrictions permitted by Article 11 with respect to Restricted Stock or for conditions with respect to the issuance of Incentive Shares;
 
          (c) for an agreement by the Optionee or Grantee to resell to the Company, under specified conditions, Shares issued upon the exercise of an Option, Right or Performance Unit or awarded as Restricted Stock or Incentive Shares;
 
          (d) for the payment of the Option Price upon the exercise by an Employee or Director of an Option otherwise than in cash, including without limitation by delivery of Common Shares (other than Restricted Stock) valued at Fair Market Value on the Date of Exercise of the Option, or a combination of cash and Shares; and
 
          (e) for the deferral of receipt of amounts that otherwise would be distributed upon exercise of a Performance Unit, the terms and conditions of any such deferral and any interest or dividend equivalent or other payment that will accrue with respect to deferred distributions;
 
     3.4 to construe and interpret the Agreements and the Plan;
 
     3.5 to require, whether or not provided for in the pertinent Agreement, of any person exercising an Option, Right or Performance Unit or acquiring Restricted Stock or Incentive Shares, at the time of such exercise or acquisition, the making of any representations or agreements that the Committee may deem necessary or advisable in order to comply with the securities laws of the United States or of any state;
 
     3.6 to provide for satisfaction of an Optionee’s or Grantee’s tax liabilities arising in connection with the Plan through, without limitation, retention by the Company of Common Shares otherwise issuable on the exercise of an Option, Right or Performance Unit or pursuant to an award of Incentive Shares or through delivery of Common Shares to the Company by the Optionee or Grantee under such terms and conditions as the Committee deems appropriate; and
 
     3.7 to make all other determinations and take all other actions necessary or advisable for the administration of the Plan.
 
     Any determinations or actions made or taken by the Committee pursuant to this Article will be binding and final.
 
4. Eligibility
 
     Options, Rights, Performance Units, Restricted Stock and Incentive Shares may be granted or awarded only to Employees and Directors. Cash Bonuses may only be awarded to Employees. In no event may any participant receive awards and grants totaling more than 3,750,000 Shares in the aggregate under this Plan, and no single Cash Bonus to a participant may exceed $5,000,000.
 
5. Shares Subject to the Plan
 
     5.1 The maximum number of Shares that may be issued under the Plan is 25,000,000 Shares. Except as otherwise provided in the following sentence, the maximum number of Shares that may be issued as Restricted Stock, Incentive Shares, or Performance Units under the Plan is 10,000,000 Shares in the aggregate. Notwithstanding the foregoing, the Committee for the Insider Program may increase the number of Shares that may be issued as Restricted Stock, Incentive Shares, or Performance Units to an amount in excess of 10,000,000 Shares, provided that for each such Share in excess of 10,000,000 Shares that are issued as Restricted Stock, Incentive Shares, or Performance Units, in the aggregate,
 
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the number of Shares that may be issued under the Plan will be reduced by four Shares. In addition to the decisions that it makes in administering the Insider Program, annually the Committee for the Insider Program will approve the number of Shares to be granted under the Non-Insider Program for that fiscal year.
 
     5.2 If an Option, Right or Performance Unit expires or terminates for any reason (other than termination by virtue of the exercise of a Related Option, Related Right or a Related Performance Unit, as the case may be) without having been fully exercised, if Shares of Restricted Stock are forfeited or if Incentive Shares are not issued or are forfeited, the unissued or forfeited Shares that had been subject to the Agreement relating thereto will become available for the grant of other Options, Rights and Performance Units or for the award of additional Restricted Stock or Incentive Shares, provided that in the case of forfeited Shares, the Grantee has received no dividends prior to forfeiture with respect to such Shares.
 
6. Options
 
     6.1 The Committee is authorized to grant Options to Employees and Directors.
 
     6.2 The Option Period for Options granted to Employees and Directors will be determined by the Committee and specifically set forth in the Agreement. No Option will be exercisable before six months after the Date of Grant (except that this limitation need not apply in the event of the death or disability of the Optionee within the six-month period) or after ten years from the Date of Grant.
 
     6.3 The maximum number of Shares with respect to which Options may be granted to any Employee or Director under this Plan during its term is 3,750,000 Shares. In no event will the Option Price of an Option be less than the Fair Market Value of a Share at the time of the grant.
 
