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Kellogg Company DEF 14A 2009
DEF 14A
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
Filed by the Registrant ý
Filed by a Party other than the Registranto
Check the appropriate box:
o   Preliminary Proxy Statement
 
o   Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
ý   Definitive Proxy Statement
 
o   Definitive Additional Materials
 
o   Soliciting Material Under Rule 14a-12
KELLOGG COMPANY
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
ý   No fee required.
 
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
  (1)   Title of each class of securities to which transaction applies:
 
     
 
 
  (2)   Aggregate number of securities to which transaction applies:
 
     
 
 
  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
     
 
 
  (4)   Proposed maximum aggregate value of transaction:
 
     
 
 
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o   Fee paid previously with preliminary materials.
 
o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
  (1)   Amount Previously Paid:
 
     
 
 
  (2)   Form, Schedule or Registration Statement No:
 
     
 
 
  (3)   Filing party:
 
     
 
 
  (4)   Date Filed:
 
     
 


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(KELLOGG COMPANY)
 
 
 
 
Dear Shareowner:
 
It is my pleasure to invite you to attend the 2009 Annual Meeting of Shareowners of Kellogg Company. The meeting will be held at 1:00 p.m. Eastern Time on April 24, 2009 at the W. K. Kellogg Auditorium, 50 West Van Buren Street, Battle Creek, Michigan.
 
The following pages contain the formal Notice of the Annual Meeting and the Proxy Statement. Please review this material for information concerning the business to be conducted at the meeting and the nominees for election as Directors.
 
We are pleased to take advantage of the Securities and Exchange Commission rules that allow companies to furnish proxy materials to their shareowners on the Internet. We believe these rules allow us to provide our Shareowners with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.
 
Attendance at the Annual Meeting will be limited to Shareowners only. If you are a holder of record of Kellogg common stock and you plan to attend the meeting, please save your notice of electronic availability or proxy card, as the case may be, and bring it to the meeting to use as your admission ticket. If you plan to attend the meeting, but your shares are not registered in your own name, please request an admission ticket by writing to the following address: Kellogg Company Shareowner Services, One Kellogg Square, Battle Creek, MI 49017-3534. Evidence of your stock ownership, which you may obtain from your bank, stockbroker, etc., must accompany your letter. Shareowners without tickets will only be admitted to the meeting upon verification of stock ownership.
 
Shareowners needing special assistance at the meeting are requested to contact Shareowner Services at the address listed above.
 
Your vote is important. Whether or not you plan to attend the meeting, I urge you to vote your shares as soon as possible. You may vote your shares via a toll-free telephone number or over the Internet. If you received a paper copy of the proxy or voting instruction card by mail, you may sign, date and mail the card in the envelope provided.
 
Sincerely,
 
-s- A.D. David Mackay
 
David Mackay
President and Chief Executive Officer
 
March 6, 2009


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KELLOGG COMPANY
One Kellogg Square
Battle Creek, Michigan 49017-3534
 
NOTICE OF THE ANNUAL MEETING OF SHAREOWNERS
 
 
TO OUR SHAREOWNERS:
 
The 2009 Annual Meeting of Shareowners of Kellogg Company, a Delaware corporation, will be held at 1:00 p.m. Eastern Time on April 24, 2009 at the W. K. Kellogg Auditorium, 50 West Van Buren Street, Battle Creek, Michigan, for the following purposes:
 
  1.  To elect four Directors for a three-year term to expire at the 2012 Annual Meeting of Shareowners;
 
  2.  To ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP for our 2009 fiscal year;
 
  3.  To approve the Kellogg Company 2009 Long-Term Incentive Plan;
 
  4.  To approve the Kellogg Company 2009 Non-Employee Director Stock Plan;
 
  5.  To consider and act upon a Shareowner proposal to enact a majority voting requirement for the election of directors, if properly presented at the meeting;
 
  6.  To consider and act upon a Shareowner proposal to elect each director annually, if properly presented at the meeting; and
 
  7.  To take action upon any other matters that may properly come before the meeting, or any adjournments thereof.
 
Only Shareowners of record at the close of business on March 2, 2009 will receive notice of and be entitled to vote at the meeting or any adjournments. We look forward to seeing you there.
 
By Order of the Board of Directors,
 
-s- Gary Pilnick
Gary Pilnick
Senior Vice President,
General Counsel, Corporate Development and Secretary
 
March 6, 2009


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KELLOGG COMPANY
 
ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49017-3534
PROXY STATEMENT
 
FOR THE ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON FRIDAY, APRIL 24, 2009
 
 
 
Information About this Proxy Statement.
 
Why you received this proxy statement.  You have received these proxy materials because our Board of Directors, which we refer to as the Board, is soliciting your proxy to vote your shares at the 2009 Annual Meeting of Shareowners of Kellogg to be held at 1:00 p.m. Eastern Time at the W. K. Kellogg Auditorium, 50 West Van Buren Street, in Battle Creek, Michigan, on Friday, April 24, 2009, or any adjournments thereof. This proxy statement includes information that we are required to provide to you under the rules of the Securities and Exchange Commission and that is designed to assist you in voting your shares. On March 11, 2009, we began to mail to our Shareowners of record as of the close of business on March 2, 2009, either a notice containing instructions on how to access this proxy statement and our annual report online or a printed copy of these proxy materials. If you own our common stock in more than one account, such as individually and also jointly with your spouse, you may receive more than one notice or set of these proxy materials. To assist us in saving money and to serve you more efficiently, we encourage you to have all your accounts registered in the same name and address by contacting our transfer agent, Wells Fargo Shareowner Services, at P.O. Box 64854, St. Paul, MN 55164-0854; phone number: (877) 910-5385.
 
Notice of Electronic Availability of Proxy Statement and Annual Report.  As permitted by Securities and Exchange Commission rules, we are making this proxy statement and our annual report available to our Shareowners electronically via the Internet. The notice of electronic availability contains instructions on how to access this proxy statement and our annual report and vote online. If you received a notice by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report. The notice also instructs you on how you may submit your proxy over the Internet or by telephone. If you received a notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials contained on the notice.
 
Summary Processing.  The Securities and Exchange Commission’s rules permit us to print an individual’s multiple accounts on a single notice or set of annual meeting materials. This printing method is referred to as “summary processing” and may result in cost savings. To take advantage of this opportunity, we have summarized on one notice or set of annual meeting materials all of the accounts registered with the same tax identification number or duplicate name and address, unless we received contrary instructions from the impacted Shareowner prior to the mailing date. We agree to deliver promptly, upon written or oral request, a separate copy of the notice or annual meeting materials, as requested, to any Shareowner to which a single copy of those documents was delivered. If you prefer to receive separate copies of the notice or annual meeting materials, contact Broadridge Financial Solutions, Inc. at (800) 542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
 
If you are currently a Shareowner sharing an address with another Shareowner and wish to receive only one copy of future notices or annual meeting materials for your household, please contact Broadridge at the above phone number or address.
 
Who Can Vote — Record Date.  The record date for determining Shareowners entitled to vote at the annual meeting is March 2, 2009. Each of the approximately 382,106,440 shares of Kellogg common stock issued and outstanding on that date is entitled to one vote at the annual meeting.
 
How to Vote — Proxy Instructions.  If you received a notice of electronic availability, you can not vote your shares by filling out and returning the notice. The notice, however, provides instructions on how to vote by Internet, by telephone or by requesting and returning a paper proxy card or voting instruction card.


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If your shares are registered directly in your name with our transfer agent, you are considered, with respect to those shares, the shareowner of record. As the shareowner of record, you have the right to vote in person at the meeting. If your shares are held in a brokerage account or by another nominee or trustee, you are considered the beneficial owner of shares held in “street name.” As the beneficial owner, you are also invited to attend the meeting. Since a beneficial owner is not the shareowner of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from your broker, nominee or trustee that holds your shares, giving you the right to vote the shares at the meeting.
 
Whether you hold shares directly as a registered shareowner of record or beneficially in street name, you may vote without attending the meeting. You may vote by granting a proxy or, for shares held beneficially in street name, by submitting voting instructions to your broker, nominee or trustee. In most cases, you will be able to do this by telephone, by using the Internet or by mail if you received a printed set of the proxy materials.
 
By Telephone or Internet — If you have telephone or Internet access, you may submit your proxy by following the instructions provided in the notice of electronic availability, or if you received a printed version of the proxy materials by mail, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card.
 
By Mail — If you received printed proxy materials, you may submit your proxy by mail by signing your proxy card if your shares are registered or, for shares held beneficially in street name, by following the voting instructions included by your broker, nominee or trustee, and mailing it in the enclosed envelope.
 
The telephone and Internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. The deadline for voting by telephone or via the Internet is 11:59 p.m. Eastern Daylight Time on Thursday, April 23, 2009. If you wish to vote using the proxy card, complete, sign, and date your proxy card and return it to us before the meeting.
 
Whether you vote by telephone, over the Internet or by mail, you may specify whether your shares should be voted for all, some or none of the nominees for Director (Proposal 1); whether you approve, disapprove or abstain from voting on the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2009 (Proposal 2); whether you approve, disapprove, or abstain from voting on the Kellogg Company 2009 Long Term Incentive Plan (Proposal 3); whether you approve, disapprove, or abstain from voting on the Kellogg Company 2009 Non-Employee Director Stock Plan (Proposal 4); and whether you approve, disapprove or abstain from voting on each of the Shareowner proposals, if properly presented at the meeting (Proposals 5 and 6).
 
When a properly executed proxy is received, the shares represented thereby, including shares held under our Dividend Reinvestment Plan, will be voted by the persons named as the proxy according to each Shareowner’s directions. Proxies will also be considered to be voting instructions to the applicable Trustee with respect to shares held in accounts under our Savings & Investment Plans.
 
If the proxy is properly executed but you do not specify how you want to vote your shares on your proxy card or voting instruction card, or voting by telephone or over the Internet, we will vote them “For” the election of all nominees for Director as set forth under “Proposal 1 — Election of Directors” below, “For” Proposals 2 through 4 and “Against” Proposals 5 and 6, and otherwise at the discretion of the persons named in the proxy card.
 
Revocation of Proxies.  If you are a shareowner of record, you may revoke your proxy at any time before it is exercised in any of three ways:
 
  (1)  by submitting written notice of revocation to our Secretary;
 
  (2)  by submitting another proxy by telephone, via the Internet or by mail that is later dated and, if by mail, that is properly signed; or
 
  (3)  by voting in person at the meeting.
 
If your shares are held in street name, you must contact your broker, nominee or trustee to revoke and vote your proxy.
 
Quorum.  A quorum of Shareowners is necessary to hold a valid meeting. A quorum will exist if the holders representing a majority of the votes entitled to be cast by the Shareowners at the annual meeting are present, in person or by proxy. Broker “non-votes” and abstentions are counted as present at the Annual Meeting for purposes of determining whether a quorum exists. A broker “non-vote” occurs when a nominee, such as a bank or broker, holding shares for a beneficial owner, does not vote on a particular proposal because the nominee does not have discretionary voting power for


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that particular item and has not received instructions from the beneficial owner. Under current New York Stock Exchange rules, nominees would have discretionary voting power for the election of Directors (Proposal 1) and for ratification of PricewaterhouseCoopers LLP (Proposal 2), but not for approval of the Kellogg Company 2009 Long-Term Incentive Plan (Proposal 3), approval of the Kellogg Company 2009 Non-Employee Director Stock Plan (Proposal 4) or for approval of the Shareowner proposals (Proposals 5 and 6).
 
Required Vote.  Our Board has adopted a majority voting policy which applies to the election of Directors. Under this policy, any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to offer his or her resignation following certification of the Shareowner vote. Our Board’s Nominating and Governance Committee would then consider the offer of resignation and make a recommendation to our independent Directors as to the action to be taken with respect to the offer. This policy does not apply in contested elections. For more information about this policy, see “Corporate Governance — Majority Voting for Directors; Director Resignation Policy.”
 
Under Delaware law, a nominee who receives a plurality of the votes cast at the Annual Meeting will be elected as a Director (subject to the resignation policy described above). The “plurality” standard means the nominees who receive the largest number of “for” votes cast are elected as Directors. Thus, the number of shares not voted for the election of a nominee (and the number of “withhold” votes cast with respect to that nominee) will not affect the determination of whether that nominee has received the necessary votes for election under Delaware law. However, the number of “withhold” votes with respect to a nominee will affect whether or not our Director resignation policy will apply to that individual. If any nominee is unable or declines to serve, proxies will be voted for the balance of those named and for such person as shall be designated by the Board to replace any such nominee. However, the Board does not anticipate that this will occur.
 
The affirmative vote of the holders representing a majority of the shares present and entitled to vote at the annual meeting is necessary to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2009 (Proposal 2), to approve the Kellogg Company 2009 Long Term Incentive Plan (Proposal 3), to approve the Kellogg Company 2009 Non-Employee Director Stock Plan (Proposal 4) and to approve the Shareowner proposals (Proposals 5 and 6). Shares present but not voted because of abstention will have the effect of a “no” vote on Proposals 2 through 6. If you do not provide your broker or other nominee with instructions on how to vote your “street name” shares, your broker or nominee will not be permitted to vote them on non-routine matters (a broker “non-vote”) such as Proposal 3. Shares subject to a broker “non-vote” will not be considered entitled to vote with respect to Proposals 3 through 6, and will not affect the outcome on that proposal.
 
Other Business.  We do not intend to bring any business before the meeting other than that set forth in the Notice of the Annual Meeting and described in this proxy statement. However, if any other business should properly come before the meeting, the persons named in the proxy card intend to vote in accordance with their best judgment on such business and on any matters dealing with the conduct of the meeting pursuant to the discretionary authority granted in the proxy.
 
Costs.  We pay for the preparation and mailing of the Notice of the Annual Meeting and proxy statement. We have also made arrangements with brokerage firms and other custodians, nominees, and fiduciaries for forwarding proxy-soliciting materials to the beneficial owners of the Kellogg common stock at our expense. In addition, we have retained Georgeson Inc. to aid in the solicitation of proxies by mail, telephone, facsimile, e-mail and personal solicitation. For these services, we will pay Georgeson a fee of $12,500, plus reasonable expenses.
 
Directions to Annual Meeting.  To obtain directions to attend the annual meeting and vote in person, please contact Investor Relations at (269) 961-2800 or at investor.relations@kellogg.com.


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Five Percent Holders.  The following table shows each person who, based upon their most recent filings or correspondence with the SEC beneficially owns more than 5% of our common stock.
 
                 
        Percent of Class on
Beneficial Owner
  Shares Beneficially Owned   January 3, 2009
 
W. K. Kellogg Foundation Trust(1)
    94,003,246 shares(2 )     24.6 %
c/o The Bank of New York Mellon Corporation
One Wall Street
New York, NY 10286
               
George Gund III
    32,822,870 shares(3 )     8.6 %
39 Mesa Street
San Francisco, CA 94129
               
KeyCorp
    29,871,240 shares(4 )     7.8 %
127 Public Square
Cleveland, OH 44114-1306
               
 
 
(1) The trustees of the W. K. Kellogg Foundation Trust (the “Kellogg Trust”) are Jim Jenness, Sterling Speirn, Wenda Moore and The Bank of New York Mellon. The W. K. Kellogg Foundation, a Michigan charitable corporation (the “Kellogg Foundation”), is the sole beneficiary of the Kellogg Trust. The Kellogg Trust owns 90,239,490 shares of Kellogg Company, or 23.6% of our outstanding shares on January 3, 2009. Under the agreement governing the Kellogg Trust (the “Agreement”), at least one trustee of the Kellogg Trust must be a member of the Kellogg Foundation’s Board, and one member of our Board must be a trustee of the Kellogg Trust. The Agreement provides if a majority of the trustees of the Kellogg Trust (which majority must include the corporate trustee) cannot agree on how to vote the Kellogg stock, the Kellogg Foundation has the power to direct the voting of such stock. With certain limitations, the Agreement also provides that the Kellogg Foundation has the power to approve successor trustees, and to remove any trustee of the Kellogg Trust.
 
(2) According to Schedule 13G/A filed with the SEC on February 12, 2009, The Bank of New York Mellon Corporation (“BONYMC”), as parent holding company for The Bank of New York, and The Bank of New York (“BONY”), as trustee of the Kellogg Trust, shares voting and investment power with the other three trustees with respect to the 90,239,490 shares owned by the Kellogg Trust. The remaining shares not owned by the Kellogg Trust that are disclosed in the table above represent shares beneficially owned by BONYMC, BONY and the other trustees unrelated to the Kellogg Trust. BONYMC has sole voting power for 1,802,037 shares, shared voting power for 90,341,967 shares (including those shares beneficially owned by the Kellogg Trust), sole investment power for 2,218,237 shares and shared investment power for 92,648,277 shares (including those shares beneficially owned by the Kellogg Trust).
 
(3) According to Schedule 13G/A filed with the SEC on February 17, 2009, George Gund III has sole voting power for 129,800 shares, shared voting power for 32,693,070 shares, sole investment power for 129,800 shares and shared investment power for 5,179,856 shares. Of the shares over which Mr. Gund has shared voting and investment power, 2,642,624 shares are held by a nonprofit foundation of which Mr. Gund is one of eight trustees and one of twelve members. Mr. Gund disclaims beneficial ownership as to all of these shares. Gordon Gund, a Kellogg Director, is a brother of George Gund III and may be deemed to share voting or investment power over the shares shown as beneficially owned by George Gund III, as to which shares Gordon Gund disclaims beneficial ownership.
 
(4) According to a Schedule 13G/A filed with the SEC on February 10, 2009, KeyCorp, as trustee for certain Gund family trusts included under (3) above, as well as other trusts, has sole voting power for 2,350,976 shares, shared voting power for 5,450 shares, sole investment power for 29,604,554 shares and shared investment power for 257,846 shares.


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Officer and Director Stock Ownership.  The following table shows the number of shares of Kellogg common stock beneficially owned as of January 15, 2009, by each Director, each executive officer named in the Summary Compensation Table and all Directors and executive officers as a group.
 
