This excerpt taken from the KR DEF 14A filed May 16, 2005.



The Chief Executive Officer’s compensation is determined annually by the Board of Directors after a review and recommendation by the Committee. In making its recommendation, the Committee considered internal equity and competitor salary data, including data for most of the companies identified in the peer group shown on the




performance graph (See p. 22). Based on these factors, the Board established Mr. Dillon’s 2004 base salary effective April 24, 2004, at $1,100,000, which represents an increase of ten percent from his 2003 salary level. This placed Mr. Dillon’s salary below the median of competitor companies of similar size and complexity as Kroger, as reviewed by Mercer Human Resource Consulting. A substantial portion of Mr. Dillon’s increase in 2004 was due to his assumption of additional responsibilities as Chairman of the Board.


The Board established Mr. Dillon’s bonus potential effective April 24, 2004, at $1,375,000. His actual payout for the fiscal year was based on a potential of $1,334,616, taking into account his lower bonus potential in effect prior to April 24. As indicated above, at the Committee’s March 15, 2005 meeting, the Committee discussed bonus payments to executive officers, including Mr. Dillon, and considered the performance of the entire Company as compared to the bonus criteria established by the Committee for the 2004 plan year. Based on the Company’s performance, the Committee determined that the Company (i) had not achieved its EBITDA objective, (ii) had partially achieved its sales objective, and (iii) had substantially achieved its objective for development of strategic plans. As a result, the Committee determined that based on the Company’s performance Mr. Dillon earned a bonus of $736,361, which represented 55.174% of his bonus potential for fiscal year 2004.


On May 6, 2004, Mr. Dillon was granted options to purchase 300,000 shares of Kroger common stock at an option price equal to the trading price of Kroger common stock on the date of grant. That grant was made under the Company’s broad-based 2002 Long-Term Incentive Plan in accordance with the guidelines of the Committee referenced above, and at the same time that options were granted to a large number of other Kroger associates, including some hourly employees.


Mr. Dillon is party to an employment contract with the Company that is more particularly described elsewhere in the proxy statement under the section titled “Employment Contracts” (See p. 25). That agreement establishes minimum compensation at a level below his total compensation determined in consideration of the factors identified above.


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