     6.4 Except in connection with a corporate transaction involving the company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares) or as otherwise permitted pursuant to Article 13 or Article 15, the Option Price of an Option as set forth on the Date of Grant will not be reduced during the term of the Option, nor will Options be canceled in exchange for cash, other awards, or newly issued Options with an Option Price that is less than the Option Price of the original Options without shareholder approval (i.e., Options will not be “repriced”).
 
     6.5 All other terms of Options granted under the Plan will be determined by the Committee in its sole discretion.
 
7. Rights
 
     7.1 The Committee is hereby authorized to grant Rights to Employees and Directors.
 
     7.2 A Right may be granted under the Plan:
 
          (a) in connection with, and at the same time as, the grant of an Option under the Plan; or
 
          (b) independently of any Option granted under the Plan.
 
     A Right granted under clause (a) of the preceding sentence is a Related Right. A Related Right may, in the Committee’s discretion, apply to all or a portion of the Shares subject to the Related Option. 
 
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     7.3 A Right may be exercised in whole or in part as provided in the Agreement, and, subject to the provisions of the Agreement, entitles its Optionee to receive, without any payment to the Company (other than required income tax withholding amounts), either cash or that number of Shares (equal to the highest whole number of Shares), or a combination thereof, in an amount or having a Fair Market Value determined as of the Date of Exercise not to exceed the number of Shares subject to the portion of the Right exercised multiplied by an amount equal to the excess of (i) the Fair Market Value of a Share on the Date of Exercise of the Right over (ii) either (A) the Fair Market Value of a Share on the Date of Grant of the Right if it is not a Related Right, or (B) the Option Price as provided in the Related Option if the Right is a Related Right.
 
     7.4 The Right Period will be determined by the Committee and specifically set forth in the Agreement, provided, however --
 
          (a) a Right may not be exercised before the expiration of six months from the Date of Grant (except that this limitation need not apply in the event of the death or disability of the Optionee within the six-month period);
 
          (b) a Right will expire no later than the earlier of (i) ten years from the Date of Grant, or (ii) in the case of a Related Right, the expiration of the Related Option; and
 
          (c) a Right may be exercised only when the Fair Market Value of a Share exceeds either (i) the Fair Market Value of a Share on the Date of Grant of the Right if it is not a Related Right, or (ii) the Option Price as provided in the Related Option if the Right is a Related Right.
 
     7.5 The exercise, in whole or in part, of a Related Right will cause a reduction in the number of Shares subject to the Related Option equal to the number of Shares with respect to which the Related Right is exercised. Similarly, the exercise, in whole or in part, of a Related Option will cause a reduction in the number of Shares subject to the Related Right equal to the number of Shares with respect to which the Related Option is exercised.
 
     7.6 Rights granted under the Plan, to the extent determined by the Committee, will comply with the requirements of Rule 16b-3 under the Exchange Act during the term of this Plan. Should any additional provisions be necessary for this Article 7 to comply with the requirements of Rule 16b-3 or any other rules or regulations, the Board may amend this Plan to delete, add to or modify the provisions of the Plan accordingly, subject to the provisions of Article 14, if applicable. The Company intends to comply, if and to the extent applicable, with the requirements of Rule 16b-3; however, the Company’s failure for any reason whatsoever to comply with such requirements will not impose any liability on the Company to any Optionee or any other party.
 
     7.7 To the extent required by Rule 16b-3 under the Exchange Act or otherwise provided in the Agreement, the Committee will have sole discretion to consent to or disapprove the election of any Optionee to receive cash in full or partial settlement of a Right. In cases where an election of settlement in cash must be consented to by the Committee, the Committee may consent to, or disapprove, such election at any time after such election, or within such period for taking action as is specified in the election, and failure to give consent will be disapproval. Consent may be given in whole or as to a portion of the Right surrendered by the Optionee. If the election to receive cash is disapproved in whole or in part, the Right will be deemed to have been exercised for Shares, or, if so specified in the notice of exercise and election, not to have been exercised to the extent the election to receive cash is disapproved.
 
     7.8 The maximum number of Shares with respect to which Rights may be granted to any Employee or Director under this Plan during its term is 3,750,000 Shares.
 