                                         
            Deferred Stock
  Total Beneficial
   
Name
  Shares(1)   Options(2)   Units(3)   Ownership(4)   Percentage
 
Directors
                                       
Benjamin Carson
    21,777       45,000       0       66,777       *
John Dillon(5)
    22,130       43,750       0       65,880       *
Gordon Gund(6)
    53,274       35,548       54,250       143,072       *
Jim Jenness(7)
    81,233       899,543       11,614       992,390       *
Dorothy Johnson
    36,913       39,715       20,090       96,718       *
Don Knauss
    2,975       6,931       0       9,906       *
Ann McLaughlin Korologos
    30,930       45,000       17,752       93,682       *
Rogelio Rebolledo(8)
    1,072       0       0       1,072       *
Sterling Speirn(7)
    4,613       5,781       0       10,394       *
Robert Steele
    3,934       9,110       0       13,044       *
John Zabriskie
    31,361       41,800       23,434       96,595       *
Named Executive Officers
                                       
David Mackay
    244,565       1,646,575       686       1,891,826       *
John Bryant
    143,610       669,801       0       813,411       *
Brad Davidson
    60,484       192,079       0       252,563       *
Paul Norman
    61,858       196,374       0       258,232       *
Tim Mobsby
    105,907       252,342       0       358,249       *
Jeff Montie(9)
    77,623       440,297       0       517,920       *
All Directors and executive officers as a group (22 persons)(10)
    1,178,325       5,410,412       127,826       6,716,563       1.7 %
 
 
Less than 1%.
 
(1) Represents the number of shares beneficially owned, excluding shares which may be acquired through exercise of stock options and units held under our deferred compensation plans. Includes the following number of shares held in Kellogg’s Grantor Trust for Non-Employee Directors which are subject to restrictions on investment: Dr. Carson, 20,477 shares; Mr. Dillon, 17,880 shares; Mr. Gund, 27,422 shares; Mr. Jenness, 9,869 shares; Ms. Johnson, 19,465 shares; Mr. Knauss, 2,975 shares; Ms. McLaughlin Korologos, 27,180 shares; Mr. Rebolledo, 1,072 shares; Mr. Speirn, 4,613 shares; Mr. Steele, 3,934 shares; Dr. Zabriskie, 24,161 shares; and all Directors as a group, 159,048 shares.
 
(2) Represents shares which may be acquired through exercise of stock options as of January 15, 2009 or within 60 days after that date.
 
(3) Represents the number of common stock units held under our deferred compensation plans as of January 15, 2009. The deferred stock units, or DSUs, have no voting rights. For additional information, refer to “2008 Director Compensation and Benefits — Elective Deferral Program” and “Compensation Discussion and Analysis — Elements of Our Compensation Program — Base Salaries” for a description of these plans.
 
(4) None of the shares listed have been pledged as collateral.
 
(5) Includes 250 shares held for the benefit of a minor son, over which Mr. Dillon disclaims beneficial ownership.
 
(6) Includes 10,000 shares owned by Mr. Gund’s wife. Gordon Gund disclaims beneficial ownership of the shares beneficially owned by his wife and George Gund III.
 
(7) Does not include shares owned by the Kellogg Trust, as to which Mr. Jenness and Mr. Speirn, as trustees of the Kellogg Trust as of the date of this table, share voting and investment power, or shares as to which the Kellogg Trust or the Kellogg Foundation have current beneficial interest.
 
(8) Mr. Rebolledo was elected to the Board effective October 22, 2008.


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(9) Includes 18,086 shares owned by Mr. Montie’s wife.
 
(10) Includes 12,030 shares owned by, or held for the benefit of, spouses; 1,219 shares owned by, or held for the benefit of, children, over which the applicable Director, or executive officer disclaims beneficial ownership; 19,520 shares held in our Savings & Investment Plans; and 306,149 restricted shares, which contain some restrictions on investment.
 
Section 16(a) Beneficial Ownership Reporting Compliance.  Section 16(a) of the Securities Exchange Act of 1934 requires our Directors, executive officers, and greater-than-10% Shareowners to file reports with the SEC. SEC regulations require us to identify anyone who filed a required report late during the most recent fiscal year. Based on our review of these reports and written certifications provided to us, we believe that the filing requirements for all of these reporting persons were complied with, except that one Form 4 for each of John Bryant, Brad Davidson, and Tim Mobsby was inadvertently filed late by Kellogg. A Form 4 was filed in April 2008, a Form 4 in December 2008, and a Form 5 in February 2009, respectively, reporting each transaction.


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Board-Adopted Corporate Governance Guidelines.  We operate under corporate governance principles and practices that are designed to maximize long-term Shareowner value, align the interests of the Board and management with those of our Shareowners and promote high ethical conduct among our Directors and employees. The Board has focused on continuing to build upon our strong corporate governance practices over the years. The Board’s current corporate governance guidelines include the following:
 
  •  A majority of the Directors, and all of the members of the Audit, Compensation, and Nominating and Governance Committees, are required to meet the independence requirements of the New York Stock Exchange.
 
  •  One of the Directors is designated a Lead Director, who approves proposed meeting agendas and schedules, may call executive sessions of the non-employee Directors and establishes a method for Shareowners and other interested parties to use in communicating with the Board.
 
  •  The Board reviews succession planning at least once per year.
 
  •  The Board and each Board committee have the power to hire independent legal, financial or other advisors as they may deem necessary, at our expense.
 
  •  Non-employee Directors meet in executive session at least three times annually.
 
  •  The Board and Board committees conduct annual self-evaluations.
 
  •  The independent members of the Board use the recommendations from the Nominating and Governance Committee and Compensation Committee to conduct an annual review of the CEO’s performance and determine the CEO’s compensation.
 
  •  Non-employee Directors who change their principal responsibility or occupation from that held when they were elected shall offer his or her resignation for the Board to consider continued appropriateness of Board membership under the circumstances.
 
  •  Directors have free access to Kellogg officers and employees.
 
  •  Continuing education is provided to Directors consistent with our Board Education Policy.
 
  •  No Director may be nominated for a new term if he or she would be seventy-two or older at the time of election.
 
  •  No Director shall serve as a Director, officer or employee of a competitor.
 
  •  No Director should serve on more than four other boards of public companies in addition to Kellogg.
 
  •  All Directors are expected to comply with stock ownership guidelines for Directors, under which they are generally expected to hold at least five times their annual cash retainer in stock and stock equivalents.
 
Majority Voting for Directors; Director Resignation Policy.  In an uncontested election of Directors (that is, an election where the number of nominees is equal to the number of seats open) any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall promptly tender his or her resignation to the Nominating and Governance Committee (following certification of the Shareowner vote) for consideration in accordance with the following procedures.
 
The Nominating and Governance Committee would promptly consider such resignation and recommend to the Qualified Independent Directors (as defined below) the action to be taken with respect to such offered resignation, which may include (1) accepting the resignation; (2) maintaining the Director but addressing what the Qualified Independent Directors believe to be the underlying cause of the withheld votes; (3) determining that the Director will not be renominated in the future for election; or (4) rejecting the resignation. The Nominating and Governance Committee would consider all relevant factors including, without limitation, (a) the stated reasons why votes were withheld from such Director; (b) any alternatives for curing the underlying cause of the withheld votes; (c) the tenure and qualifications of the Director; (d) the Director’s past and expected future contributions to Kellogg; (e) our Director criteria; (f) our Corporate Governance Guidelines; and (g) the overall composition of the Board, including whether accepting the resignation would cause Kellogg to fail to meet any applicable SEC or NYSE requirement.


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The Qualified Independent Directors would act on the Nominating and Governance Committee’s recommendation no later than 90 days following the date of the Shareowners’ meeting where the election occurred. In considering the Nominating and Governance Committee’s recommendation, the Qualified Independent Directors would consider the factors considered by the Nominating and Governance Committee and such additional information and factors the Board believes to be relevant. Following the Qualified Independent Directors’ decision, Kellogg would promptly disclose in a current report on Form 8-K the decision whether to accept the resignation as tendered (providing a full explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation).
 
To the extent that any resignation is accepted, the Nominating and Governance Committee would recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.
 
Any Director who tenders his or her resignation pursuant to this provision would not participate in the Nominating and Governance Committee’s recommendation or Qualified Independent Directors’ consideration regarding whether to accept the tendered resignation. Prior to voting, the Qualified Independent Directors would afford the Director an opportunity to provide any information or statement that he or she deems relevant. If a majority of the members of the Nominating and Governance Committee received a greater number of votes “withheld” from their election than votes “for” their election at the same election, then the remaining Qualified Independent Directors who are on the Board who did not receive a greater number of votes “withheld” from their election than votes “for” their election (or who were not standing for election) would consider the matter directly or may appoint a Board committee amongst themselves solely for the purpose of considering the tendered resignations that would make the recommendation to the Board whether to accept or reject them.
 
For purposes of this policy, the term “Qualified Independent Directors” means:
 
  •  All Directors who (1) are independent Directors (as defined in accordance with the NYSE Corporate Governance Rules) and (2) are not required to offer their resignation in accordance with this policy.
 
  •  If there are fewer than three independent Directors then serving on the Board who are not required to offer their resignations in accordance with this policy, then the Qualified Independent Directors shall mean all of the independent Directors and each independent Director who is required to offer his or her resignation in accordance with this Policy shall recuse himself or herself from the deliberations and voting only with respect to his or her individual offer to resign.
 
Director Independence.  The Board has determined that all current Directors (other than Mr. Jenness and Mr. Mackay) are independent based on the following standards: (a) no entity (other than a charitable entity) of which a Director is an employee in any position or any immediate family member (as defined) is an executive officer, made payments to, or received payments from, Kellogg and its subsidiaries in any of the 2008, 2007, or 2006 fiscal years in excess of the greater of (1) $1,000,000 or (2) two percent of that entity’s annual consolidated gross revenues; (b) no Director, or any immediate family member employed as an executive officer of Kellogg or its subsidiaries, received in any twelve month period within the last three years more than $120,000 per year in direct compensation from Kellogg or its subsidiaries, other than Director and committee fees and pension or other forms of deferred compensation for prior service not contingent in any way on continued service; (c) Kellogg did not employ a Director in any position, or any immediate family member as an executive officer, during the past three years; (d) no Director was a current partner or employee of the independent or internal Kellogg auditor (“Auditor”), no immediate family member of a Director was a current partner of the Auditor or an employee of the Auditor who personally worked on our audit, and no Director or immediate family member of a Director was during the past three years a partner or employee of the Auditor and personally worked on our audit within that time; (e) no Director or immediate family member served as an executive officer of another company during the past three years at the same time as a current executive officer of Kellogg served on the compensation committee of such company; and (f) no other material relationship exists between any Director and Kellogg or our subsidiaries. The Board also determined that Mr. Gonzalez met the above standards for Director independence in 2008 while he served as a Director.
 
In connection with its independence determinations for Mr. Speirn, the Board noted that Kellogg entered into two agreements with the W. K. Kellogg Foundation Trust (the “Kellogg Trust”), one dated as of November 8, 2005 (the “2005 Agreement”) and one dated as of February 16, 2006 (the “2006 Agreement,” and together with the 2005 Agreement, the “Agreements”) under which we repurchased a total of 22,156,318 shares of our common stock from the Kellogg Trust for an aggregate cash purchase price of $950,000,000 (collectively, the “Trust Transactions”). Mr. Speirn, a Kellogg Director elected on March 1, 2007, became a trustee of the Kellogg Trust in January 2007 and became the President and Chief Executive Officer of the W. K. Kellogg Foundation (the “Kellogg Foundation”), a charitable foundation that is the sole


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beneficiary of the Kellogg Trust, in January 2006. In connection with Mr. Speirn’s election to the Board, the Board determined that Mr. Speirn was independent under the NYSE listing standards, and that the Agreements and the Trust Transactions were not material for these purposes. In reaching this conclusion, the Board took into account that:
 
  •  the Agreement and the contemplated Trust Transactions were each negotiated on an arm’s-length basis and, on behalf of the full Board, by a committee of the Board comprised of independent Directors (with Directors who are affiliated with the Kellogg Trust or Kellogg Foundation not participating in the deliberations or approval);
 
  •  Mr. Speirn did not participate in any of the Board deliberations regarding the Agreements or any of the Trust Transactions;
 
  •  the price of the shares sold in the Trust Transactions was based on a discount to market;
 
  •  Mr. Speirn is not a beneficiary of the Kellogg Trust or of the Kellogg Foundation;
 
  •  Mr. Speirn’s compensation with respect to his service to the Kellogg Trust and the Kellogg Foundation was not related to the Kellogg Trust Transactions; and
 
  •  Mr. Speirn did not and will not receive, directly or indirectly, any of the proceeds of, or other interest in, the Kellogg Trust Transaction.
 
The Board also considered commercial ordinary-course transactions with respect to several Directors as it assessed independence status, including transactions relating to purchasing supplies, selling product and marketing arrangements. The Board concluded that these transactions did not impair Director independence for a variety of reasons including that the amounts in question were considerably under the thresholds set forth in our independence standards and the relationships were not deemed material.
 
Shareowner Recommendations for Director Nominees.  The Nominating and Governance Committee will consider Shareowner nominations for membership on the Board. For the 2010 Annual Meeting of Shareowners, nominations may be submitted to the Office of the Secretary, Kellogg Company, One Kellogg Square, Battle Creek, Michigan 49017, which will forward them to the Chairman of the Nominating and Governance Committee. Recommendations must be in writing and we must receive the recommendation not earlier than the 120th day prior to the 2010 annual meeting and not later than January 24, 2010. Recommendations must also include certain other requirements specified in our bylaws.
 
The Nominating and Governance Committee believes that all nominees must, at a minimum, meet the criteria set forth in the Board’s Code of Conduct and the Corporate Governance Guidelines, which specify, among other things, that the Nominating and Governance Committee will consider criteria such as independence, diversity, age, skills and experience in the context of the needs of the Board. The Nominating and Governance Committee also will consider a combination of factors for each nominee, including (1) the nominee’s ability to represent all Shareowners without a conflict of interest; (2) the nominee’s ability to work in and promote a productive environment; (3) whether the nominee has sufficient time and willingness to fulfill the substantial duties and responsibilities of a Director; (4) whether the nominee has demonstrated the high level of character and integrity that we expect; (5) whether the nominee possesses the broad professional and leadership experience and skills necessary to effectively respond to the complex issues encountered by a multi-national, publicly-traded company; and (6) the nominee’s ability to apply sound and independent business judgment.
 
When filling a vacancy on the Board, the Nominating and Governance Committee identifies the desired skills and experience of a new Director in light of the criteria described above and the skills and experience of the then-current Directors. The Nominating and Governance Committee may, as it has done in the past, engage third parties to assist in the search and provide recommendations. Also, Directors are generally asked to recommend candidates for the position. The candidates would be evaluated based on the process outlined in the Corporate Governance Guidelines and the Nominating and Governance Committee charter, and the same process would be used for all candidates, including candidates recommended by Shareowners.
 
Communication with the Board.  Mr. Gund, the Chairman of the Nominating and Governance Committee and the Lead Director, usually presides at executive sessions of the independent members of the Board. Mr. Gund may be contacted at gordon.gund@kellogg.com. Any communications which Shareowners or interested parties may wish to send to the Board may be directly sent to Mr. Gund at this e-mail address.
 
Attendance at Annual Meetings.  All Directors properly nominated for election are expected to attend the Annual Meeting of Shareowners. All of our Directors attended the 2008 Annual Meeting of Shareowners.


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Code of Ethics.  We have adopted the Code of Conduct for Kellogg Company Directors and Global Code of Ethics for Kellogg Company employees (including the chief executive officer, chief financial officer and corporate controller). Any amendments to or waivers of the Global Code of Ethics applicable to our chief executive officer, chief financial officer or corporate controller will be posted on www.kelloggcompany.com. There were no amendments to or waivers of the Global Code of Ethics in 2008.
 
Availability of Corporate Governance Documents.  Copies of the Corporate Governance Guidelines, the Charters of the Audit, Compensation, and Nominating and Governance Committees of the Board, the Code of Conduct for Kellogg Company Directors, and Global Code of Ethics for Kellogg Company employees can be found on the Kellogg Company website at www.kelloggcompany.com under “Corporate Governance.” Shareowners may also request a free copy of these documents from: Kellogg Company, P.O. Box CAMB, Battle Creek, Michigan 49016-1986 (phone: (800) 961-1413), Ellen Leithold of the Investor Relations Department at that same address (phone: (269) 961-2800) or investor.relations@kellogg.com.
 
 
 
 
In 2008, the Board had the following standing committees: Audit, Compensation, Nominating and Governance, Social Responsibility, Consumer Marketing and Executive.
 
The Board held 11 meetings in 2008. All of the incumbent Directors attended at least 75% of the total number of meetings of the Board and of all Board committees of which the Directors were members during 2008.
 
The table below provides 2008 membership and meeting information for each Board committee as of January 3, 2009:
 
                                                 
                Nominating
                   
                and
    Social
    Consumer
       
Name(1)
  Audit     Compensation     Governance     Responsibility     Marketing     Executive  
 
Benjamin Carson
                    ü       ü       ü          
John Dillon
    Chair       ü       ü                       ü  
Gordon Gund
            ü       Chair               ü       ü  
Jim Jenness(2)
                                            Chair  
Dorothy Johnson
                            Chair       ü       ü  
Don Knauss
    ü                               ü          
Ann McLaughlin Korologos
            ü       ü       ü                  
David Mackay(2)
                                            ü  
Rogelio Rebolledo(3)
    ü                               ü          
Sterling Speirn
                            ü       ü          
Robert Steele
    ü                               Chair       ü  
John Zabriskie
    ü       Chair       ü                       ü  
2008 Meetings
    6       5       3       2       2       0  
 
 
(1) Mr. Claudio Gonzalez retired from the Board during 2008. Consequently, he is not included in the table above because he was not a member of the Board as of January 3, 2009. During 2008, Mr. Gonzalez served on the Compensation, Nominating and Governance, Consumer Marketing and Executive Committees.
 
(2) Mr. Jenness and Mr. Mackay attend committee meetings as members of management, other than portions of those meetings held in executive session.
 
(3) On May 14, 2008, the Board elected Mr. Rebolledo as a Director effective October 22, 2008.
 
Audit Committee.  Pursuant to a written charter, the Audit Committee assists the Board in monitoring the integrity of our financial statements, the independence and performance of our independent registered public accounting firm, the performance of our internal audit function, our compliance with financial, legal and regulatory requirements and other related matters. The Audit Committee, or its Chair, also pre-approves all audit, internal control-related and permitted non-audit engagements and services by the independent registered public accounting firm and their affiliates. It also discusses and/or reviews specified matters with, and receives specified information or assurances from, Kellogg management and


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the independent registered public accounting firm. The Committee also has the sole authority to appoint or replace the independent registered public accounting firm, which directly reports to the Audit Committee, and is directly responsible for the compensation and oversight of the independent registered public accounting firm. Each member of the Audit Committee has been determined by the Board to be an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of SEC Regulation S-K. Each member has experience actively supervising a principal financial officer and/or principal accounting officer. Each of the Committee members meets the independence requirements of the New York Stock Exchange.
 
