Safeway (SWY)

Director Compensation

Safeway believes that compensation for non-employee directors should be competitive and should encourage ownership of Safeway Common Stock. In June 2004, the Board of Directors approved modifications to the non-employee director compensation program. The revised compensation program is intended to provide a competitive total compensation package designed in a manner consistent with evolving best practices in outside director compensation. Safeway’s executive officers do not receive additional compensation if they serve as directors.

Each non-employee director receives an annual fee of $125,000. In addition, the Lead Independent Director is entitled to an annual fee of $25,000; the Chairs of the Audit Committee and the Committee on Strategic Initiatives are each entitled to an annual fee of $25,000, and each other member of these committees is entitled to an annual fee of $15,000; the Chairs of the Executive Compensation Committee and the Nominating and

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Corporate Governance Committee are each entitled to an annual fee of $15,000, and each other member of these committees is entitled to an annual fee of $10,000; and each of the Executive Committee members, except Mr. Burd, is entitled to an annual fee of $15,000. All fees are payable quarterly.

Under the Deferred Compensation Plan for Safeway Non-Employee Directors, as amended and restated June 2, 2004, 50% of the fees each Director receives will be deferred automatically into stock units (based on an equivalent number of shares of Common Stock that could have been purchased with the deferred compensation). These deferred amounts are payable only upon the director’s termination of service as a director of Safeway. In addition, a non-employee director may elect to defer, until a specified calendar year or until retirement from the Board, all or any portion of the remaining 50% of the director’s cash compensation. The director may elect to have such compensation credited to a cash credit account (which accrues interest at the prime rate) or a stock credit account. Non-employee directors’ stock unit accounts also are credited with additional stock units relating to the payment of dividends (based on an equivalent number of shares of Common Stock that could have been purchased with the dividend payable on the number of shares to which the director’s stock units are then equivalent). All distributions of a director’s cash or stock credit account are made in cash.

Stock Options for New Directors.  Each new director is entitled to receive an initial grant of stock options to purchase 20,000 shares of Safeway Common Stock at an exercise price no less than 100% of the fair market value of a share of Common Stock on the date of grant.

Stock Ownership Requirements.  The Board amended the Company’s Corporate Governance Guidelines as of May 2, 2004 to provide that, within 12 months of joining the Board, each new non-employee director is required to own a number of shares of Safeway Common Stock equal to one year’s director cash compensation divided by the average price per share of Common Stock (calculated based upon the share prices during the director’s first 60 days of service). These shares may be acquired by a director by purchasing shares of Safeway Common Stock or by electing to have his or her cash compensation deferred under the terms of the Deferred Compensation Plan for Safeway Non-Employee Directors. Each director who was a member of the Board as of May 2, 2004 must own a minimum of 5,000 shares of Common Stock. Each director, so long as he or she remains on the Board, must maintain ownership of the minimum number of shares of Common Stock set forth in the Guidelines.

Director Compensation

Safeway believes that compensation for non-employee directors should be competitive and should encourage increased ownership of Company Common Stock. In June 2004, the Board of Directors approved modifications to the non-employee director compensation program. The revised compensation program is intended to provide a competitive total compensation package designed in a manner consistent with evolving best practices in outside director compensation. Safeway’s executive officers do not receive additional compensation if they serve as directors.

Each non-employee director receives an annual fee of $125,000. In addition, the Lead Independent Director is entitled to an annual fee of $25,000; the Chair of the Audit Committee is entitled to an annual fee of $25,000, and each other member of the Audit Committee is entitled to an annual fee of $15,000; the Chairs of the Executive Compensation and the Nominating/Corporate Governance Committees are each entitled to an annual fee of $15,000, and each other member of these respective Committees is entitled to an annual fee of $10,000; and each of the Executive Committee members, except Mr. Burd, is entitled to an annual fee of $15,000. All fees are payable quarterly.

Under the Deferred Compensation Plan for Safeway Non-Employee Directors, as amended and restated June 2, 2004, 50% of the fees each Director receives will be deferred automatically into stock units (based on an equivalent number of shares of Common Stock that could have been purchased with the deferred compensation). These deferred amounts are payable only upon the director’s termination of service as a director of Safeway. In addition, a non-employee director may elect to defer, until a specified calendar year or until retirement from the Board, all or any portion of the remaining 50% of the director’s cash compensation. The director may elect to have such compensation credited to a cash credit account (which accrues interest at the prime rate) or a stock credit account. All distributions of a director’s cash or stock credit account are made in cash.

Appointment Stock Options.  Each new director is entitled to receive an initial grant of stock options to purchase 20,000 shares of Safeway Common Stock at an exercise price no less than 100% of the fair market value of a share of Common Stock on the date of grant.

Stock Ownership Requirements.  The Board amended the Guidelines as of May 2, 2004 to provide that, within 12 months of joining the Board, each new non-employee director is required to own a number of shares of Common Stock equal to one year’s director cash compensation divided by the average price per share of Company Common Stock (calculated based upon the share prices during the director’s first 60 days of service). These shares may be acquired by purchasing shares of the Company’s Common Stock or by electing to have his/her cash compensation deferred under the terms of the Deferred Compensation Plan for Safeway Non-Employee Directors. Each director who was a member of the Board as of May 2, 2004 must own a minimum of 5,000 shares of Common Stock. Each director, so long as she or he remains on the Board, must maintain ownership of the minimum number of shares of Common Stock set forth in the Guidelines.

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