Safeway (SWY)

Elements of Compensation

The major elements of compensation for our executive officers are:

We also provide certain other benefits and perquisites to our executive officers, at levels we believe to be moderate (as detailed below).

We believe each of these elements forms an integral part of the overall compensation program and, taken together, these elements serve to achieve our compensation objectives, as follows:

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We believe it is important to set base salaries, retirement benefits and other benefits and perquisites at competitive levels so we are able to attract and retain excellent managers. We also believe bonus levels must be set at competitive levels, but the objective of our bonus programs is to reward our executives for meeting or exceeding our annual performance objectives, which, when accomplished, should have the effect of increasing our stock price. The bonus programs and annual salary increases reward short-term performance and help retain our executive officers. Equity awards, particularly stock options, reward long-term performance and, specifically, increases in our stock price. We use stock options with service-based vesting to serve the retention objective of our compensation program. In this way, the various elements of our compensation program fit together to achieve the objectives described above.

Elements of Compensation

The major elements of compensation for our executive officers are:

We also provide certain other benefits and perquisites to our executive officers, at levels we believe to be moderate (as detailed below).

We believe each of these elements forms an integral part of the overall compensation program and, taken together, these elements serve to achieve our compensation objectives, as follows:

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Table of Contents

We believe it is important to set base salaries, retirement benefits and other benefits and perquisites at competitive levels so we are able to attract and retain excellent managers. We also believe bonus levels must be set at competitive levels, but the objective of our bonus programs is to reward our executives for meeting or exceeding our annual performance objectives, which, when accomplished, should have the effect of increasing our stock price. The bonus programs and annual salary increases reward short-term performance and help retain our executive officers. Equity awards, particularly stock options, reward long-term performance and, specifically, increases in our stock price. We use stock options with service-based vesting because we believe this feature serves the retention objective of our compensation program. In this way, the various elements of our compensation program fit together to achieve the objectives described above.

Other items of note:

B. Elements of Compensation

The major elements of compensation for our executive officers are (1) base salary, (2) annual bonus, (3) equity awards, and (4) retirement benefits. We believe each of these elements forms an integral part of the overall compensation program and, taken together, serve to achieve our compensation objectives. We also provide certain other benefits and perquisites to our executive officers, at levels we believe to be moderate (as detailed below).

We believe each of these major elements of compensation supports the objectives of our compensation programs. Base salaries, retirement benefits and other benefits and perquisites form a stable part of the compensation package that is not dependent upon our performance. These compensation elements are necessary to provide a degree of financial certainty our executives seek when they are considering whether to join or remain with us. We believe it is important to set these elements of compensation at competitive levels so we are able to attract and retain excellent managers. We also believe bonus levels must be set at competitive levels, but the objective of our bonus programs is to reward our executives for meeting or exceeding our annual performance objectives, which, when accomplished, should have the effect of increasing our stock price. The bonus programs and annual salary increases reward short-term performance and help retain our executive officers. Equity awards, particularly stock options, reward for long-term performance and, specifically, increases

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in our stock price. We use stock options with service-based vesting because we believe this feature serves the retention objective of our compensation program. In this way, the various elements of our compensation program fit together to achieve the objectives described above.

Our principal policies with respect to these elements of compensation are: (1) to provide base salaries in the aggregate that are slightly below the median of our peer group; (2) to set target total cash compensation (salary plus bonus) at levels at, or slightly below, the peer group median; and (3) to pay performance-based compensation and long-term equity compensation in excess of the peer group median when the Company outperforms others in the industry or other appropriate measurement groups. We believe our compensation programs serve the interests of our stockholders and the Company, and substantially link the compensation of our executive officers with our financial performance. We believe, based on the advice that the Board’s Executive Compensation Committee (the “Committee”) has received from its independent consultant, our current compensation programs are in conformity with these policies.