Compensation Committee.  Pursuant to a written charter, the Compensation Committee, among other things, (a) reviews and makes recommendations for the compensation of senior management personnel and monitors overall compensation for senior executives; (b) reviews and recommends the compensation of the Chief Executive Officer; (c) has sole authority to retain or terminate any compensation consultant used to evaluate senior executive compensation; (d) oversees and administers employee benefit plans to the extent provided in those plans; and (e) reviews trends in management compensation. The Committee may form and delegate authority to subcommittees or the Chair when appropriate. The Compensation Committee, or its Chair, also pre-approves all engagements and services to be performed by any consultants to the Compensation Committee. To assist the Compensation Committee in discharging its responsibilities, the Committee has retained an independent compensation consultant — Towers Perrin. The consultant reports directly to the Compensation Committee. Other than the work it performs for the Compensation Committee and the Board, Towers Perrin does not provide any consulting services to Kellogg or its executive officers. Each of the Committee members meets the independence requirements of the New York Stock Exchange. For additional information about the Compensation Committee’s processes for establishing and overseeing executive compensation, refer to “Compensation Discussion and Analysis — Our Compensation Methodology.”
 
Nominating and Governance Committee.  Pursuant to a written charter, the Nominating and Governance Committee, among other things, assists the Board by (a) identifying and reviewing the qualifications of candidates for Director and in determining the criteria for new Directors; (b) recommends nominees for Director to the Board; (c) recommends committee assignments; (d) reviews annually the Board’s compliance with the Corporate Governance Guidelines; (e) reviews annually the Corporate Governance Guidelines and recommends changes to the Board; (f) monitors the performance of Directors and conducts performance evaluations of each Director before the Director’s renomination to the Board; (g) administers the annual evaluation of the Board; (h) provides annually an evaluation of CEO performance used by the independent members of the Board in their annual review of CEO performance; (i) considers and evaluates potential waivers of the Codes of Conduct and Ethics for Directors and senior officers (for which there were none in 2008), and makes a report to the Board on succession planning at least annually; (j) provides an annual review of the independence of Directors to the Board; and (k) reviews Director compensation. The Chair of the Nominating and Governance Committee, as Lead Director, also presides at executive sessions of independent Directors of the Board. Each of the Nominating and Governance Committee members meets the independence requirements of the New York Stock Exchange. In 2008, we paid a third-party search firm to identify for the Nominating and Governance Committee possible Director nominees that meet our established criteria, including Mr. Rogelio Rebolledo.
 
Social Responsibility Committee.  Pursuant to a written charter, the Social Responsibility Committee reviews the manner in which we discharge our social responsibilities and recommends to the Board policies, programs and practices it deems appropriate to enable us to carry out and discharge our social responsibilities, including diversity and corporate responsibility. This commitment means investing in and enriching communities in which we conduct business, as well as encouraging employee involvement in these activities.
 
Consumer Marketing Committee.  Pursuant to a written charter, the Consumer Marketing Committee reviews matters regarding our marketing activities, including strategies, programs, spending and execution quality in order to help ensure that our marketing is consistent with, and is sufficient to support, our overall strategy and performance goals.
 
Executive Committee.  Pursuant to a written charter, the Executive Committee is generally empowered to act on behalf of the Board between meetings of the Board, with some exceptions.


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Our amended restated certificate of incorporation and bylaws provide that the Board shall be comprised of not less than seven and no more than fifteen Directors divided into three classes as nearly equal in number as possible, and that each Director shall be elected for a term of three years with the term of one class expiring each year.
 
Four Directors are to be re-elected at the 2009 Annual Meeting to serve for a term ending at the 2012 Annual Meeting of Shareowners, and the proxies cannot be voted for a greater number of persons than the number of nominees named. There are currently twelve members of the Board.
 
The Board recommends that the Shareowners vote “FOR” the following nominees: John Dillon, Jim Jenness, Don Knauss and Robert Steele. Each nominee was proposed for re-election by the Nominating and Governance Committee for consideration by the Board and proposal to the Shareowners.
 
 
JOHN DILLON. Mr. Dillon, age 70, has served as a Kellogg Director since 2000. He is Vice Chairman of Evercore Capital Partners and a Senior Managing Director of that firm’s investment activities and private equity business. He retired in October 2003 as Chairman of the Board and Chief Executive Officer of International Paper Company, a position he held since 1996, and retired as Chairman of the Business Roundtable in June 2003. He is a director of the following public companies: Caterpillar Inc. and E. I. du Pont de Nemours and Company.
 
JIM JENNESS. Mr. Jenness, age 62, has been Kellogg Chairman since February 2005 and has served as a Kellogg Director since 2000. He was our Chief Executive Officer from February 2005 through December 30, 2006, and Chief Executive Officer of Integrated Merchandising Systems, LLC, a leader in outsource management of retail promotion and branded merchandising, from 1997 to December 2004. Before joining Integrated Merchandising Systems, Mr. Jenness served as Vice Chairman and Chief Operating Officer of the Leo Burnett Company from 1996 to 1997 and, before that, as Global Vice Chairman North America and Latin America from 1993 to 1996. He has also been a trustee of the W. K. Kellogg Foundation Trust since 2005, and is a director of Kimberly-Clark Corporation.
 
DON KNAUSS. Mr. Knauss, age 58, has served as a Kellogg Director since December 6, 2007. Mr. Knauss was elected Chairman and Chief Executive Officer of The Clorox Company in October 2006. He was executive vice president of The Coca-Cola Company and president and chief operating officer for Coca-Cola North America from February 2004 until August 2006. Previously, he was president of the Retail Division of Coca-Cola North America from January 2003 through February 2004 and president and chief executive officer of The Minute Maid Company, a division of The Coca-Cola Company, from January 2000 until January 2003 and President of Coca-Cola Southern Africa from March 1998 until January 2000. Prior to that, he held various positions in marketing and sales with PepsiCo, Inc. and Procter & Gamble, and served as an officer in the United States Marine Corps.
 
ROBERT STEELE. Mr. Steele, age 53, has served as a Kellogg Director since July 1, 2007. He was appointed Vice Chairman — Global Health and Well-Being of Procter & Gamble in July 2007. He was Group President — Global Household Care from April 2006 to July 2007 and Group President — North America from July 2004 through April 2006. Prior to that, he was President, North America from July 2000 through July 2004.
 
 
DAVID MACKAY. Mr. Mackay, age 53, has served as a Kellogg Director since February 2005. On December 31, 2006, he assumed the role as our President and Chief Executive Officer after having served as our President and Chief Operating Officer since September 2003. Mr. Mackay joined Kellogg Australia in 1985 and held several positions with Kellogg USA, Kellogg Australia and Kellogg New Zealand before leaving Kellogg in 1992. He rejoined Kellogg Australia in 1998 as managing director and was appointed managing director of Kellogg United Kingdom and Republic of Ireland later in 1998. He was named Senior Vice President and President, Kellogg USA in July 2000, Executive Vice President in November 2000 and President and Chief Operating Officer in September 2003. He is also a director of Fortune Brands, Inc.
 
ROGELIO REBOLLEDO. Mr. Rebolledo, age 64, has served as a Kellogg Director since October 22, 2008. In 2007, Mr. Rebolledo retired from his position as chairman of PBG Mexico, the Mexican operations of Pepsi Bottling Group, Inc. He began his 30-year career with PepsiCo Inc. at Sabritas, the salty snack food unit of Frito-Lay International in Mexico. He was responsible for the development of the international Frito-Lay business, first in Latin America and then


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in Asia. From 2001 to 2003, he was president and chief executive officer of Frito-Lay International. He also served as president and chief executive officer of Pepsi Bottling Group’s Mexico operations from January 2004 until being named chairman. Mr. Rebolledo is also a director of the following public companies: Best Buy Co., Inc. and Grupo ALFA. The Nominating and Governance Committee and the Board were introduced to Mr. Rebolledo through a third party search firm.
 
STERLING SPEIRN. Mr. Speirn, age 61, has served as a Kellogg Director since March 1, 2007. He is President and Chief Executive Officer of the W. K. Kellogg Foundation. He is also a trustee of the W. K. Kellogg Foundation Trust. Prior to joining the W. K. Kellogg Foundation in January 2006, he was President of Peninsula Community Foundation from November 1992 to the end of 2005 and served as a director of the Center for Venture Philanthropy, which he co-founded in 1999.
 
JOHN ZABRISKIE. Dr. Zabriskie, age 69, has served as a Kellogg Director since 1995. He is also co-founder and Director of PureTech Ventures, LLC, a firm that co-founds life science companies. In 1999, he retired as Chief Executive Officer of NEN Life Science Products, Inc., a position he had held since 1997. From November 1995 to January 1997, Dr. Zabriskie served as President and Chief Executive Officer of Pharmacia & Upjohn, Inc. Dr. Zabriskie is a director of the following public companies: Array Biopharma, Inc. and ARCA biopharma, Inc. He is also a director of the following privately-held companies: Protein Forest, Inc. and Puretech Ventures, L.L.C.
 
 
BENJAMIN CARSON. Dr. Carson, age 57, has served as a Kellogg Director since 1997. He is Professor and Director of Pediatric Neurosurgery, The Johns Hopkins Medical Institutions, a position he has held since 1984, as well as Professor of Oncology, Plastic Surgery, Pediatrics and Neurosurgery at The Johns Hopkins Medical Institutions. Dr. Carson is also a director of Costco Wholesale Corporation.
 
GORDON GUND. Mr. Gund, age 69, has served as a Kellogg Director since 1986. He is Chairman and Chief Executive Officer of Gund Investment Corporation, which manages diversified investment activities. He is also a director of Corning Incorporated.
 
DOROTHY JOHNSON. Ms. Johnson, age 68, has served as a Kellogg Director since 1998. Ms. Johnson is President of the Ahlburg Company, a philanthropic consulting agency, a position she has held since February 2000, and President Emeritus of the Council of Michigan Foundations, which she led as President and Chief Executive Officer from 1975 to 2000. She is also on the Board of Directors of AAA Michigan, Grand Valley State University and The League, and has been a member of the Board of Trustees of the W. K. Kellogg Foundation since 1980.
 
ANN MCLAUGHLIN KOROLOGOS. Ms. McLaughlin Korologos, age 67, has served as a Kellogg Director since 1989. She is currently Chairman of the Board of Trustees of RAND Corporation, Chairman Emeritus of The Aspen Institute, a nonprofit organization, and is a former U.S. Secretary of Labor. She is also a director of AMR Corporation (and its subsidiary, American Airlines), Host Hotels & Resorts, Inc., Harman International Industries, Inc. and Vulcan Materials Company.


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Only non-employee Directors receive compensation for their services as Directors. For information about the compensation of Mr. Mackay, our President and Chief Executive Officer, refer to “Executive Compensation” beginning on page 33. Because Mr. Jenness, our Chairman of the Board, is not a named executive officer, we have included the compensation he receives as a Kellogg employee in the Directors’ Compensation Table.
 
Our 2008 compensation package for non-employee Directors was comprised of cash (annual retainers and committee meeting fees), stock awards and stock option grants. The annual pay package is designed to attract and retain highly-qualified, independent professionals to represent our Shareowners, and is targeted at the median of our peer group. Refer to “Compensation Discussion and Analysis — Our Compensation Methodology” for a description of the companies that make up our peer group. The Nominating and Governance Committee reviews our Director compensation program on an annual basis with Towers Perrin, the independent compensation consultant, including the competitiveness and appropriateness of the program. Although the Nominating and Corporate Governance Committee conducts this review on an annual basis, its general practice is to consider adjustments to Director compensation every other year.
 
Our compensation package is also designed to create alignment between our Directors and our Shareowners through the use of equity-based grants. In 2008, approximately two-thirds of non-employee Director pay was in equity and approximately one-third in cash. Actual annual pay varies among non-employee Directors based on Board committee memberships, committee chair responsibilities, meetings attended and whether a Director elects to defer his or her fees. Consistent with emerging market trends for corporate governance relating to director compensation, the Board decided, upon the recommendation of the Nominating and Governance Committee, to suspend the granting of stock options to non-employee Directors for 2009 and going forward. Proposal 4 in this proxy statement discusses a new equity plan for non-employee Directors that will allow for the granting of awards of common stock, rather than stock options, if the plan is adopted by the Shareowners. The amount of shares to be awarded as an annual grant for 2009 under the new equity plan has not yet been determined.
 
As set forth in his letter agreement, Mr. Jenness, our executive Chairman of the Board and former Chief Executive Officer, received compensation in 2008 equal to $630,000, which is comprised of cash and the same long-term incentives granted to non-employee Directors (2,100 shares of restricted stock and 5,000 stock options). Jenness received these equity grants on the same day the annual long-term incentives were granted to other employees of Kellogg. The stock options vest in the same manner as those received by other employees (50% on February 22, 2009 (the first anniversary of the grant date), and 50% on February 22, 2010 (the second anniversary of the grant date)). The shares of restricted stock vested immediately, but Mr. Jenness must hold the shares as long as he is a Kellogg employee or Director. Working with Towers Perrin, the Board determined the total compensation amount for Mr. Jenness to be reasonable and competitive. Refer to “Employment Agreements — Mr. Jenness” for a description of the employment agreement with Mr. Jenness. 2008 compensation for non-employee Directors consisted of the following:
 
         
Type of Compensation
       Amount     
 
Annual Cash Retainer(1)
  $ 70,000  
Annual Stock Options Retainer(2)
    5,000 shares  
Annual Stock Awards Retainer
    2,100 shares  
Annual Retainer for Committee Chair:
       
Audit Committee
  $ 15,000  
Compensation Committee
  $ 10,000  
All Other Committees
  $ 5,000  
Board or Committee Attendance Fee (per meeting attended):
       
Board Meeting Fee
  $ 0  
Audit Committee Meeting Fee
  $ 2,000  
All Other Committee Meetings(3)
  $ 1,500  
 
 
(1) The annual cash retainer is paid in quarterly installments.
 
(2) In December 2008, future grants of the annual stock options retainer were suspended.
 
(3) No fee is payable for Executive Committee meetings held on the same day as a regular Board meeting.


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Stock Option Awards.  Stock option grants (1) are made each year on January 31 or the next business day, (2) are exercisable six months after the date of grant and (3) have a ten-year term. Prior to October 2007, all options granted to non-employee Directors were granted with exercise prices equal to the average of the high and low trading prices of our stock on the date of grant. Beginning in October 2007, the exercise price of all options granted to non-employee Directors was set at the officially quoted closing price of our common stock on the date of grant. Consistent with emerging market trends for corporate governance relating to director compensation, the Board decided, upon the recommendation of the Nominating and Governance Committee, to suspend the granting of stock options to non-employee directors for 2009 and going forward. Proposal 4 in this proxy statement discusses a new equity plan for non-employee directors that will allow for the granting of awards of common stock, rather than stock options, if the plan is adopted by the Shareowners.
 
Directors and employees began receiving options with an accelerated ownership feature (“AOF,” commonly referred to as a “reload” feature) over fifteen years ago in order to create greater stock ownership by encouraging Directors and employees to exercise valuable stock options and retain the shares received as a result of the option exercise. Under the terms of the original option grant, a new option, or “AOF option,” was generally received when Kellogg stock was used to pay the exercise price of a stock option and related taxes. For AOF options, the expiration date was the same as the original option and the option exercise price was the fair market value of our common stock on the date the AOF option was granted.
 
Based on the then current accounting rules, the expense to Kellogg relating to the AOF in stock options was disproportionate to the value received by Kellogg’s Directors and employees. Beginning in 2003, the Compensation Committee and the Board began taking a variety of actions to reduce the impact of AOF options. On April 25, 2008, the Compensation Committee approved the elimination of the AOF from all outstanding stock options (approximately 900 people). The elimination of the AOF from all outstanding options did not otherwise affect or change the underlying stock options. In exchange for the value of the AOF, holders of AOF’s received cash compensation. We determined the price to be paid to holders of AOFs with the assistance of a third-party actuarial consultant who calculated the value of the AOF option feature for each grant year.
 
Stock Awards.  Stock awards are granted each May 1 or the next business day and are automatically deferred pursuant to the Kellogg Company Grantor Trust for Non-Employee Directors. Under the terms of the Grantor Trust, shares are available to a Director only upon termination of service on the Board.
 
Business Expenses.  The Directors are reimbursed for their business expenses related to their attendance at Kellogg meetings, including room, meals and transportation to and from board and committee meetings. On rare occasions, a Director’s spouse accompanies a Director when traveling on Kellogg business. At times, a Director travels to and from Kellogg meetings on Kellogg corporate aircraft. Directors are also eligible to be reimbursed for attendance at qualified Director education programs.
 
Director and Officer Liability Insurance and Travel Accident Insurance.  Director and officer liability insurance insures our Directors and officers against certain losses that they are legally required to pay as a result of their actions while performing duties on our behalf. Our D&O insurance policy does not break out the premium for Directors versus officers and, therefore, a dollar amount cannot be assigned for individual Directors. Travel accident insurance provides benefits to each Director in the event of death or disability (permanent and total) during travel on Kellogg corporate aircraft. Our travel accident insurance policy also covers employees and others while traveling on Kellogg corporate aircraft and, therefore, a dollar amount cannot be assigned for individual Directors.
 
Elective Deferral Program.  Under the Deferred Compensation Plan for Non-Employee Directors, non-employee Directors may each year irrevocably elect to defer all or a portion of their board annual cash retainer, committee Chair annual retainers and committee meeting fees payable for the following year. The amount deferred is credited to an account in the form of units equivalent to the fair market value of our common stock. If the Board declares dividends, a fractional unit representing the dividend is credited to the account of each participating Director. A participant’s account balance is paid in cash or stock, at the election of the Director, upon termination of service as a Director. The balance is paid in a lump sum or over a period from one to ten years at the election of the Director and the unpaid account balance accrues interest annually at the prime rate in effect when the termination of service occurred.
 
Minimum Stock Ownership Requirement.  All non-employee Directors are expected to comply with stock ownership guidelines, under which they are expected to hold at least five times the annual cash retainer ($350,000 — five times the $70,000 retainer) in stock or stock equivalents, subject to a five-year phase-in period for newly-elected Directors. As of January 3, 2009, all of the non-employee Directors met or were on track to meet this requirement. Mr. Mackay and Mr. Jenness are expected to comply with the stock ownership guidelines described in “Compensation Discussion and Analysis — Executive Compensation Policies — Executive Stock Ownership Guidelines.”


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Kellogg Matching Grant Program.  Directors are eligible to participate in our Corporate Citizenship Fund Matching Grant Program, which is also available to all of our active, full-time U.S. employees. Under this program, our Corporate Citizenship Fund matches 100 percent of donations made to eligible organizations up to a maximum of $10,000 per calendar year for each individual. These limits apply to both employees and Directors.
 