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     7.9 Except in connection with a corporate transaction involving the company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares) or as otherwise permitted pursuant to Article 13 or Article 15, the exercise price of a Right as set forth on the Date of Grant will not be reduced during the term of the Right, nor will Rights be canceled in exchange for cash, other awards, or newly issued Rights with an exercise price that is less than the exercise price of the original Rights without shareholder approval (i.e., Rights will not be “repriced”).
 
8. Performance Units
 
     8.1 The Committee is hereby authorized to grant Performance Units to Employees and Directors.
 
     8.2 Performance Units may be granted under the Plan:
 
          (a) in connection with, and at the same time as, the grant of an Option under the Plan; or
 
          (b) independently of any Option granted under the Plan.
 
     A Performance Unit granted under clause (a) of the preceding sentence is a Related Performance Unit. A Related Performance Unit may, in the Committee’s discretion, apply to all or a portion of the shares subject to the Related Option.
 
     8.3 A Performance Unit may be exercised in whole or in part as provided in the Agreement, and, subject to the provisions of the Agreement, entitles its Optionee to receive, without any payment to the Company (other than required income tax withholding amounts), cash, Shares or a combination of cash and Shares, based upon the degree to which Performance Goals established by the Committee and specified in the Agreement have been achieved.
 
     8.4 The Performance Unit Period will be determined by the Committee and specifically set forth in the Agreement, provided, however --
 
          (a) a Performance Unit may not be exercised before the expiration of six months from the Date of Grant (except that this limitation need not apply in the event of the death or disability of the Optionee within the six-month period); and
 
          (b) a Performance Unit will expire no later than the earlier of (i) ten years from the Date of Grant, or (ii) in the case of a Related Performance Unit, the expiration of the Related Option.
 
     8.5 Each Agreement granting Performance Units will specify the number of Performance Units granted; provided, however, that the maximum number of Related Performance Units may not exceed the maximum number of Shares subject to the Related Option.
 
     8.6 The exercise, in whole or in part, of Related Performance Units will cause a reduction in the number of Shares subject to the Related Option and the number of Performance Units in accordance with the terms of the Agreement. Similarly, the exercise, in whole or in part, of a Related Option, will cause a reduction in the number of Shares subject to the Related Performance Unit equal to the number of Shares with respect to which the Related Option is exercised.
 
     8.7 Performance Units granted under the Plan, to the extent determined by the Committee, will comply with the requirements of Rule 16b-3 under the Exchange Act during the term of this Plan. Should any additional provisions be necessary for this Article 8 to comply with the requirements of
 
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Rule 16b-3 or any other applicable rule or regulation, the Board may amend this Plan to delete, add to or modify the provisions of the Plan accordingly, subject to the provisions of Article 14, if applicable. The Company intends to comply, if and to the extent applicable, with the requirements of Rule 16b-3; however, the Company’s failure for any reason whatsoever to comply with such requirements will not impose any liability on the Company to any Optionee or any other party.
 
     8.8 To the extent required by Rule 16b-3 under the Exchange Act or otherwise provided in the Agreement, the Committee will have sole discretion to consent to or disapprove the election of any Optionee to receive cash in full or partial settlement of a Performance Unit. In cases where an election of settlement in cash must be consented to by the Committee, the Committee may consent to, or disapprove, such election at any time after such election, or within such period for taking action as is specified in the election, and failure to give consent will be disapproval. Consent may be given in whole or as to a portion of the Performance Unit surrendered by the Optionee. If the election to receive cash is disapproved in whole or in part, the Performance Unit will be deemed to have been exercised for Shares, or, if so specified in the notice of exercise and election, not to have been exercised to the extent the election to receive cash is disapproved.
 
     8.9 The maximum number of Shares that may be issued to any Employee or Director pursuant to the exercise of Performance Units may not exceed 3,750,000 Shares. For purposes of the preceding sentence, any Performance Units paid in the form of cash will be deemed to have been paid in Shares, with the number of Shares being deemed paid equal to the amount of cash paid to the Employee or Director divided by the Fair Market Value of a Share on the date of payment.
 
