Safeway (SWY)

Operating Bonus Plan

Under the 2001 Amended and Restated Operating Performance Bonus Plan for Executive Officers of Safeway Inc. (the “Operating Bonus Plan”), the Committee sets an operating performance threshold for a fiscal year at the beginning of that fiscal year. If that threshold is not met, no bonuses are paid under the Operating Bonus Plan. If that threshold is met, each participating executive officer is eligible to receive his or her maximum bonus amount (as described below), and the Committee examines the extent to which the threshold has been exceeded, considers other performance criteria for the fiscal year, particularly operating profit and identical-store sales growth, and determines the amount of the bonuses to be paid under the Operating Bonus Plan. The Operating Bonus Plan is intended to encourage our executive officers to meet or exceed our annual operational goals.

We undertake an annual planning process that culminates in the adoption and approval of an operating plan for the Company. The operating plan includes a target level for operating performance for the following fiscal year. The specific elements of our operating performance that can be relevant to compensation determinations generally, as set forth in the Operating Bonus Plan, are identical-store sales growth, operating profit and improvement in working capital. Each year, the Committee sets an operating performance threshold based upon target level performance of one or more of the above factors. If the operating performance threshold is met, the Committee determines the amount of any operating bonuses to be paid, in terms of a percentage of the maximum bonus amount allowed (which can include 0%). The target level for Company operating performance generally produces an Operating Bonus Plan payment of 50% of the maximum bonus amount allowed. In determining the amount of bonus payment for each executive officer, the Committee generally considers major performance objectives for the Company, such as identical-store sales growth and operating profit or earnings per share, because these factors are far more indicative of overall Company performance than improvement in working capital.

Upon hire or promotion (and subject to adjustment periodically), each executive officer is assigned a percentage of base salary that represents such officer’s maximum bonus payment under the Operating Bonus Plan. For example, for our 2008 fiscal year, the CEO was eligible to earn a maximum bonus payment under the Operating Bonus Plan equal to 170% of his annual base salary. Thus, if the Committee determined to pay 100% of the maximum bonus under the Operating Bonus Plan award for that fiscal year, the CEO would be paid a bonus equal to 170% of his annual base salary (subject to a maximum bonus of $3 million); if the Committee determined to pay 50%, the CEO would be paid a bonus equal to 85% of his annual base salary. For other executive officers, the percentage of annual base salary is smaller. These percentages are established based on a review of competitive compensation levels and may be modified by individual or Company-specific circumstances. Individual factors are considered in a subjective manner, including the executive’s experience, achievements, leadership, teamwork and value to the Company, in establishing these percentages. We do not set individual performance targets for our executive officers under our bonus plans. The actual bonuses payable to each executive may be less (but not more) than the maximum bonus amount determined pursuant to the Company performance criteria.

With respect to our 2008 fiscal year, operating profit was selected as the operating performance threshold under the Operating Bonus Plan and was set at $1,530 million (subject to adjustments for unusual items). Based on our actual results for our 2008 fiscal year, which reflected operating profit of $1,853 million, our performance exceeded the threshold of operating profit performance under the Operating Bonus Plan. The target levels under

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the Operating Bonus Plan (i.e., for payment of 50% of the maximum bonus) were for operating profit of $1,980 million and identical-store sales growth of 2.0% (excluding fuel). Because operating profit was $1,853 million, below the target amount of $1,980 million, and because identical-store sales growth was 0.8% (excluding fuel), below the target amount of 2.0%, the Committee determined the CEO and each of the other named executive officers would be paid 10% of the maximum bonus under the Operating Bonus Plan.

Operating Bonus Plan

Under the 2001 Amended and Restated Operating Performance Bonus Plan for Executive Officers of Safeway Inc. (the “Operating Bonus Plan”), the Committee sets an operating performance threshold for a fiscal year at the beginning of that fiscal year. If that threshold is not met, no bonuses are paid under the Operating Bonus Plan. If that threshold is met, each participating executive officer is eligible to receive his or her maximum bonus amount (as described below), and the Committee examines the extent to which the threshold has been exceeded, considers other performance criteria for the fiscal year, particularly operating profit and identical-store sales growth, and determines the amount of the bonuses to be paid under the Operating Bonus Plan. The Operating Bonus Plan is intended to encourage our executive officers to meet or exceed our annual operational goals.

We undertake an annual planning process that culminates in the adoption and approval of an operating plan for the Company. The operating plan includes a target level for operating performance for the following fiscal year. The specific elements of our operating performance that can be relevant to compensation determinations

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generally, as set forth in the Operating Bonus Plan, are: identical-store sales growth; operating profit; and improvement in working capital. Each year, the Committee sets an operating performance threshold based upon target level performance of one or more of the above factors. If the operating performance threshold is met, the Committee determines the amount of any operating bonuses to be paid, in terms of a percentage of the maximum bonus amount allowed (which can include 0%). The target level for Company operating performance generally produces an Operating Bonus Plan payment of 50% to 60% of the maximum bonus amount allowed. In determining the amount of bonus payment for each executive officer, the Committee generally considers major performance objectives for the Company, such as identical-store sales growth and operating profit or earnings per share. The Committee has historically used operating profit and identical-store sales growth as the performance criteria under the Operating Bonus Plan because these factors are far more indicative of overall Company performance than improvement in working capital.