Discontinued Programs.  Prior to December 1995, we had a Director’s Charitable Awards Program pursuant to which each Director could name up to four organizations to which Kellogg would contribute an aggregate of $1 million upon the death of the Director. In 1995, the Board discontinued this program for Directors first elected after December 1995. In 2008, the following Directors, who were first elected to the Board in 1995 or earlier, continued to be eligible to participate in this program: Mr. Gonzalez, Mr. Gund, Ms. McLaughlin Korologos and Dr. Zabriskie. We funded the cost of this program for three out of the four eligible Directors through the purchase of insurance policies prior to 2008. We will have to make cash payments in the future under this program if insurance proceeds are not available at the time of the Director’s death. There were no cash payments made in 2008 with respect to this program; however, in 2008, we recognized nonpension postretirement benefits expense associated with this obligation as follows: Mr. Gonzalez — $30,612, Mr. Gund — $24,508, Ms. McLaughlin Korologos — $19,899 and Dr. Zabriskie — $25,491. These benefits are not reflected in the Directors’ Compensation Table.


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DIRECTORS’ COMPENSATION TABLE
 
The individual components of the total compensation calculation reflected in the table below are as follows:
 
Fees and Retainers.  The amounts shown under the heading “Fees Earned or Paid in Cash” consist of annual retainers and per meeting attendance fees earned by or paid in cash to our non-employee Directors in 2008. For Mr. Jenness, the amount represents his annual cash compensation as executive Chairman of the Board.
 
Stock Awards.  The amounts disclosed under the heading “Stock Awards” consist of the compensation expense recognized by Kellogg in 2008 under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)) for either the annual grant of deferred shares of common stock, which are placed in the Kellogg Company Grantor Trust for Non-Employee Directors, or restricted stock awards granted prior to 2008.
 
Option Awards.  The amounts disclosed under the heading “Option Awards” consist of (a) the SFAS No. 123(R) compensation expense associated with the 2008 grant of options to purchase shares of common stock and (b) the recognition of accounting expense related to the modification of AOF options. Consistent with emerging market trends for corporate governance relating to director compensation, the Board decided to suspend the granting of stock options to non-employee Directors for 2009 and going forward. In lieu of options, non-employee Directors will receive an annual grant of restricted stock, if the 2009 Non-Employee Director Stock Plan is approved by Shareowners at the Annual Meeting.
 
All Other Compensation.  Consistent with our emphasis on creating an alignment between our Directors and Shareowners, perquisites and other compensation are limited in scope and primarily comprised of charitable matching contributions made under our Corporate Citizenship Fund Matching Grant Program and a one time payment to the Director, as applicable, in exchange for the modification of AOF options as discussed in “Stock Option Awards” above.
 
                                                         
                    Change in
       
                    Pension Value
       
                    and Nonqualified
       
                Non-equity
  Deferred
       
    Fees Earned
  Stock
  Option
  Incentive Plan
  Compensation
  All Other
   
    or Paid in
  Awards
  Awards
  Compensation
  Earnings
  Compensation
       Total     
Name
  Cash ($)(1)   ($)(2)(3)   ($)(4)(5)   ($)(6)   ($)(7)   ($)(8)   ($)
 
Benjamin Carson
    80,500       110,103       33,772                   31,450       255,825  
John Dillon
    101,000       110,103       33,772                   35,138       280,013  
Claudio Gonzalez(9)
    23,500       0       33,772                   0       57,272  
Gordon Gund
    88,500       110,103       41,490                   17,166       257,259  
Jim Jenness
    469,170       107,184       111,561             94,626(10)       221,248       1,003,789  
Dorothy Johnson
    81,000       110,103       38,525                   34,503       264,131  
Don Knauss
    85,000       110,103       48,815                   0       243,918  
Ann McLaughlin Korologos
    82,000       110,103       33,772                   32,450       258,325  
Rogelio Rebolledo(11)
    22,902       53,647       20,164                   0       96,713  
Sterling Speirn
    76,000       110,103       33,772                   0       219,875  
Robert Steele
    88,000       110,103       33,772                   0       231,875  
John Zabriskie
    102,500       110,103       35,186                   27,884       275,673  
 
 
(1) The aggregate dollar amount of all fees earned or paid in cash for services as a non-employee Director, including annual board and committee chair retainer fees, and committee meeting fees, in each case before deferrals. For Mr. Jenness, represents the annual cash compensation paid under his employment agreement.
 
(2) Other than for Mr. Jenness, the amount reflects the compensation expense recognized by Kellogg during 2008 under SFAS No. 123(R) for the annual grant of 2,100 deferred shares of common stock or, in the case Mr. Rebolledo, 1,064 deferred shares of common stock. Due to his retirement from the Board, Mr. Gonzalez did not receive any deferred shares of common stock in 2008. The compensation expense reflected in the table above is the same as the grant-date fair value pursuant to SFAS No. 123(R) because all of the stock awards vested during 2008. Refer to Notes 1 and 8 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended January 3, 2009, for a discussion of the relevant assumptions used in calculating the compensation expense and grant-date fair value pursuant to SFAS No. 123(R). The recognized compensation expense and grant-date fair


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value of the stock-based awards will likely vary from the actual amount the Director receives. The actual value the Director receives will depend on the number of shares and the price of our common stock when the shares or their cash equivalent are distributed. As of January 3, 2009, none of our non-employee Directors was deemed to have outstanding restricted stock awards, because all of those awards vested earlier in the year (or in prior years). The number of shares of restricted stock held by each of our Directors is shown under “Officer and Director Stock Ownership” on page 5 of this proxy statement.
 
(3) For Mr. Jenness, the amount reflects the compensation expense recognized by Kellogg during 2008 under SFAS No. 123(R) for the annual grant of 2,100 shares of restricted stock. The shares of restricted stock vested immediately, but Mr. Jenness must hold the shares as long as he is a Kellogg employee or Director. The compensation expense reflected in the table above is the same as the grant-date fair value pursuant to SFAS No. 123(R) because all of the stock awards vested during 2008. The total number of shares of restricted stock held by Mr. Jenness is shown under “Officer and Director Stock Ownership” on page 5 of this proxy statement.
 
(4) The amount reflects the compensation expense recognized by Kellogg during 2008 under SFAS No. 123(R) for (a) the annual grant of options to purchase 5,000 shares of common stock or, in the case of Mr. Rebolledo 2,534 shares of common stock and (b) the cancellation of the AOF on all outstanding options (which we refer to as a modification to AOF options). See “Stock Option Awards” above for further discussion of the modification to AOF options. Other than with respect to Mr. Knauss, the compensation expense reflected in the table above is the same as the grant-date fair value pursuant to SFAS No. 123(R) because all of the option awards granted to those non-employee Directors vested during 2008 and, in the case of Mr. Jenness, because he is considered retirement eligible. Refer to Notes 1 and 8 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended January 3, 2009, for a discussion of the relevant assumptions used in calculating the recognized compensation expense and grant-date fair value pursuant to SFAS No. 123(R). Because Mr. Knauss received his grant of options upon joining the Board in December 2007, Kellogg recognized compensation expense for such grant in 2008 in accordance with its accounting practices. The grant-date fair value pursuant to SFAS No. 123(R) of such grant of options was $15,043. Kellogg accounted for the elimination of the AOF as a modification in accordance with SFAS No. 123(R), which required Kellogg to record a modification charge equal to the difference between the value of the modified stock options on the date of modification and their values immediately prior to modification. Since the modified stock options were 100% vested and had relatively short remaining contractual terms of one to five years, Kellogg used a Black-Scholes model to value the awards for the purpose of calculating the modification charge. The recognized compensation expense and grant-date fair value of the stock option awards will likely vary from the actual value the Director receives. The actual value the Director receives will depend on the number of shares exercised and the price of our common stock on the date exercised.
 
The table below presents the recognized compensation expense in 2008 for regular options and for a modification to AOF options (see “Stock Option Awards” above for further discussion of the modification to AOF options):
 
                         
    Regular
  AOF
   
    Options
  Modification
   
Name
  ($)   ($)        Total     
 
Benjamin Carson Sr. 
    33,772       0       33,772  
                         
John Dillon
    33,772       0       33,772  
                         
Claudio Gonzalez
    33,772       0       33,772  
                         
Gordon Gund
    33,772       7,718       41,490  
                         
Jim Jenness
    48,407       63,154       111,561  
                         
Dorothy Johnson
    33,772       4,753       38,525  
                         
Donald Knauss
    48,815       0       48,815  
                         
Ann Korologos
    33,772       0       33,772  
                         
Rogelio Rebolledo
    20,164       0       20,164  
                         
Sterling Speirn
    33,772       0       33,772  
                         
Robert Steele
    33,772       0       33,772  
                         
John Zabriskie
    33,772       1,414       35,186  


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(5) As of January 3, 2009, the Directors had the following stock options outstanding: Benjamin Carson 45,000 options; John Dillon 43,750 options; Claudio Gonzalez 39,999 options; Gordon Gund 35,548 options; Jim Jenness 902,043 options; Dorothy Johnson 39,715 options; Don Knauss 6,931 options; Ann McLaughlin Korologos 45,000 options; Rogelio Rebolledo, 2,534 options; Sterling Speirn 5,781 options; Robert Steele 9,110 options; and John Zabriskie 41,800 options. The number of stock options held by our Directors is a function of years of Board service and the timing of exercise of vested awards.
 
(6) Kellogg does not have a non-equity incentive plan for non-employee Directors.
 
(7) Kellogg does not have a pension plan for non-employee Directors and does not pay above-market or preferential rates on non-qualified deferred compensation for non-employee Directors.
 
(8) Represents charitable matching contributions made under our Corporate Citizenship Fund Matching Grant Program, a one-time payment in exchange for the modification of AOF options, and for Mr. Jenness, Kellogg contributions to our Savings & Investment Plan and Restoration Plan ($19,489), the annual cost of the Executive Survivor Income Plan (Kellogg funded death benefit provided to executive employees) ($75,838), and physical exams ($4,758). Matching contribution: John Dillon $5,000; Jim Jenness $10,000; Dorothy Johnson $10,000; and Ann McLaughlin Korologos $1,000. AOF modification payment: Benjamin Carson $31,450; John Dillon $30,138; Gordon Gund $17,166; Jim Jenness $111,163; Dorothy Johnson $24,503; Ann McLaughlin Korologos $31,450; and John Zabriskie $27,884.
 
(9) Mr. Gonzalez retired as a director on April 24, 2008.
 
(10) As Chairman, Mr. Jenness is covered as an employee by our U.S. Pension Plans provided to other U.S.-based NEOs. The benefit was scheduled to begin on January 1, 2008, however, Mr. Jenness continued as an employee beyond that date. Therefore, interest is credited to his January 1, 2008 benefit from that date until the date of actual commencement. The increase represents the interest earned as of December 31, 2008.
 
(11) On May 14, 2008, the Board elected Mr. Rebolledo as a Director effective October 22, 2008.


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We are required to provide information regarding the compensation program in place for our CEO, CFO, the three other most highly-compensated executive officers and an additional individual who was no longer serving as an executive officer as of the end of fiscal 2008. In this proxy statement, we refer to our CEO, CFO and the other four individuals as our “Named Executive Officers” or “NEOs.” This section includes information regarding, among other things, the overall objectives of our compensation program and each element of compensation that we provide. This section should be read in conjunction with the detailed tables and narrative descriptions under “Executive Compensation” beginning on page 33 of this proxy statement.
 
Overview of Kellogg Company.  We are the world’s leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit snacks, frozen waffles, and veggie foods. Kellogg products are manufactured and marketed globally.
 
We manage our company for sustainable performance defined by our long-term annual growth targets. These targets are low single-digit (1 to 3%) for internal net sales, mid single-digit (4 to 6%) for internal operating profit, and high single-digit (7 to 9%) for net earnings per share on a currency neutral basis. In combination with an attractive dividend yield, we believe this profitable growth has and will continue to provide a strong total return to our Shareowners. We plan to continue to achieve this sustainability through a strategy focused on growing our cereal business, expanding our snacks business, and pursuing selected growth opportunities. We support our business strategy with operating principles that emphasize profit-rich, sustainable sales growth, as well as cash flow and return on invested capital. We believe our steady earnings growth, strong cash flow and continued investment during a multi-year period of significant commodity and energy-driven cost inflation demonstrates the strength and flexibility of our business model.
 
Our Compensation Philosophy and Principles.  We operate in a competitive and challenging industry, both domestically and internationally. We believe that our executive compensation program for the CEO and the other NEOs should be designed to (a) provide a competitive level of total compensation necessary to attract and retain talented and experienced executives; (b) motivate them to contribute to our short- and long-term success; and (c) help drive strong total return to our Shareowners. Consistent with our business strategy discussed above, our executive compensation program is driven by the following principles:
 
  1.  Overall Objectives.  Compensation should be competitive with the organizations with which we compete for talent, and should reward performance and contribution to Kellogg objectives.
 
  2.  Pay for Performance.  As employees assume greater responsibility, a larger portion of their total compensation should be “at-risk” incentive compensation (both annual and long-term), subject to corporate, business unit and individual performance measures. For example, 87% of the 2008 target compensation (salary, annual incentives and long-term incentives) for Mr. Mackay was comprised of “at-risk” incentive compensation.
 
  3.  Long-Term Focus.  Consistent, long-term performance is expected. Performance standards are established to drive long-term sustainable growth.
 
  4.  Shareowner Alignment.   Equity-based incentives are an effective method of facilitating an ownership culture and further aligning the interests of executives with those of our Shareowners. For example, about 70% of the 2008 target compensation (salary, annual incentives and long-term incentives) for Mr. Mackay was comprised of equity-based incentives.
 
  5.  Values-Based.  The compensation program encourages both desired results as well as the right behaviors. In other words, our compensation is linked to “how” we achieve as well as “what” we achieve. The shared behaviors that Kellogg believes are essential to achieving long-term growth in sales and profits and increased value for Shareowners (what we call our “K Values”) are:
 
  •  Being passionate about our business, our brands and our food;
 
  •  Having the humility and hunger to learn;
 
  •  Striving for simplicity;
 
  •  Acting with integrity and respect;
 
  •  Being accountable for our actions and results; and
 
  •  Recognizing success.


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The Compensation Committee believes that the combination of cash and equity-based compensation supports the philosophy and principles of our executive compensation program described above. First, these vehicles allow Kellogg to provide a competitive compensation package based on prevailing market practices. At the same time, a significant portion of target compensation is variable “at-risk” pay tied to both short-term performance (AIP awards) and long-term performance (EPP awards). The Compensation Committee believes these awards support our pay-for-performance philosophy by linking pay amounts to our level of performance and the achievement of our strategic and operational goals. Finally, the ownership stake in Kellogg provided by equity-based compensation, the extended vesting of these awards, the use of metrics tied to long term shareholder value, and our share ownership guidelines (discussed below) align the interests of the NEOs with our Shareowners and promote executive retention. At the same time, the Committee believes, with the concurrence of its independent compensation consultant, that, as a result of our balance of short-term and rolling multi-year incentives, our use of different types of equity compensation awards that provide a balance of incentives, and our share ownership guidelines, Kellogg’s executive compensation program does not encourage our management to take unreasonable risks relating to Kellogg’s business.
 
Consistent with emerging market trends for corporate governance, we have made certain changes with respect to our executive compensation program. Some of the changes we have made for 2009 are (1) no base salary increases in 2009 for our NEOs except due to changes in position or responsibilities, (2) eliminating the reload feature from all outstanding stock options, (3) freezing the level of stock option grants to NEOs for 2009, (4) lengthening the vesting period for our stock options from two to three years, (5) strengthening the “clawback” provisions for our stock option grants and (6) reducing the change in control payments from three times to two times base salary and annual incentive award and limiting related “gross-up” payments. We believe these are responsible measures in the current environment that will still allow us to offer a competitive total compensation package to our NEOs.
 
Our Compensation Methodology.  The Compensation Committee of the Board is responsible for administering the compensation program for executive officers and certain other senior management of Kellogg. The Board has determined that each member of the Compensation Committee meets the definition of independence under our corporate governance guidelines and further qualifies as a non-employee Director for purposes of Rule 16b-3 under the Securities Exchange Act of 1934. The members of the Compensation Committee are not current or former employees of Kellogg and are not eligible to participate in any of our executive compensation programs. Additionally, the Compensation Committee operates in a manner designed to meet the tax deductibility criteria included in Section 162(m) of the Internal Revenue Code. Refer to “Board and Committee Membership” beginning on page 10 for additional information about the Compensation Committee and its members.
 
To assist the Compensation Committee in discharging its responsibilities, the Compensation Committee has retained an independent compensation consultant — Towers Perrin. The consultant reports directly to the Compensation Committee. Other than the work it performs for the Compensation Committee and the Board, Towers Perrin does not provide any consulting services to Kellogg or its executive officers.
 
Each year, Towers Perrin presents the Compensation Committee with peer group benchmarking data and information about other relevant market practices and trends, and makes recommendations to the Compensation Committee regarding target levels for various elements of total compensation for senior executives, which the Compensation Committee reviews and considers in its deliberations. The CEO makes recommendations to the Compensation Committee regarding the compensation package for each of the NEOs (other than himself). Based on its review of the peer group information, individual performance, input from the compensation consultant and other factors, the Compensation Committee makes recommendations to the Board regarding the compensation for the CEO and the other NEOs. The independent members of the Board, meeting in executive session, determine the compensation of the CEO. The full Board determines the compensation of the other NEOs (unless an NEO is also a Director, in which case he abstains from the determination of his own compensation).
 
To ensure that our executive officer compensation is competitive in the marketplace, we benchmark ourselves against a comparator group (our “compensation peer group”). For 2008, our compensation peer group was comprised of the following branded consumer products companies:
 
         
Anheuser-Busch Cos., Inc. 
  ConAgra Foods, Inc.   Kraft Foods Inc.
Campbell Soup Co. 
  General Mills, Inc.   PepsiCo Inc.
Clorox Co. 
  H.J. Heinz Co.   Sara Lee Corporation
The Coca-Cola Co. 
  The Hershey Co.   Wm. Wrigley Jr. Co.
Colgate-Palmolive Co. 
  Kimberly-Clark Corporation    


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We believe that our compensation peer group is representative of the market in which we compete for talent. The size of the group has been established so as to provide sufficient benchmarking data across the range of senior positions in Kellogg. Our compensation peer group companies were chosen because of their leadership positions in branded consumer products and their general relevance to Kellogg. The quality of these organizations has allowed Kellogg to maintain a high level of continuity in the peer group over many years, providing a consistent measure for benchmarking compensation. However, the composition of our compensation peer group can change over time based on market events outside of our control. For example, both Wm. Wrigley Jr. Co. and Anheuser-Busch Cos., Inc. are not part of our 2009 compensation peer group as a result of the acquisition of those companies by Mars, Incorporated and InBev NV, respectively. The Compensation Committee periodically reviews the compensation peer group to confirm that it continues to be an appropriate benchmark for our executive officers with respect to base salary, target annual and long-term incentives and total compensation.
 