9. Exercise
 
     An Option, Right or Performance Unit, subject to the provisions of the Agreement under which it was granted, may be exercised in whole or in part by the delivery to the Company of written notice of the exercise, in such form as the Committee may prescribe, accompanied, in the case of an Option, by (i) full payment for the Shares with respect to which the Option is exercised, or (ii) irrevocable instructions to a broker selected by the Committee to consummate “cashless” exercises to deliver promptly to the Company cash equal to full payment for the Shares for which the Option is exercised.
 
10. Non-transferability
 
     Options, Rights, Performance Units and Incentive Shares granted or awarded under the Plan will not be transferable otherwise than by will or the laws of descent and distribution, and an Option, Right or Performance Unit may be exercised during his or her lifetime only by the Optionee or, in the event of his or her legal disability, by his or her legal representative. A Related Right or Related Performance Unit is transferable only when the Related Option is transferable and only with the Related Option and under the same conditions.
 
11. Restricted Stock Awards
 
     11.1 The Committee is hereby authorized to award Shares of Restricted Stock to Employees and Directors.
 
     11.2 Restricted Stock awards under the Plan will consist of Shares that are restricted against transfer, subject to forfeiture, and subject to such other terms and conditions intended to further the purposes of the Plan as may be determined by the Committee. The terms and conditions may provide, in the discretion of the Committee, for the vesting of such awards to be contingent upon the achievement of one or more Performance Goals.
 
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     11.3 Restricted Stock awards will be evidenced by Agreements containing provisions setting forth the terms and conditions governing such awards. Each such agreement will contain the following:
 
          (a) prohibitions against the sale, assignment, transfer, exchange, pledge, hypothecation, or other encumbrance of (i) the Shares awarded as Restricted Stock under the Plan, (ii) the right to vote the Shares, or (iii) the right to receive dividends thereon in each case during the restriction period applicable to the Shares; provided, however, that the Grantee will have all the other rights of a shareholder including, but not limited to, the right to receive dividends and the right to vote the Shares;
 
          (b) at least one term, condition or restriction constituting a “substantial risk of forfeiture” as defined in Section 83(c) of the Code;
 
          (c) such other terms, conditions and restrictions as the Committee in its discretion may specify (including, without limitation, provisions creating additional substantial risks of forfeiture);
 
          (d) a requirement that each certificate or other evidence of ownership representing Shares of Restricted Stock must be deposited with the Company, or its designee, and will bear the following legend:
 
“This certificate or other evidence of ownership and the shares of stock represented hereby are subject to the terms and conditions (including the risks of forfeiture and restrictions against transfer) contained in THE KROGER CO. 2011 Long-Term Incentive and Cash Bonus Plan and an Agreement entered into between the registered owner and The Kroger Co. Release from such terms and conditions will be made only in accordance with the provisions of the Plan and the Agreement, a copy of each of which is on file in the office of the Secretary of The Kroger Co.
 
          (e) the applicable period or periods of any terms, conditions or restrictions applicable to the Restricted Stock, provided, however, that the Committee in its discretion may accelerate the expiration of the applicable restriction period with respect to any part or all of the Shares awarded to a Grantee; and
 
          (f) the terms and conditions upon which any restrictions upon Shares of Restricted Stock awarded under the Plan will lapse and new certificates free of the foregoing legend will be issued to the Grantee or his or her legal representative.
 
     11.4 The Committee may include in an Agreement a requirement that in the event of a Grantee’s termination of employment for any reason prior to the lapse of restrictions, all Shares of Restricted Stock will be forfeited by the Grantee to the Company without payment of any consideration by the Company, and neither the Grantee nor any successors, heirs, assigns or personal representatives of the Grantee will thereafter have any further rights or interest in the Shares or certificates.
 
     11.5 The maximum number of Shares of Restricted Stock that may be awarded to any Employee or Director under this Plan during its term is 3,750,000 Shares.
 
12. Incentive Share Awards
 
     12.1 The Committee is hereby authorized to award Incentive Shares to Employees and Directors.
 
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     12.2 Incentive Shares will be Shares that are issued at such times, subject to achievement of such Performance Goals or other goals and on such other terms and conditions as the Committee deems appropriate and specify in the Agreement relating thereto.
 
     12.3 The maximum number of Shares of Incentive Shares that may be awarded to any Employee or Director under this Plan during its term is 3,750,000 Shares.
 
13. Capital Adjustments