All components of our executive compensation package are targeted at the 50th percentile of our compensation peer group. Actual pay varies from the 50th percentile based primarily on our performance relative to that of our performance peer group. Our “performance peer group” consists of eight of the nine food companies in the broader compensation peer group (Campbell Soup Co., ConAgra Foods, Inc., General Mills, Inc., H.J. Heinz Co., The Hershey Co., Kraft Foods, Inc., PepsiCo Inc. and Sara Lee Corporation), plus Unilever N.V. and Nestlé S.A. Because Wm. Wrigley Jr. Co. was merged with Mars, Incorporated prior to the end of fiscal 2008, it is no longer part of our performance peer group. The performance peer companies were chosen because they compete with us in the consumer marketplace and/or face similar business dynamics and challenges.
 
The Use of “Pay Tallies” and Wealth Accumulation Analysis.  The Compensation Committee annually reviews executive pay tallies for NEOs (detailing the executives’ target and actual annual cash compensation, equity awards, retirement benefits, perquisites, change-in-control and severance payments, and anticipated wealth accumulation over the next five years) to help ensure that the design of our program is consistent with our compensation philosophy and that the amount of compensation is within appropriate competitive parameters. The Compensation Committee uses a variety of tools in its analysis of executive pay including pay tallies, wealth accumulation, internal equity between CEO compensation and the other NEOs, and survey benchmarking of the compensation peer group. Based on the Compensation Committee’s analysis in 2008 they concluded that while the total compensation of the NEOs is reasonable, it was appropriate to reduce the change in control payments to which NEOs are entitled from three times to two times base salary and bonus.
 
In its consideration of wealth accumulation in connection with the pay tallies discussed above, the Compensation Committee reviews annually all of the elements of total compensation paid to each NEO. The Compensation Committee reviews the projected value of each NEO’s current and expected equity awards and retirement benefits over the next five years. This is done to more effectively analyze not only the amount of compensation each NEO has accumulated to date, but also to better understand the amount the NEO could accumulate in the future. In connection with the Compensation Committee’s 2008 wealth accumulation review, no unintended consequences of the compensation program design were discovered. However, and consistent with emerging market trends for corporate governance, the Compensation Committee reduced the amounts and benefits payable upon a change in control. See “— Post-Termination Compensation” below.
 
Elements of Our Compensation Program.  Our executive officer compensation package includes a combination of annual cash and long-term incentive compensation. Annual cash compensation for executive officers is comprised of base salary and the annual incentive plan (the Kellogg performance bonus plan). Long-term incentives currently consist of stock option grants and a three-year long-term performance plan.
 
Total Compensation.  The target for total compensation and each element of total compensation (salary, annual incentives, long-term incentives and benefits) is the 50th percentile of our compensation peer group. Compensation peer group practices are analyzed annually for base salary, target annual incentives and target long-term incentives, and periodically for other pay elements. In setting compensation of each executive, the Compensation Committee considers individual performance, experience in the role and contributions to achieving our business strategy.
 
We are unable to compare actual to target compensation on a percentile basis for our NEOs because actual compensation percentiles for the preceding fiscal year are not available. The companies in our compensation peer group do not all report actual compensation on the same twelve month basis. Even if this information were available we do not believe it would provide Shareowners with a fair understanding of our executive compensation program because actual compensation can be impacted by a variety of factors, including changes in stock prices, company performance and vesting of retirement benefits.


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We apply the same philosophy, principles and methodology in determining the compensation for all of our NEOs, including the CEO. The differences in the amount of total compensation among our NEOs is a result of our benchmarking process and market-based approach. As discussed, the compensation package for each of the NEOs is intended to contain a mix of compensation elements that the Compensation Committee believes best reflects his responsibilities and that will best achieve our overall objectives. To that end, an executive’s compensation is generally designed so that performance based (or “at-risk”) compensation increases as a percentage of total targeted compensation as job responsibilities increase. One result of this structure is that the difference between actual total compensation for the CEO as compared to the other NEOs will be greater when Kellogg over-performs and less when Kellogg under-performs. In addition, the differences in actual compensation among the NEOs are directly impacted by (1) the amount of AOF options exercised and (2) whether an NEO became retirement eligible in 2008.
 
The basic construct of the primary elements of our 2008 executive officer pay package is outlined below.
 
               
    Element   Purpose     Characteristics
    Base Salaries   Compensate executives for their level of responsibility and sustained individual performance. Also helps attract and retain strong talent. No increases for the base salaries for NEOs for 2009, except due to changes in position or responsibilities.     Fixed component; NEOs eligible for annual salary increases.
               
    Annual Incentives   Promotes achieving our annual corporate and business unit financial goals, as well as individual goals.     Performance-based cash opportunity; amount varies based on company and business results and individual performance.
               
    Long-Term Incentives   Promotes achieving (a) our long-term corporate financial goals through the Executive Performance Plan and (b) stock price appreciation through stock options.     Performance-based equity opportunity; amounts earned/realized will vary from the targeted grant-date fair value based on actual financial and stock price performance.
               
    Retirement Plans   Provide an appropriate level of replacement income upon retirement. Also provide an incentive for a long-term career with Kellogg, which is a key objective.     Fixed component; however, retirement contributions tied to pay will vary based on performance.
               
    Post-Termination Compensation   Facilitates attracting and retaining high caliber executives in a competitive labor market in which formal severance plans are common.     Contingent component; only payable if the executive’s employment is terminated under certain circumstances.
               
 
In setting total compensation, we apply a consistent approach for all executive officers. The Compensation Committee also exercises appropriate business judgment in how it applies the standard approaches to the facts and circumstances associated with each executive. Additional detail about each pay element is presented below.
 
Base Salaries.  Data on salaries paid to comparable positions in our compensation peer group are gathered and reported to the Compensation Committee by the independent compensation consultant each year. The Compensation Committee, after receiving input from the compensation consultant, recommends to the Board the base salaries for the NEOs. The CEO provides input for the base salaries for the CFO and other NEOs. The Compensation Committee generally establishes base salaries for the NEOs at the 50th percentile of our compensation peer group. The salary of an executive is generally at, above or below the 50th percentile based on experience and proficiency in their role.
 
Mr. Mackay’s annualized base salary increased from $1,100,000 in 2007 to $1,150,000 in 2008 in order to maintain market competitiveness for his base salary. In February 2008, the Compensation Committee approved the annual salary increases for the other NEOs. In September 2008, Mr. Bryant, Mr. Davidson and Mr. Norman were all promoted to new positions. They were each given salary increases at that time to recognize their increased responsibilities and to appropriately position their salaries relative to their new competitive benchmarks. The Compensation Committee judged each NEO’s salary for 2008 to be correctly positioned relative to the 50th percentile for his position based on his experience, proficiency and sustained performance. Consistent with emerging market trends for corporate governance, however, base salaries for NEOs have been frozen for 2009 at 2008 levels except for increases due to changes in position or responsibilities.


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By policy, we require any executive base salary above $950,000 (after pre-tax deductions for benefits and similar items) to be deferred into deferred stock units under our Executive Deferral Program. This policy ensures that all base salary will be deductible under Section 162(m) of the Internal Revenue Code. The deferred amounts are credited to an account in the form of units that are equivalent to the fair market value of our common stock. The units are payable in cash upon the executive’s termination from employment. The only NEO affected by this policy in 2008 was Mr. Mackay who deferred $33,847 of his salary.
 
Annual Incentives.  Annual incentive awards to the CEO, CFO and NEOs are paid under the terms of the Kellogg Senior Executive Annual Incentive Plan (“AIP”), which was approved by the Shareowners and is administered by the Compensation Committee. The total of all annual incentives granted in any one year under the AIP may not exceed 1% of our annual net income, as defined in the plan. We did not pay any bonuses outside of our AIP to our NEOs in 2008.
 
Awards granted to NEOs under the terms of the AIP are designed to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. Accordingly, objective measures were established within the first 90 days of fiscal 2008 in order to determine the performance levels that would qualify for maximum possible payouts under the 2008 AIP. These targets are tied to our projected operating plan and, therefore, their achievement is substantially uncertain at the time they are set. In February 2009, when our 2008 annual audited financial statements were completed, the Compensation Committee reviewed how well Kellogg performed versus the previously agreed upon targets established for purposes of Section 162(m). In each of the last three fiscal years, the targets set for purposes of Section 162(m) under the AIP have been reached. The Compensation Committee then uses a judgment-based methodology in exercising downward, negative discretion to determine the actual payout for each NEO.
 
As part of its judgment-based methodology, the Compensation Committee established at the beginning of fiscal 2008 for each NEO annual incentive opportunities as a percentage of an executive’s base salary, which were targeted at the 50th percentile of the compensation peer group. In addition, for each NEO, the Compensation Committee approved performance ranges (which we refer to as “bandwidths”) for internal operating profit, internal net sales and cash flow, aligning the middle of the bandwidths generally with the forecasted medians of the performance peer group and ensuring that maximums and minimums generally fall within the top and bottom quartiles respectively. Since target performance goals are generally set at the median of the performance peer group, actual performance above the median would result in incentive payments above the target level, with payments at the maximum level being made for performance in the top quartile of the performance peer group on a composite basis for all three AIP metrics. Conversely, performance below the median would generally result in incentive payments below the target level, with no payment being made for performance below a minimum threshold (generally set in the bottom quartile). The Compensation Committee and management believe that the metrics for the 2008 AIP — which are the same as the metrics used for the AIPs in the last several years — align well with our strategy of attaining sustainable growth. The specific targets and bandwidths set for the NEOs under the 2008 AIP are not disclosed because we believe disclosure of this information would cause Kellogg competitive harm. These targets and bandwidths are based on our confidential operating plan for the fiscal year. The bandwidths are intended to be realistic and reasonable, but challenging, in order to drive sustainable growth and performance on an individual basis.
 
Actual AIP payments each year can range from 0% to 200% of the target opportunity, based on corporate, business unit, and individual performance with the greatest emphasis placed on performance against the three AIP metrics — internal operating profit, internal net sales, and cash flow. With respect to individual goals, the Compensation Committee considers an NEO’s individual achievements during the performance period relative to pre-established individual goals, including overall performance, behaving consistently with our “K Values,” and the extent to which each NEO has strengthened the culture and helped create the future for Kellogg. With respect to NEOs other than the CEO, the Committee also considers the CEO’s assessment of their individual performance.


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The chart below includes information about 2008 AIP opportunities.
 
                                 
    AIP Target     AIP Maximum  
    % of Base
          % of AIP
       
    Salary(1)     Amount($)     Target     Amount($)  
 
David Mackay
    145 %     1,667,500       200 %     3,335,000  
John Bryant
    98 %     786,667       200 %     1,573,333  
Brad Davidson
    77 %     498,333       200 %     996,667  
Paul Norman
    77 %     460,000       200 %     920,000  
Tim Mobsby(2)
    70 %     526,218       200 %     1,052,436  
Jeff Montie
    90 %     596,160       200 %     1,192,320  
 
 
(1) For AIP purposes, incentive opportunities are based on executives’ salary levels at the last day of the fiscal year (January 3, 2009 for the 2008 AIP). Annual salary increases typically become effective in April of each year.
 
(2) Mr. Mobsby is employed in Ireland and paid in euro. In calculating the U.S. dollar equivalent for disclosure purposes, we use a conversion rate to convert the sum of his payments from euro into U.S. dollars based on an average of the closing monthly exchange rates in effect for each month during the fiscal year in which the payments were made. According to the Wall Street Journal, this conversion rate of euro to U.S. dollars for the fiscal year ending January 3, 2009 was 1.474.
 
At the beginning of fiscal 2008, Kellogg projected mid single-digit growth (4 to 6%) for internal net sales, mid single-digit growth (4 to 6%) for internal operating profit and cash flow of between $1 billion to $1.075 billion. Our measure of internal growth rates excludes the impact of changes in foreign currency exchange rates, and if applicable acquisitions, dispositions and shipping day differences, and our measure of cash flow is operating cash flow less capital expenditures. Based on its financial results for fiscal 2008, Kellogg achieved the high end of the range for internal net sales growth, achieved the low end of the range for internal operating profit growth and, due to the impact of a discretionary year-end pension fund contribution, below the range for cash flow. Our performance among these metrics ranked Kellogg in the second quartile of its performance peer group in the case of internal net sales growth and in the third quartile in the case of internal operating profit growth and cash flow. Excluding the unbudgeted impact of the discretionary year-end pension fund contribution, our cash flow would have been at the high end of the range and in the second quartile of our performance peer group.
 
When evaluating Kellogg’s performance, the Compensation Committee may consider adjustments to ensure that AIP payouts are consistent with our overall compensation philosophy. In other words, any adjustments are made to ensure that compensation is competitive with the market, payouts are properly aligned with Kellogg’s performance, and management operates the business to drive long-term sustainable growth. Consequently, the Compensation Committee would consider making adjustments based on the unbudgeted impact of investments in the business to drive long-term growth including some brand building initiatives, accounting charges, and other unusual or non-recurring gains or losses. In 2008, the Compensation Committee made an adjustment only with respect to the unbudgeted impact of the discretionary pension fund contribution discussed above.
 
Based on this information and in exercising its judgment-based methodology, the Compensation Committee determined the percentage of AIP target achieved. The chart below includes information about the 2008 AIP payout.
 
                         
    2008 AIP Payout
 
    (paid in March 2009)  
    % of AIP
    Amount of AIP
    Amount of AIP
 
    Target     Target ($)     Payout ($)(1)  
 
David Mackay
    156 %     1,667,500       2,601,300  
John Bryant
    126 %     786,667       992,000  
Brad Davidson
    169 %     498,333       842,000  
Paul Norman
    146 %     460,000       672,000  
Tim Mobsby(2)
    105 %     526,218       552,529  
Jeff Montie(3)
    75 %     596,160       447,120  
 
 
(1) This amount is calculated by multiplying the executive’s AIP Target Amount by the percentage of the AIP Target achieved. For example, Mr. Mackay’s payout amount is calculated by multiplying his AIP Target Amount of $1,667,500 by 156%.


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(2) Mr. Mobsby is employed in Ireland and paid in euro. In calculating the U.S. dollar equivalent for disclosure purposes, we use a conversion rate to convert the sum of his payments from euro into U.S. dollars based on an average of the closing monthly exchange rates in effect for each month during the fiscal year in which the payments were made. According to the Wall Street Journal, this conversion rate of euro to U.S. dollars for the fiscal year ending January 3, 2009 was 1.474.
 
(3) Pursuant to his Separation Agreement, Mr. Montie received a prorated target bonus under the AIP for the 2008 performance year, i.e., 100% of target for 9 months.
 
Long-Term Incentives.  General.  Long-term incentive awards for the NEOs promote achieving our long-term corporate financial goals and earnings growth. Each year, the Compensation Committee reviews and recommends long-term incentive awards for each of the NEOs to the Board. In determining the total value of the long-term incentive opportunity for each executive, the Compensation Committee reviews the compensation peer group data presented by its compensation consultant on a position-by-position basis. Our long-term compensation program has consisted of a mix of stock options and performance-based stock awards, which the Compensation Committee evaluates each year.
 
Long-term incentives granted between 2003 and 2008 were provided to our executives under the 2003 Long-Term Incentive Plan, or “LTIP” (the LTIP was approved by Shareowners). The LTIP permits grants of stock options, stock appreciation rights, restricted shares and performance shares and units (such as Executive Performance Plan awards). The plan is intended to meet the deductibility requirements of Section 162(m) of the Internal Revenue Code as performance-based pay (resulting in paid awards being tax deductible to Kellogg). In Proposal 3, we are asking our Shareowners to approve a new long-term incentive plan at this annual meeting, which is substantially similar to the LTIP.
 
All of the 2008 long-term incentive opportunity was provided through equity-based awards, which the Compensation Committee believes best achieves the compensation principles for the program. For 2008, the Compensation Committee determined that the NEOs would receive 70% of their total long-term incentive opportunity in stock options and the remaining 30% in performance shares (granted under the Executive Performance Plan as discussed below). The Compensation Committee established this mix of awards after considering our compensation principles, compensation peer group practices and cost implications. The total amount of long-term incentives (based on the grant date expected value) is generally targeted at the 50th percentile of the compensation peer group.
 
Stock Options.  The Compensation Committee grants stock options to deliver competitive compensation that recognizes executives for their contributions to Kellogg and aligns executives with Shareowners in focusing on long-term growth and stock performance. These options provide value to the executive only if our stock price increases after the grants are made.
 
Stock options are granted annually to a wide range of employees (approximately 2,800 in 2008) based on pre-established grant guidelines calibrated to competitive standards and approved by the Compensation Committee under the LTIP. For our NEOs and certain other senior executives, stock option awards are determined on a position-by-position basis using survey data for corresponding positions in our compensation peer group. For positions below our NEOs and certain other senior executives, we use compensation survey data to set dollar targets for various salary ranges. Employees in a particular salary range are granted a number of stock options to correspond to the dollar target for that range. Prior to 2007, all options granted under the LTIP were granted with exercise prices equal to the average of the high and low trading prices of our stock on the date of grant. Beginning in 2007, the exercise price of our options is now set at the closing trading price on the date of grant. Our options have a ten-year term.
 
The options granted in 2008 become exercisable in two equal annual installments, with 50% vesting on February 22, 2009 (the first anniversary of the grant date), and the other 50% vesting on February 22, 2010 (the second anniversary of the grant date). The per-share exercise price for the stock options is $51.04, the closing trading price of Kellogg common stock on the date of the grant. The stock options expire on February 22, 2018. Approximately 84% of the stock options covered by the February 22, 2008 grant were made to employees other than the NEOs. Individual awards may vary from target levels based on the individual’s performance, ability to impact financial performance and future potential. Beginning in 2009, options will be exercisable in three equal annual installments from the anniversary of the grant date. Extending the vesting schedule is meant to increase retention. In response to the challenging economic environment, the number of stock options granted in 2009 will remain at 2008 levels.
 
Executive Performance Plan.  The Executive Performance Plan (“EPP”) is a stock-based, pay-for-performance, multi-year incentive plan intended to focus senior management on achieving critical multi-year operational goals. These goals, such as cash flow, internal net sales growth and operating profit growth, are designed to increase Shareowner value. Approximately 100 of our most senior employees participate in the EPP, including the NEOs. Performance under EPP is


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measured over the three-year performance period based on performance levels set at the start of the period. Vested EPP awards are paid in Kellogg common stock.
 
2008-2010 EPP.  Similar to the AIP, awards granted to NEOs under the terms of the EPP are designed to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. Accordingly, an objective measure was established within the first 90 days of fiscal 2008 in order to determine the performance level that would qualify for maximum possible payouts under the EPP after the end of fiscal 2010. These targets are tied to our projected operating plan and, therefore, their achievement is substantially uncertain at the time they are set at the beginning of the performance period. The Compensation Committee approved the targets and bandwidths for the 2008-2010 EPP in the same manner as the targets and bandwidths for the AIP. The specific targets and bandwidths set for the NEOs are not disclosed because we believe disclosure of this information would cause Kellogg competitive harm. The bandwidths are based on our confidential long-range operating plan and are intended to be realistic and reasonable, but challenging, in order to drive sustainable growth.
 
The Compensation Committee and management believe that the metric for the 2008-2010 EPP — internal operating profit — emphasizes the importance of profit in driving Shareowner value. Like with the AIP, once the Compensation Committee confirms the performance level delivered is at the level for which the NEOs are eligible to receive a payout under the EPP, the Compensation Committee uses a judgment-based methodology in exercising downward, negative discretion to determine the actual payout for each NEO. However, unlike the AIP, the Compensation Committee does not consider individual performance in determining payouts. The Compensation Committee weighs only company performance when determining actual payouts under the EPP. The Compensation Committee also takes into account the unbudgeted impact of unusual or nonrecurring gains and losses, accounting changes or other extraordinary events not foreseen at the time the performance goals or award opportunities were established.
 
The Compensation Committee set each individual’s target at 30% of his or her total long-term incentive opportunity. Participants in the EPP have the opportunity to earn between 0% and 200% of their EPP target. The 2008-2010 EPP cycle began on December 30, 2007 (first day of fiscal 2008) and concludes on January 1, 2011 (last day of fiscal 2010). Dividends are not paid on unvested EPP awards. The 2008-2010 EPP award opportunities, presented in number of potential shares that can be earned, are included in the Grant of Plan-Based Awards Table on page 40 of this proxy statement.
 
2006-2008 EPP.  For the 2006-2008 EPP awards, the performance period ended on January 3, 2009 (the last day of fiscal 2008). In February 2009, when our 2008 annual audited financial statements were completed, the Compensation Committee reviewed our performance versus the internal net sales target established in 2006 for purposes of Section 162(m) and the relevant bandwidths. At the beginning of 2006, our stated goals were low single-digit growth in internal net sales. For the period covering 2006-2008, Kellogg achieved strong mid-single-digit growth which ranked at the top of the second quartile compared to our performance peer group. Actual internal net sales growth over the three year performance period exceeded the upper limit of the projected bandwidths established in 2006 for each NEO. Nonetheless, the Compensation Committee followed its established precedent of capping payouts for EPP at 200% of target. The Compensation Committee did not make any adjustment when determining payouts under the 2006-2008 EPP. The 2006-2008 EPP awards did not vest until February 2009.
 
The chart below includes information about 2006-2008 EPP opportunities and actual payouts:
 
                                         
                2006-2008 EPP Payout
 
                (paid in February 2009)  
    EPP Target
    EPP Maximum
    % of EPP
             
    Amount(#)     Amount(#)     Target     Amount(#)     Amount($)(1)  
 
David Mackay
    50,400       100,800       200 %     100,800       4,048,128  
John Bryant
    12,400       24,800       200 %     24,800       995,968  
Brad Davidson
    5,700       11,400       200 %     11,400       457,824  
Paul Norman
    7,500       15,000       200 %     15,000       602,400  
Tim Mobsby
    5,700       11,400       200 %     11,400       457,824  
Jeff Montie(2)
    13,800       27,600       200 %     27,600       1,108,416  
 
 
(1) The payout amount is calculated by multiplying the earned shares by the closing price of our common stock on February 17, 2009.
 
(2) Pursuant to his Separation Agreement, Mr. Montie continued to vest in his 2006-2008 EPP award.


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Restricted Stock.  In addition, we award restricted shares from time to time to selected executives and employees based on a variety of factors, including facilitating recruiting and retaining key executives. In 2008, in order to enhance the retention and continuity of our senior operating team, three of our NEOs received a restricted stock award. This restricted stock award, which vests after three years, contains non-compete, non-solicit, release of claims and other restrictive covenants.
 
Post-Termination Compensation.  The NEOs are covered by arrangements which specify payments in the event the executive’s employment is terminated. These severance benefits, which are competitive with the compensation peer group and general industry practices, are payable if and only if the executive’s employment is terminated without cause. In 2008, the Compensation Committee analyzed and reassessed all of the termination and change-in-control arrangements to determine whether they are necessary and appropriate under Kellogg’s current circumstances and given the circumstances of individual NEOs. See discussion above under “— The Use of ‘Pay Tallies’ and Wealth Accumulation Analysis” for additional information on this process. The Compensation Committee reduced the amounts and benefits payable upon a change in control from three to two times base salary and annual incentive award. Additionally, the arrangements were revised to provide that “gross-up” payments are only made if the change-in-control-related severance payments/benefits exceed 110% of the maximum change-in-control-related severance payments/benefits an executive could receive without any payments/benefits being subject to federal excise taxes. The Compensation Committee will continue to review these arrangements annually as part of the process discussed above.
 
The Kellogg Severance Benefit Plan and the Change in Control Policy have been established primarily to attract and retain talented and experienced executives and further motivate them to contribute to our short- and long-term success for the benefit of our Shareowners, particularly during uncertain times.
 
The Kellogg Severance Benefit Plan provides market-based severance benefits to employees who are terminated by Kellogg under certain circumstances. Kellogg benefits from this program in a variety of ways, including the fact that Kellogg has the right to receive a general release, non-compete, non-solicitation and non-disparagement provisions from separated employees.
 
The Change in Control Policy provides market-based benefits to executives in the event an executive is terminated without cause or the executive terminates employment for “good reason” in connection with a change in control. The Change in Control Policy protects Shareowner interests by enhancing employee focus during rumored or actual change in control activity by providing incentives to remain with Kellogg despite uncertainties while a transaction is under consideration or pending.
 
For more information, please refer to “Potential Post-Employment Payments,” which begins on page 51 of this proxy statement.
 
Retirement Plans.  Our CEO, CFO and other NEOs are eligible to participate in Kellogg-provided pension plans which provide benefits based on years of service and pay (salary plus annual incentive) to a broad base of employees. These NEOs are eligible to receive market-based benefits when they retire from Kellogg. The Compensation Committee utilizes an industry survey prepared by Hewitt & Associates to help determine the appropriate level of benefits. The industry survey contains detailed retirement income benefit practices for a broad-based group of consumer products companies, which includes Kellogg, the companies in our compensation peer group (other than Clorox Co. and The Coca-Cola Co.) and the following additional consumer products companies: Armstrong World Industries, Inc., S.C. Johnson Consumer Products, L’Oreal USA, Inc., Johnson & Johnson, The Procter & Gamble Co., Nestle USA, Inc., and Unilever United States, Inc. Rather than commissioning a customized survey, the Compensation Committee uses the same survey used by Kellogg to set these benefits for all U.S. salaried employees. Since our U.S.-based NEOs participate in the same plans (with exceptions noted) as all of our U.S. salaried employees, the industry survey is a cost-effective way to set these benefits. Based on the industry survey, the Compensation Committee targets the median retirement income replacement among similarly situated executives. The targeted amount of the total retirement benefits is provided through a combination of qualified and non-qualified defined contribution plans and qualified and non-qualified defined benefit plans. The plans are designed to provide an appropriate level of replacement income upon retirement. These benefits consist of:
 
  •  annual accruals under our pension plans; and
 
  •  deferrals by the executive of salary and annual incentives, and matching contributions by us, under our savings and investment plans.


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Both our U.S. pension program and our U.S. savings and investment program include restoration plans for our U.S. executives, which allow us to provide benefits comparable to those which would be available under our IRS qualified plans if the IRS regulations did not include limits on covered compensation and benefits. We refer to these plans as “restoration plans” because they restore benefits that would otherwise be available under the plans in which substantially all of our U.S. salaried employees are eligible to participate. These plans use the same benefit formulas as our broad-based IRS qualified plans and use the same types of compensation to determine benefit amounts.
 
Amounts earned under long-term incentive programs such as EPP, gains from stock options and awards of restricted stock are not included when determining retirement benefits for any employee (including executives). We do not pay above-market interest rates on amounts deferred under our savings and investment plans.
 
The amount of an employee’s compensation is an integral component of determining the benefits provided under pension and savings plan formulas, and thus an individual’s performance over time will influence the level of his or her retirement benefits. For more information, please refer to “Retirement and Non-Qualified Defined Contribution and Deferred Compensation Plans,” which begins on page 45 of this proxy statement.
 
As a result of his service while in Great Britain and Ireland, Mr. Mobsby has accrued benefits under the Senior Executives Benefits Plan, which we refer to as the U.K. Executive Pension Plan, and the Kellogg Group Irish Pension Plan, Senior Executive Section, which we refer to as the Irish Executive Pension Plan. There is no additional non-qualified pension plan, as there is for U.S. executives, because applicable tax laws do not function in a way that would require us to “restore” benefits limited by the applicable tax laws. The U.K. Executive Pension Plan was developed 30 years ago based on what was allowable under U.K. tax law at the time. The Irish Executive Plan was developed to mirror the benefits of the U.K. Executive Pension Plan and, therefore, provides similar benefits that are calculated in the same way as the U.K. Executive Pension Plan.
 
Perquisites.  The Compensation Committee believes that it has taken a conservative approach to perquisites. For example, Kellogg does not provide company cars or club memberships to its U.S. NEOs. Perquisites provided to our foreign NEOs may vary depending on the standard market practices and regulations for the country in which an NEO is based. Pursuant to a policy adopted by the Board, our CEO is generally required, when practical, to use company aircraft for personal travel for security reasons. Personal use of company aircraft by other NEOs is rare. The Summary Compensation Table beginning on page 35 of this proxy statement contains itemized disclosure of all perquisites to our NEOs, regardless of amount.
 
Employee Stock Purchase Plan.  We have a tax-qualified employee stock purchase plan, which is made available to substantially all U.S. employees, which allows participants to acquire Kellogg stock at a discount price. The purpose of the plan is to encourage employees at all levels to purchase stock and become Shareowners. Prior to 2008, the plan allowed participants to buy Kellogg stock at 85% of the lower of the starting or ending market price for the period with up to 10% of their base salary (subject to IRS limits). As of January 1, 2008, the plan allows participants to buy Kellogg stock at a 5% discount to the market price. This change was made to reduce our overall compensation expense. Under applicable tax law, no plan participant may purchase more than $25,000 in market value (based on the market value of Kellogg stock on the last trading day prior to the beginning of the enrollment period for each subscription period) of Kellogg stock in any calendar year. Although this benefit is generally available to all U.S. employees, we have included the 2006 and 2007 compensation expense of any discounted stock purchased by our NEOs in the Summary Compensation Table. As a result of the change to the plan as of January 1, 2008, no compensation expense for the plan is included for 2008 since no expense was incurred.
 
The Kellogg Europe Trading Limited Employee Share Purchase Plan.  We have a tax qualified employee stock purchase plan, which is made available to all Irish tax-paying employees of Kellogg Europe Trading Limited, which we refer to as KETL, who have been with KETL or another company within Kellogg for three consecutive months (including Mr. Mobsby), which allows participants to invest in shares of Kellogg stock every three months and qualify for a 100% matching contribution of Kellogg stock (subject to Irish tax law limits). The purpose of the Kellogg Europe Trading Limited Employee Share Purchase Plan, which we refer to as the KPlan, is to provide KETL employees with the opportunity to acquire a stake in the future of Kellogg. The KPlan allows participants to buy the largest whole number of shares of Kellogg stock for an amount no less than €10 per month, but no more than 3.5% of one month’s net basic salary, and limited to a maximum value of €12,700 per tax year. Participants purchase these shares of Kellogg stock at the price at which those shares are available on the New York Stock Exchange. Participants in the KPlan must agree that all shares acquired under the plan be held on their behalf by a trustee for three years, subject to certain exceptions. Although this benefit is generally available to all employees of KETL, we have included the compensation expense of any matching stock received by Mr. Mobsby in the Summary Compensation Table.


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Executive Stock Ownership Guidelines.  In order to preserve the linkage between the interests of senior executives and those of Shareowners, senior executives are expected to establish and maintain a significant level of direct stock ownership. This can be achieved in a variety of ways, including by retaining stock received upon exercise of options or the vesting of stock awards (including EPP awards), participating in the Employee Stock Purchase Plan and purchasing stock in the open market. The CEO’s stock ownership requirement under our stock ownership guidelines is five times annual base salary. The stock ownership requirement for our other NEOs under our stock ownership guidelines is three times annual base salary. Our current stock ownership guidelines (minimum requirements) are as follows:
 
         
Chief Executive Officer
      5x annual base salary
         
Global Leadership Team members (other than the CEO)
      3x annual base salary
         
Other senior executives
      2x annual base salary
         
 
These executives have five years from the date they first become subject to a particular level of the guidelines to meet them. All of our NEOs currently meet the guidelines, and all of our other senior executives currently meet or are on track to meet their ownership guideline. The Compensation Committee reviews compliance with the guidelines on an annual basis. Executives who are not in compliance with the guidelines may not sell stock without prior permission from our Chief Executive Officer, except for stock sales used to fund the payment of taxes and transaction costs incurred in connection with the exercise of options and the vesting of stock awards.
 
Practices Regarding the Grant of Equity Awards.  The Compensation Committee has generally followed a practice of making all option grants to executive officers on a single date each year. Prior to the relevant Compensation Committee meeting, the Compensation Committee reviews an overall stock option pool for all participating employees (approximately 2,800 in 2008) and recommendations for individual option grants to executives. Based on this review, the Compensation Committee approves the overall pool and the individual option grants to executives.
 
The Board grants these annual awards at its regularly-scheduled meeting in mid-February. The February meeting usually occurs within 2 or 3 weeks following our final earnings release for the previous fiscal year. We believe that it is appropriate that annual awards be made at a time when material information regarding our performance for the preceding year has been disclosed. We do not otherwise have any program, plan or practice to time annual option grants to our executives in coordination with the release of material non-public information. EPP Awards are granted at the same time as options.
 
While most of our option awards to NEOs have historically been made pursuant to our annual grant program, the Compensation Committee and Board retain the discretion to make additional awards of options or restricted stock to executives at other times for recruiting or retention purposes. We do not have any program, plan or practice to time “off-cycle” awards in coordination with the release of material non-public information.
 
All option awards made to our NEOs, or any of our other employees or Directors, are made pursuant to our LTIP. As noted above, prior to 2007, all options under the LTIP were granted with an exercise price equal to the average of the high and low trading prices of our stock on the date of grant. Beginning in 2007, the exercise price of our options is now set at the closing trading price on the date of grant. We do not have any program, plan or practice of awarding options and setting the exercise price based on the stock’s price on a date other than the grant date, and we do not have a practice of determining the exercise price of option grants by using average prices (or lowest prices) of our common stock in a period preceding, surrounding or following the grant date. All grants to NEOs are made by the Board itself and not pursuant to delegated authority. Pursuant to authority delegated by the Board and subject to the Compensation Committee-approved allocation, awards of options to employees below the executive level are made by our CEO or other authorized senior executive officer.
 
Securities Trading Policy.  Our securities trading policy prohibits our Directors, executives and other employees from engaging in any transaction in which they may profit from short-term speculative swings in the value of our securities. This includes “short sales” (selling borrowed securities which the seller hopes can be purchased at a lower price in the future) or “short sales against the box” (selling owned, but not delivered securities), “put” and “call” options (publicly available rights to sell or buy securities within a certain period of time at a specified price or the like) and hedging transactions, such as zero-cost collars and forward sale contracts. In addition, this policy is designed to ensure compliance with relevant SEC regulations, including insider trading rules.


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Recoupment of Option Awards.  We maintain clawback provisions relating to stock option exercises. Under these clawback provisions, if an executive voluntarily leaves our employment to work for a competitor within one year after any option exercise, then the executive must repay to Kellogg any gains realized from such exercise (but reduced by any tax withholding or tax obligations). Beginning with our stock option grants in 2009, we have expanded the scope of our clawback provisions. In the event of certain violations of company policy or, in the case of executive officers, a financial restatement, any gains realized from the exercise of stock options are now subject to recoupment depending on the facts and circumstances of the event.
 
Deductibility of Compensation and Other Related Issues.  Section 162(m) of the Internal Revenue Code includes potential limitations on the deductibility of compensation in excess of $1 million paid to the company’s CEO and three other most highly compensated executive officers (other than our principal financial officer) serving on the last day of the year. Based on the regulations issued by the Internal Revenue Service, we have taken the necessary actions to ensure the deductibility of payments under the AIP and with respect to stock options and performance shares granted under our plans, whenever possible. We intend to continue to take the necessary actions to maintain the deductibility of compensation resulting from these types of awards. In contrast, restricted stock granted under our plans generally does not qualify as “performance-based compensation” under Section 162(m). Therefore, the vesting of restricted stock in some cases will result in a loss of tax deductibility of compensation, including in the case of the CEO. While we view preserving tax deductibility as an important objective, we believe the primary purpose of our compensation program is to support our strategy and the long-term interests of our shareholders. In specific instances we have and in the future may authorize compensation arrangements that are not fully tax deductible but which promote other important objectives of the company and of our executive compensation program.
 
The Compensation Committee also reviews projections of the estimated accounting (pro forma expense) and tax impact of all material elements of the executive compensation program. Generally, accounting expense is accrued over the requisite service period of the particular pay element (generally equal to the performance period) and Kellogg realizes a tax deduction upon the payment to/realization by the executive. As a result of the impact AOF options have on our overall non-cash compensation expense, the Compensation Committee discontinued the use of the AOF in all new option grants after 2003. In 2006, the Compensation Committee also changed the AOF feature so that AOF options may be received only once each calendar year. On April 25, 2008, the Compensation Committee eliminated the AOF feature from all outstanding stock options. In exchange, holders of AOFs received cash compensation.


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As detailed in its charter, the Compensation Committee of the Board oversees our compensation program on behalf of the Board. In the performance of its oversight function, the Compensation Committee, among other things, reviewed and discussed with management the Compensation Discussion and Analysis set forth in this proxy statement.
 
Based upon the review and discussions referred to above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2009 and our proxy statement to be filed in connection with our 2009 Annual Meeting of Shareowners, each of which will be filed with the SEC.
 
COMPENSATION COMMITTEE
 
Dr. John Zabriskie, Chair
John Dillon
Gordon Gund
Ann McLaughlin Korologos


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EXECUTIVE COMPENSATION
 
 
 
The following narrative, tables and footnotes describe the “total compensation” earned during 2006, 2007 and 2008 by our NEOs; however, 2006 information is not provided pursuant to the SEC’s rules and regulations for Mr. Mobsby, Mr. Norman and Mr. Davidson because they were not named executive officers of Kellogg during fiscal 2006. The total compensation presented below does not reflect the actual compensation received by our NEOs or the target compensation of our NEOs in 2006, 2007 and 2008. The actual value realized by our NEOs in 2008 from long-term incentives (options and restricted stock) is presented in the Option Exercises and Stock Vested Table on page 44 of this proxy statement. Target annual and long-term incentive awards for 2008 are presented in the Grants of Plan-Based Awards table on page 40 of this proxy statement.
 
The individual components of the total compensation calculation reflected in the Summary Compensation Table are broken out below:
 
Salary.  Base salary earned during 2008. Refer to “Compensation Discussion and Analysis — Elements of Our Compensation Program — Base Salaries.”
 
Bonus.  We did not pay any discretionary bonuses to our NEOs in 2008. Each NEO earned an annual performance-based cash incentive under our AIP, as discussed below under “Non-Equity Incentive Plan Compensation.” Refer to “Compensation Discussion and Analysis — Elements of Our Compensation Program — Annual Incentives.”
 
Stock Awards.  The awards disclosed under the heading “Stock Awards” consist of:
 
  •  for 2008, (1) the 2006-2008 EPP awards granted during 2006, (2) the 2007-2009 awards granted in 2007; (3) the 2008-2010 awards granted in 2008, and (4) restricted stock awards;
 
  •  for 2007, (1) the 2005-2007 EPP awards granted in 2005, (2) the 2006-2008 EPP awards granted in 2006, (3) the 2007-2009 EPP awards granted in 2007 and (4) restricted stock awards; and
 
  •  for 2006, (1) the 2005-2007 EPP awards granted in 2005 and, in the case of Mr. Mackay, an increase to his 2005-2007 EPP award resulting from him assuming the role of Chief Executive Officer, (2) the 2006-2008 EPP awards granted in 2006 and (3) restricted stock awards. The “Stock Awards” column also includes relatively small compensation expense adjustments relating to 2003-2005 EPP awards as a result of a true up made in 2006.
 
The dollar amounts for the awards represent the grant-date fair value-based compensation expense recognized in 2008, 2007 and in 2006 under SFAS No. 123(R) for each NEO and as reported in our audited financial statements contained in our Annual Report on Form 10-K. Since Mr. Mackay is retirement eligible, compensation expense related to awards granted to him are recognized immediately. Details about the EPP awards granted in 2008 are included in the Grant of Plan-Based Awards Table below. Refer to also “Compensation Discussion and Analysis — Elements of Our Compensation Program — Long-Term Incentives” for additional information. The recognized compensation expense of the stock-based awards will likely vary from the actual amount the NEO receives. The actual value the NEO receives will depend on the number of shares earned and the price of our common stock when the shares vest. On December 19, 2008, additional restricted stock was granted to three of our NEOs. Because these shares were granted after December 15th, the compensation expense will begin to be recognized for these awards in 2009 in accordance with Kellogg’s accounting practices.
 
Option Awards.  The awards disclosed under the heading “Option Awards” consist of annual option grants (each a “regular option”) and accelerated ownership feature (“AOF”) option grants (each an “AOF option”) granted in 2008, 2007 and in 2006 and in prior fiscal years (to the extent such awards remained unvested in whole or in part at the beginning of fiscal 2008, 2007 and 2006, respectively). The dollar amounts for the awards represent the grant-date fair value-based compensation expense recognized in 2008, 2007 and in 2006 under SFAS No. 123(R) for each NEO and as reported in our audited financial statements contained in our Annual Report on Form 10-K. Details about the option awards made during 2008 are included in the Grant of Plan-Based Awards Table below. Refer to also “Compensation Discussion and Analysis — Elements of Our Compensation Program — Long-Term Incentives — Stock Options” for additional information. The recognized compensation expense of the stock option awards will likely vary from the actual value the NEO receives. The actual value the NEO receives will depend on the number of shares exercised and the price of our common stock on the date exercised. The amounts disclosed under the heading “Option Awards” also include the


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recognition of accounting expense under SFAS No. 123(R) by Kellogg for the cancellation of the AOF on all outstanding options as discussed below.
 
Directors and employees began receiving “original” AOF options over fifteen years ago in order to create greater stock ownership by encouraging Directors and employees to exercise valuable stock options and retain the shares received as a result of the option exercise. Under the terms of the original option grant, a new option, or “AOF option,” was received when Kellogg stock was used to pay the exercise price of a stock option and related taxes. For AOF options, the expiration date was the same as the original option and the option exercise price was the fair market value our common stock on the date the AOF option was granted.
 
Beginning in 2003, the Compensation Committee and the Board began taking a variety of actions to reduce the impact of AOF options. On April 25, 2008, the Compensation Committee approved the elimination of the AOF (commonly referred to as a “reload” feature) from all outstanding stock options (approximately 900 people). The elimination of the AOF from all outstanding options did not otherwise affect or change the underlying stock options. In exchange for the value of the AOF, holders of AOF’s received cash compensation. The price to be paid to holders of AOFs was determined with the assistance of a third-party actuarial consultant who calculated the value of the AOF option feature for each grant year.
 
Non-Equity Incentive Plan Compensation.  The amount of Non-Equity Incentive Plan Compensation consists of the Kellogg Senior Executive Annual Incentive Plan (“AIP”) awards granted and earned in 2008, 2007 and in 2006. At the outset of 2008, 2007 and 2006, the Compensation Committee granted AIP awards to the CEO, CFO and the other NEOs. Such awards are based on our performance during 2008, 2007 and 2006, respectively, and were paid in March 2009 (for 2008 grants), March 2008 (for 2007 grants) and in March 2007 (for 2006 grants). For information on these awards refer to “Compensation Discussion and Analysis — Elements of Our Compensation Program — Annual Incentives.”
 
Change in Pension Value.  The amounts disclosed under the heading “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” represent the actuarial increase during 2008, 2007 and 2006 in the pension value provided under the pension plans. Kellogg does not pay above-market or preferential rates on non-qualified deferred compensation for employees, including the NEOs. A detailed narrative and tabular discussion about our pension plans and non-qualified deferred compensation plans, our contributions to our pension plans and the estimated actuarial increase in the value of our pension plans are presented under the heading “Retirement and Non-Qualified Defined Contribution and Deferred Compensation Plans.”
 
All Other Compensation.  Consistent with our emphasis on performance-based pay, perquisites and other compensation are limited in scope and in 2006 and 2007 were primarily comprised of retirement benefit contributions and accruals for NEOs based in the United States. In 2008, the cash compensation paid in connection with the one-time elimination of the AOF from existing options represented a significant portion of “All Other Compensation.”


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It is important to note that the information required by the Summary Compensation Table does not necessarily reflect the target or actual compensation for our NEOs in 2008, 2007 and in 2006. In addition, the SEC regulations and accounting rules require certain compensation expense reflected in the table to be recognized immediately if any of the NEOs were retirement eligible in 2008, 2007 and in 2006, respectively.
 
                                                                             
                                        Change in
                 
                                        Pension
                 
                                        Value and
                 
                                  Non-Equity
    Non-Qualified
                 
                                  Incentive
    Deferred
                 
                      Stock
    Option
    Plan
    Compensation
    All Other
           
Name and Principal
        Salary
    Bonus
    Awards
    Awards
    Compensation
    Earnings
    Compensation
    Total
     
Position(2)
  Year     ($)     ($)     ($)(3)     ($)(4)     ($)     ($)(5)     ($)(6)     ($)      
 
David Mackay
    2008       1,136,545       0       1,847,098       3,535,733       2,601,300       1,849,000       1,375,213       12,344,889      
President and Chief
    2007       1,096,297       0       2,674,151       5,108,269       2,131,300       809,000       249,230       12,068,247      
Executive Officer
    2006       898,743       0       4,939,572       4,809,773       1,571,400       878,000       135,600       13,233,088 (1)    
John Bryant
    2008       697,613       0       683,034       1,014,207       992,000       222,000       486,315       4,095,169      
Executive Vice
    2007       626,247       0       1,237,317       1,458,408       950,000       244,000       70,660       4,586,632      
President, Chief Operating Officer and Chief Financial Officer
    2006       561,948       0       1,186,127       1,811,463       697,000       80,000       67,585       4,404,123      
Brad Davidson
    2008       588,384       0       451,361       559,014       842,000       831,000       238,939       3,510,698      
Senior Vice President and President,
    2007       531,339       0       575,157       568,297       770,000       125,000       104,971       2,674,764      
Kellogg North America
                                                                           
Paul Norman
    2008       573,000       0       551,628       632,152       672,000       421,000       179,004       3,028,784      
Senior Vice President and President, Kellogg International
    2007       526,022       0       702,669       748,289       550,500       (7)     48,353       2,575,833      
Tim Mobsby(8)
    2008       743,707       0       301,257       475,739       552,529       493,000       247,367       2,813,599      
Senior Vice President and Executive
    2007       665,909       81,410 (9)     414,034       883,598       938,400       1,737,000 (10)     76,568       4,796,919      
Vice President, Kellogg International
and President Europe
                                                                           
Jeff Montie(11)
    2008       508,601       0       194,971 (12)     1,272,739       447,120       743,000       670,778       3,837,209      
Former Executive
    2007       630,568       0       1,348,563       1,414,079       777,600       (7)     75,450       4,246,260      
Vice President and President,
Kellogg International
    2006       594,361       0       1,267,579       1,624,620       761,100       335,000       79,561       4,662,221      
 
 
(1) In 2006, Mr. Mackay became retirement eligible. If Mr. Mackay were not considered retirement eligible, his “Total Compensation” in 2006 would have been $9,861,662 (as opposed to $13,233,088, which appears in the table). This difference is a result of compensation expense for certain equity-based awards being recognized immediately under applicable accounting rules when an employee is considered retirement eligible. Specifically, the amounts that would have been reflected in the table are as follows: (a) Stock Awards: $2,336,357 in 2006 (as opposed to $4,939,572 in the table); and (b) Option Awards: $4,041,562 in 2006 (as opposed to $4,809,773 in the table).
 
(2) On August 11, 2008, the following titles changed: (a) Mr. Bryant became Executive Vice President, Chief Operating Officer and Chief Financial Officer; (b) Mr. Davidson became Senior Vice President and President, Kellogg North America; and (c) Mr. Norman became Senior Vice President and President, Kellogg International.
 
(3) Reflects the compensation expense recognized in 2008, 2007 and 2006 for stock awards under SFAS No. 123(R) for each NEO and as reported in our audited financial statements. Refer to Notes 1 and 8 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended January 3, 2009 for a discussion of the relevant assumptions used in calculating the compensation expense. The table below presents separately the


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compensation expense recognized in 2008, 2007 and in 2006 for our outstanding EPP awards and restricted stock awards:
 
                                 
            Restricted
   
        EPP
  Stock
       Total     
        ($)   ($)   ($)
 
David Mackay(a)
    2008       1,847,098       0       1,847,098  
      2007       2,674,151       0       2,674,151  
      2006       4,939,572       0       4,939,572  
John Bryant
    2008       654,205       28,829 (b)     683,034  
      2007       891,374       345,943       1,237,317  
      2006       653,712       532,415       1,186,127  
Brad Davidson
    2008       315,740       135,621 (b)     451,361  
      2007       427,207       147,950       575,157  
Paul Norman
    2008       374,326       177,302 (b)     551,628  
      2007       525,367       177,302       702,669  
Tim Mobsby
    2008       301,257       0       301,257  
      2007       414,034       0       414,034  
Jeff Montie
    2008       163,234       31,737       194,971  
      2007       967,722       380,841       1,348,563  
      2006       737,560       530,019       1,267,579  
 
 
(a) Mr. Mackay is considered retirement eligible. As such, compensation expense related to his EPP grants is recognized immediately.
 
(b) In accordance with Kellogg’s accounting practices, this amount does not include any expense for the restricted stock granted on December 19, 2008. Such expense will begin to be recognized by Kellogg in 2009.
 
Prior to adoption of SFAS No. 123(R) on January 1, 2006, we generally recognized stock compensation expense over the stated vesting period of the award, with any unamortized expense recognized immediately if an acceleration event occurred (for example, retirement). SFAS No. 123(R) specifies that a stock-based award is considered vested for expense attribution purposes when the employee’s retention of the award is no longer contingent on providing subsequent service. Accordingly, compensation expense is recognized immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period.
 
(4) Reflects the compensation expense recognized for (a) stock option grants made in 2008 (for 2008 compensation), 2007 (for 2007 compensation), in 2006 (for 2006 compensation) and in prior fiscal years (to the extent such awards remained unvested in whole or in part at the beginning of fiscal 2008, 2007 and 2006, respectively), and (b) the cancellation of the AOF on all outstanding options in 2008 (which we refer to as a modification to AOF options). See “Option Awards” above for additional discussion of the elimination of AOF options. Refer to Notes 1 and 8 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended January 3, 2009 for a discussion of the relevant assumptions used in calculating the compensation expense. The table below presents separately the compensation expense recognized in 2008 between our regular options and our AOF options. When an


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executive exercises an original option with an AOF, the AOF option is treated as a new grant for disclosure and accounting purposes even though the new grant relates back to the approval of the original grant.
 
                                         
                AOF
   
        Regular Options ($)   AOF Options ($)   Modification ($)(c)     Total ($)  
 
David Mackay(a)
    2008       3,114,474       0       421,259       3,535,733  
      2007       3,733,822       1,374,447       0       5,108,269  
      2006       2,219,699       2,590,074       0       4,809,773  
John Bryant
    2008       854,143       0       160,064       1,014,207  
      2007       937,994       520,414       0       1,458,408  
      2006       915,500       895,963       0       1,811,463  
Brad Davidson
    2008       447,037       86,802 (b)     25,175       559,014  
      2007       477,400       90,897       0       568,297  
Paul Norman
    2008       478,937       102,051 (b)     51,164       632,152  
      2007       526,185       222,104       0       748,289  
Tim Mobsby
    2008       397,822       0       77,917       475,739  
      2007       415,065       468,533       0       883,598  
Jeff Montie
    2008       1,178,467       0       94,272       1,272,739  
      2007       984,244       429,835       0       1,414,079  
      2006       1,011,525       613,095       0       1,624,620  
 
 
(a) Mr. Mackay is considered retirement eligible. As such, compensation expense related to his option awards is recognized immediately.
 
(b) On April 25, 2008, the Compensation Committee approved the elimination of the AOF from outstanding stock options. However, prior to that date, Mr. Davidson and Mr. Norman each exercised outstanding stock options resulting in new AOF options. See “Option Awards” above for additional discussion of the elimination of AOF options.
 
(c) Represents compensation expense incurred by Kellogg in connection with the elimination of the AOF from existing options. For the cash payment received by each NEO, see “All Other Compensation.”
 
Prior to adoption of SFAS No. 123(R) on January 1, 2006, we generally recognized stock compensation expense on a pro forma basis over the stated vesting period of the award, with any unamortized expense recognized immediately if an acceleration event occurred (for example, retirement). SFAS No. 123(R) specifies that a stock-based award is considered vested for expense attribution purposes when the employee’s retention of the award is no longer contingent on providing subsequent service. Accordingly, beginning in 2006, we prospectively revised our expense attribution method so that the related compensation expense is recognized immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period.
 
(5) Solely represents the actuarial increase or decrease during 2008 (for 2008 compensation), 2007 (for 2007 compensation) and during 2006 (for 2006 compensation) in the pension value provided under the U.S. Pension Plans for Mr. Mackay, Mr. Bryant, Mr. Montie, Mr. Norman and Mr. Davidson and the U.K. and Irish Executive Pension Plans for Mr. Mobsby as we do not pay above-market or preferential earnings on non-qualified deferred compensation. The calculation of actuarial present value is generally consistent with the methodology and assumptions outlined in our audited financial statements, except that benefits are reflected as payable as of the date the executive is first entitled to full unreduced benefits (as opposed to the assumed retirement date) and without consideration of pre-retirement mortality. A variety of factors impact the actuarial increase in present value (pension value). Factors typically impacting the pension value include service accruals during the year, increases in pay, changes in the discount rate, changes in the exchange rate (for Mr. Mobsby) and employment agreements. Each employment agreement is described under “Employment Agreements.”
 
(6) The table below presents an itemized account of “All Other Compensation” provided in 2008, 2007 and 2006 to the NEOs, regardless of the amount and any minimal thresholds provided under the SEC rules and regulations. Consistent with our emphasis on performance-based pay, perquisites and other compensation are limited in scope and in 2006 and 2007 were primarily comprised of retirement benefit contributions and accruals for NEOs based in the United


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States. In 2008, the cash compensation paid in connection with the one-time elimination of the AOF from existing options represented a significant portion of “All Other Compensation.”
 
                                                                                                         
          Kellogg
                                                                   
          Contributions
    Company
                Non-
                                           
          to S&I and
    Paid
    Financial
    Employee
    Business
                      AOF
                   
          Restoration
    Death
    Planning
    Stock
    Aircraft
    Physical
    Automobile
    Education
    Cancellation
    Mortgage
    Severance
       
          Plans(a)
    Benefit(b)
    Assistance(c)
    Purchases(d)
    Usage(e)
    Exams(f)
    Allowance(g)
    Assistance(h)
    Payment(i)
    Assistance(j)
    Payment(k)
     TOTAL 
 
          ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)  
 
David Mackay
    2008       132,483       373,538       6,000       0       0       0       0       0       863,192       0       0       1,375,213  
      2007       106,708       133,265       5,935       0       1,352       1,970       0       0       0       0       0       249,230  
      2006       100,882       26,593       8,125       0       0       0       0       0       0       0       0       135,600  
John Bryant
    2008       67,135       6,810       5,755       0       0       0       0       0       406,615       0       0       486,315  
      2007       52,930       6,256       3,525       4,627       1,352       1,970       0       0       0       0       0       70,660  
      2006       52,158       5,133       5,414       4,880       0       0       0       0       0       0       0       67,585  
Brad Davidson
    2008       55,335       108,555       2,400       0       0       802       0       0       61,705       10,142       0       238,939  
      2007       46,454       29,764       2,900       4,252       0       3,230       0       0       0       18,371       0       104,971  
Paul Norman
    2008       45,863       4,903       2,500       0       0       0       0       0       125,738       0       0       179,004  
      2007       39,441       4,666       0       4,246       0       0       0       0       0       0       0       48,353  
Tim Mobsby
    2008       0       14,149       2,137       18,720       0       0       41,602       0       170,759       0       0       247,367  
      2007       0       19,079       1,992       15,996       0       0       38,780       721       0       0       0       76,568  
Jeff Montie
    2008       69,333       296,894       6,000       0       0       0       0       0       225,555       0       72,996       670,778  
      2007       55,667       9,498       5,970       4,315       0       0       0       0       0       0       0       75,450  
      2006       57,702       8,938       8,125       4,796       0       0       0       0       0       0       0       79,561  
 
 
    (a) For information about our Savings & Investment Plan and Restoration Plan, refer to “Retirement and Non-Qualified Defined Contribution and Deferred Compensation Plans — Non-Qualified Deferred Compensation” beginning on page 47.
 
    (b) Annual cost for Kellogg-paid life insurance, Kellogg-paid accidental death and dismemberment, Executive Survivor Income Plan (Kellogg funded death benefit provided to executive employees).
 
    (c) Reflects reimbursement for financial and tax planning assistance.
 
    (d) In 2008, Mr. Bryant, Mr. Davidson, Mr. Norman and Mr. Montie participated in our tax-qualified ESPP, which is generally available to all U.S. salaried employees. On January 1, 2008, the price paid by all U.S. salaried employees under the ESPP, including the NEOs, became 95% of the price of our common stock at the end of each quarterly purchase period, as a result of which, no compensation expense for the plan is included for 2008 since no expense was incurred. Mr. Mobsby participates in the KPlan, which is a broad-based employee stock purchase plan qualified under Irish tax laws and generally available to all employees of KETL. Each participant in the KPlan, including Mr. Mobsby, receive one additional share of Kellogg common stock for each share of Kellogg common stock purchased by such participant under the plan at 100% of the price of our common stock. The dollar amounts represent the grant-date fair value-based compensation expense of the discount recognized in 2008 under SFAS No. 123(R) for each NEO and as reported in our audited financial statements contained in our Annual Report on Form 10-K.
 
    (e) The 2007 amounts for Mr. Mackay and Mr. Bryant represent the incremental cost of a flight to and from the company-provided physical exam. The incremental cost of this flight was divided equally among the executives on the aircraft. The incremental cost of Kellogg aircraft used for a non-business flight is calculated by multiplying the aircraft’s hourly variable operating cost by a trip’s flight time, which includes any flight time of an empty return flight. Variable operating costs include: (1) landing, parking, passenger ground transportation, crew travel and flight planning services expenses; (2) supplies, catering and crew traveling expenses; (3) aircraft fuel and oil expenses; (4) maintenance, parts and external labor (inspections and repairs); and (5) any customs, foreign permit and similar fees. Fixed costs that do not vary based upon usage are not included in the calculation of direct operating cost. On certain occasions, an NEO’s spouse or other family member may accompany the NEO on a flight. No additional direct operating cost is incurred in such situations under the foregoing methodology because the costs would not be incremental. Kellogg does not pay its NEOs any amounts in respect of taxes (so called gross up payments) on income imputed to them for non-business aircraft usage.
 
    (f) Actual cost of a physical exam.
 
    (g) Cost of annual automobile allowance for executives not based in the United States.
 
    (h) Represents an educational allowance paid to Mr. Mobsby under his employment agreement.
 
    (i) For information about the AOF modification payment, refer to “Summary Compensation Table — Option Awards.”
 
    (j) Represents mortgage interest assistance paid on behalf of Mr. Davidson in connection with his relocation as President of U.S. Snacks. Mr. Davidson’s mortgage assistance ends in June 2009.
 
    (k) Pursuant to a Separation Agreement entered into on August 11, 2008, Mr. Montie is to receive severance payments equal to two years of base salary and two years of target bonus, such amount to be paid in equal installments from October 1, 2008 until June 2, 2016, subject to his compliance with certain restrictive covenants. Accordingly, only


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that amount which was paid to Mr. Montie in 2008 is set forth in the table. See “Potential Post-Employment Payments” below for additional information.
 
In addition to the foregoing compensation, the NEOs also participated in health and welfare benefit programs, including vacation and medical, dental, prescription drug and disability coverage. These programs are generally available and comparable to those programs provided to all salaried employees in the region in which each NEO is based.
 
(7) The year-over-year change from 2006 to 2007 in actuarial value of benefits earned under the U.S. Pension Plans, resulted in a negative sum of $103,000 for Mr. Montie and $1,000 for Mr. Norman. The primary reason for this negative actuarial value under the U.S. Pension Plans was a change in the discount rate used to value the plans.
 
(8) Mr. Mobsby is employed in Ireland and is paid in euro. In calculating the U.S. dollar equivalent for disclosure purposes other than as noted below, we used a conversion rate to convert the sum of his payments from euro into U.S. dollars based on an average of the closing monthly exchange rates in effect for each month during the fiscal year in which the payments were made. According to the Wall Street Journal, this conversion rate of euro to U.S. dollars for the fiscal year ending January 3, 2009 was 1.474. With respect to the amount shown under the heading “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” for Mr. Mobsby, we calculated this value using the difference of the U.S. dollar equivalents of the beginning and ending balances of Mr. Mobsby’s pension benefit during fiscal 2008 after converting these amounts from euro to U.S. dollars. In order to calculate these two values, we used the conversion rates in effect for the last day of fiscal 2007 and last day of fiscal 2008 for converting the beginning and ending balances, respectively. For more information on foreign currency rate fluctuations, refer to footnote (10) below.
 
(9) As discussed in more detail under “Employment Agreements — Mr. Mobsby,” represents the final installment of the relocation incentive premium payment he received for relocating to Ireland in 2004.
 
(10) Foreign currency exchange rates, such as the exchange rate between the U.S. dollar and the euro, can be volatile and affected by, among other factors, the general economic conditions of a country, the actions of the U.S. and non-U.S. governments or central banks, the imposition of currency controls, and speculation. In 2008 and 2007, $148,000 and $762,000, respectively, of Mr. Mobsby’s change in pension value reflects foreign currency exchange rate fluctuations. Mr. Mobsby’s 2007 value has been changed. The value reported for 2007 in last year’s proxy was $2,187,000 and the corrected value in the table above is $1,737,000. The value was changed because a cost of living adjustment that only applies to UK benefits for service earned in 1997 and later years was mistakenly applied to his benefits earned before 1997.
 
(11) As discussed in more detail under “Employment Agreements — Mr. Montie,” Mr. Montie ceased to be an active employee of Kellogg Company on October 1, 2008.
 
(12) Mr. Montie forfeited his 2008-2010 EPP award in connection with his departure from Kellogg. Thus, the entry in the table does not reflect compensation expense relating to his 2008-2010 EPP award.


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During 2008, we granted the following plan-based awards to our NEOs:
 
1. Stock Options (both Regular and AOF Options);
 
2. 2008 AIP grants (annual cash performance-based awards);
 
3. 2008-2010 EPP grants (multi-year stock performance-based awards); and
 
4. Restricted stock grants in the case of Mr. Bryant, Mr. Davidson and Mr. Norman to enhance the retention and continuity of our senior operating team.
 
Information with respect to each of these awards on a grant-by-grant basis is set forth in the table below. For a detailed discussion of each of these awards and their material terms, refer to “Executive Compensation — Summary Compensation Table” and “Compensation Discussion and Analysis — Elements of Our Compensation Program” above. We no longer grant new options with the AOF feature, but as disclosed in the Outstanding Equity Awards at Fiscal Year-End Table, a number of options granted prior to 2004 contain this feature. When an executive exercised an original option with an AOF, the AOF option was treated as a new grant for disclosure and accounting purposes even though the new grant related back to the approval of the original option grant. All of our regular and AOF options were granted with an exercise price equal to the fair market value of our common stock on the date of grant. On April 25, 2008, the Compensation Committee approved the elimination of the AOF from outstanding stock options.
 
                                                                                                 
                                    All Other
           
                                    Stock
  All Other
       
            Estimated Possible
              Awards:
  Option
       
            Payouts Under
  Estimated Future
  Number
  Awards:
  Exercise or
  Grant-date
            Non-Equity Incentive
  Payouts Under Equity
  of Shares
  Number of
  Base Price
  Fair Value
            Plan Awards   Incentive Plan Awards   of Stock
  Securities
  of Option
  of Stock
    Grant
  Approval
  Threshold
  Target
  Maximum
  Threshold
  Target
  Maximum
  or Units
  Underlying
  Awards
  and Option
Name
  Date(1)   Date(1)   ($)   ($)   ($)   (#)   (#)   (#)   (#)   Options (#)   ($/Sh)   Awards ($)
 
David Mackay
                                                                                               
Regular Options
    2/22/2008       2/22/2008                                                               321,700       51.04       3,114,474 (2)
AOF Options
                                                                                     
2008 AIP(3)
                    0       1,667,500       3,335,000                                                          
2008-10 EPP
    2/22/2008       2/22/2008                               0       38,300       76,600                               1,803,547 (4)
John Bryant
                                                                                               
Regular Options
    2/22/2008       2/22/2008                                                               83,000       51.04       803,548 (2)
AOF Options
                                                                                     
2008 AIP(3)
                    0       786,667       1,573,333                                                          
2008-10 EPP
    2/22/2008       2/22/2008                               0       9,900       19,800                               466,191 (4)
Restricted Stock
    12/19/2008       12/19/2008                                                       35,000                       1,492,050 (5)
Brad Davidson
                                                                                               
Regular Options
    2/22/2008       2/22/2008                                                               41,500       51.04       401,774 (2)
AOF Options
    3/18/2008       2/16/2001                                                               4,727       51.14       20,041 (2)
      3/18/2008       2/21/2003                                                               8,310       51.14       35,231 (2)
      3/18/2008       1/4/1999                                                               4,677       51.14       19,829 (2)
      3/18/2008       2/22/2002                                                               2,760       51.14       11,701 (2)
2008 AIP(3)
                    0       498,333       996,667                                                          
2008-10 EPP
    2/22/2008       2/22/2008                               0       4,900       9,800                               230,741 (4)
Restricted Stock
    12/19/2008       12/19/2008                                                       25,000                       1,065,750 (5)
Paul Norman
                                                                                               
Regular Options
    2/22/2008       2/22/2008                                                               44,700       51.04       432,754 (2)
AOF Options
    3/18/2008       2/22/2002                                                               16,526       51.14       70,064 (2)
      3/18/2008       2/21/2003                                                               7,545       51.14       31,988 (2)
2008 AIP(3)
                    0       460,000       920,000                                                          
2008-10 EPP
    2/22/2008       2/22/2008                               0       5,300       10,600                               249,577 (4)
Restricted Stock
    12/19/2008       12/19/2008                                                       15,000                       639,450 (5)
Tim Mobsby
                                                                                               
Regular Options
    2/22/2008       2/22/2008                                                               38,000       51.04       367,889 (2)
AOF Options
                                                                                     
2008 AIP(3)
                    0       526,218       1,052,436                                                          
2008-10 EPP
    2/22/2008       2/22/2008                               0       4,500       9,000                               211,905 (4)
Jeff Montie
                                                                                               
Regular Options
    2/22/2008       2/22/2008                                                               75,000       51.04       726,098 (2)
AOF Options
                                                                                     
2008 AIP(3)
                    0       596,160       1,192,320                                                          
2008-10 EPP
    2/22/2008       2/22/2008                               0       9,200 (6)     18,400 (6)                             433,228 (4)(6)
 
 
(1) The “grant date” for our AOF options is different than the “approval date” because an AOF option is treated as a new grant for disclosure and financial reporting purposes under SFAS No. 123(R) even though the new grant relates back to the date the original option was approved by the Compensation Committee. The Compensation Committee takes no


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new action in connection with the grant of AOF options. For a discussion of AOF options, refer to “Executive Compensation — Summary Compensation Table — Option Awards.”
 
(2) Represents the grant-date fair value calculated under SFAS No. 123(R), and as presented in our audited financial statements contained in our Annual Report on Form 10-K. The fair value of the stock option awards will likely vary from the actual value the NEO receives. The actual value the NEO receives will depend on the number of shares exercised and the price of our common stock on the date exercised.
 
(3) Represents estimated possible payouts on the grant date for annual performance cash awards granted in 2008 under the 2008 AIP for each of our NEOs. The AIP is an annual cash incentive opportunity and, therefore, these awards are earned in the year of grant. See the column captioned “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table for the actual payout amounts related to the 2008 AIP. See also “Compensation Discussion and Analysis — Elements of Our Compensation Program — Annual Incentives” for additional information about the 2008 AIP.
 
(4) Represents the grant-date fair value calculated under SFAS No. 123(R), and as presented in our audited financial statements contained in our Annual Report on Form 10-K. This grant-date fair value assumes that each participant earns the target EPP award (i.e., 100% of EPP target). The actual value the NEO receives will depend on the number of shares earned and the price of our common stock when the shares vest.
 
(5) Represents the grant-date fair value calculated under SFAS No. 123(R), and as presented in our audited financial statements contained in Kellogg’s Annual Report on Form 10-K. The actual value the NEO receives will depend on the price of our common stock when the shares vest.
 
(6) On August 11, 2008, Mr. Montie forfeited his 2008-2010 EPP award in connection with his departure from Kellogg. Refer to “Employment Agreements.”
 
 
The following equity awards granted to our NEOs were outstanding as of the end of fiscal 2008:
 
Regular Options (disclosed under the “Option Awards” columns).  Represents annual option grants made in February of each year to our NEOs.
 
AOF Options (disclosed under the “Option Awards” columns).  Represents AOF options granted when Kellogg stock is used to pay the exercise price of a stock option and related taxes. Effective April 25, 2008, AOF has been eliminated from all outstanding stock options.
 
Restricted Stock Awards (disclosed under the “Stock Awards” columns.  In 2006, Mr. Norman received a restricted stock award for retention purposes. In 2008, in order to enhance the retention and continuity of our senior operating team, each of Mr. Bryant, Mr. Davidson and Mr. Norman received a restricted stock award.
 
2006-2008 EPP Grants (disclosed under the “Stock Awards” columns).  The 2006-2008 EPP cycle began on January 1, 2006 (first day of fiscal 2006) and concludes on January 3, 2009 (last day of fiscal 2008). Dividends are not paid on unvested EPP awards. The 2006-2008 awards are based on compound annual growth in internal net sales. The ultimate value of the awards will depend on the number of shares earned and the price of our common stock at the time awards are issued. See “Compensation Discussion and Analysis — Elements of Our Compensation Program — Long-Term Incentives — 2006-2008 EPP” for additional information, including the ultimate value of the awards that were paid out on or about February 17, 2009.
 
2007-2009 EPP Grants (disclosed under the “Stock Awards” columns).  The 2007-2009 EPP cycle began on January 1, 2007 (first day of fiscal 2007) and concludes on January 2, 2010 (last day of fiscal 2009). Dividends are not paid on unvested EPP awards. The 2007-2009 awards are based on cumulative cash flow. The ultimate value of the awards will depend on the number of shares earned and the price of our common stock at the time awards are issued.
 
2008-2010 EPP Grants (disclosed under the “Stock Awards” columns).  The 2008-2010 EPP cycle began on December 30, 2007 (first day of fiscal 2008) and concludes on January 1, 2011 (last day of fiscal 2010). Dividends are not paid on unvested EPP awards. The 2008-2010 awards are based on compound annual growth of internal operating profit. The ultimate value of the awards will depend on the number of shares earned and the price of our common stock at the time awards are issued.
 


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    Option Awards   Stock Awards
                                Equity
   
                                Incentive
   
                                Plan
  Equity
            Equity
                  Awards:
  Incentive
            Incentive
                  Number of
  Plan Awards:
            Plan
                  Unearned
  Market or
    Number of
  Number of
  Awards:
              Market
  Shares,
  Payout Value
    Securities
  Securities
  Number of
          Number of
  Value of
  Units or
  of Unearned
    Underlying
  Underlying
  Securities
          Shares or
  Shares or
  Other
  Shares, Units
    Unexercised
  Unexercised
  Underlying
  Option
      Units of
  Units of
  Rights
  or Other
    Options (#)
  Options (#)
  Unexercised
  Exercise
  Option
  Stock That
  Stock That
  That Have
  Rights That
    Exercisable
  Unexercisable
  Unearned
  Price
  Expiration
  Have Not
  Have Not
  Not Vested
  Have Not
Name
  (1)   (2)   Options (#)(3)   ($)(4)   Date(5)   Vested (#)(6)   Vested ($)(7)   (#)(8)   Vested ($)(9)
David Mackay
                                                                       
Regular Options
    262,000       0               38.93       2/20/2014                                  
      151,000       0               44.04       2/18/2015                                  
      166,100       0               44.46       2/17/2016                                  
      170,650       170,650 (10)             49.78       2/16/2017                                  
      0       321,700 (11)             51.04       2/22/2018                                  
AOF Options
    18,937       0               53.58       1/4/2009                                  
      32,884       0               49.92       8/1/2010                                  
      9,167       0               53.58       8/1/2010                                  
      13,611       0               49.92       2/16/2011                                  
      90,565       0               53.58       2/16/2011                                  
      128,511       0               49.92       3/26/2011                                  
      80,553       0               53.58       3/26/2011                                  
      50,770       0               46.29       2/22/2012                                  
      71,333       0               53.58       2/22/2012                                  
      87,931       0               49.92       2/21/2013                                  
Restricted Stock
                                                                   
2006-08 EPP(12)
                                                            100,800       4,541,040  
2007-09 EPP
                                                            81,200       3,658,060  
2008-10 EPP
                                                            76,600       3,450,830  
                                                                         
John Bryant
                                                                       
Regular Options
    125,500       0               38.93       2/20/2014                                  
      95,000       0               44.04       2/18/2015                                  
      105,000       0               44.46       2/17/2016                                  
      41,350       41,350 (10)             49.78       2/16/2017                                  
      0       83,000 (11)             51.04       2/22/2018                                  
AOF Options
    8,131       0               49.92       1/4/2009                                  
      6,236       0               49.92       1/31/2010                                  
      18,245       0               49.92       2/16/2011                                  
      10,441       0               53.58       2/16/2011                                  
      33,999       0               46.12       2/22/2012                                  
      17,118       0               49.92       2/22/2012                                  
      48,994       0               53.58       2/22/2012                       &nbs