Upon hire or promotion (and subject to adjustment periodically), each executive officer is assigned a percentage of base salary that represents such officer’s maximum bonus payment under the Operating Bonus Plan. For example, for our 2007 fiscal year, the CEO was eligible to earn a maximum bonus payment under the Operating Bonus Plan equal to 170% of his annual base salary. Thus, if the Committee determined to pay 100% of the maximum bonus under the Operating Bonus Plan award for that fiscal year, the CEO would be paid a bonus equal to 170% of his annual base salary (subject to a maximum bonus of $3 million); if the Committee determined to pay 50%, the CEO would be paid a bonus equal to 85% of his annual base salary. For other executive officers, the percentage of annual base salary is smaller. These percentages are established based on a review of competitive compensation levels and may be modified by individual or Company-specific circumstances. Individual factors are considered in a subjective manner, including the executive’s experience, achievements, leadership, teamwork and value to the Company, in establishing these percentages. We do not set individual performance targets for our executive officers under our bonus plans. The actual bonuses payable to each executive may be less (but not more) than the maximum bonus amount determined pursuant to the Company performance criteria.

With respect to our 2007 fiscal year, operating profit was selected as the operating performance threshold under the Operating Bonus Plan and was set at $1,174 million (subject to adjustments for unusual items). Based on our actual results for our 2007 fiscal year, which reflected operating profit of $1,772 million, our performance exceeded the threshold of operating profit performance under the Operating Bonus Plan. The target levels under the Operating Bonus Plan (i.e., for payment of 50% of the maximum bonus) were for operating profit of $1,757 million and identical-store sales growth of 3.3% (excluding fuel). Because operating profit was $1,772 million, slightly above the target amount of $1,757 million, and because identical-store sales growth was 3.4% (excluding fuel), above the target amount of 3.3%, the Committee determined the CEO and each of the other named executive officers would be paid 58% of the maximum bonus under the Operating Bonus Plan. This amount was consistent with the guidelines for operating profit and identical-store sales growth approved by the Committee at the beginning of the year.

1. Operating Bonus Plan

The operating bonus plan is named the 2001 Amended and Restated Operating Performance Bonus Plan for Executive Officers of Safeway Inc. (the “Operating Bonus Plan”). Under the Operating Bonus Plan, the Committee sets an operating performance threshold for each fiscal year at the beginning of the fiscal year. If that threshold is not met, no bonuses are paid under the Operating Bonus Plan. If that threshold is met, each participating executive officer is eligible to receive his or her maximum bonus amount (as described below), and

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the Committee examines the extent to which the threshold has been exceeded, considers other performance criteria for the fiscal year, particularly operating profit and identical-store sales growth, and determines the amount of the bonus to be paid under the Operating Bonus Plan. The Operating Bonus Plan is intended to encourage our executive officers to meet or exceed our annual operational goals.

We undertake an annual planning process that culminates in the adoption and approval of an operating plan for the Company. The operating plan includes a target level for operating performance for the following fiscal year. The specific elements of our operating performance that can be relevant to compensation determinations generally, as set forth in the Operating Bonus Plan, are: (1) identical-store sales growth; (2) operating profit; and (3) improvement in working capital. Each year, the Committee sets an operating performance threshold based upon target level performance of one or more of the above factors. As noted above, no operating performance-based compensation is paid to executive officers, including the CEO, under the Operating Bonus Plan unless that operating performance threshold is met. (For example, we did not meet the Operating Bonus Plan thresholds for our 2002 or 2003 fiscal years, and no bonuses were paid under the Operating Bonus Plan for those fiscal years.) If the operating profit performance threshold is met, the Committee determines the amount of any operating bonuses to be paid, in terms of a percentage of the maximum bonus amount allowed (which can include 0%). The target level for Company operating performance generally produces an Operating Bonus Plan payment of 50% of the maximum bonus amount allowed. In determining the amount of bonus payment for each executive officer, the Committee generally considers major performance objectives for the Company, such as identical-store sales growth and operating profit or earnings per share.

Upon hire or promotion (and subject to adjustment periodically), each executive officer is assigned a percentage of base salary that represents such officer’s maximum bonus payment under the Operating Bonus Plan. For example, for our 2006 fiscal year, the CEO was eligible to earn a maximum bonus payment under the Operating Bonus Plan equal to 170% of his annual base salary. Thus, if the Committee determined to pay 100% of the maximum bonus under the Operating Bonus Plan award for that fiscal year, the CEO would be paid a bonus equal to 170% of his annual base salary (subject to a maximum bonus of $3 million); if the Committee determined to pay 50%, the CEO would be paid a bonus equal to 85% of his annual base salary. For other executive officers, the percentage is smaller. For our 2006 fiscal year, each of the other named executive officers was eligible to earn a maximum bonus payment under the Operating Bonus Plan equal to 95% of his or her annual base salary (subject to a maximum bonus of $1.5 million). These percentages are established based on a review of competitive compensation levels, as may be modified by individual or Company-specific circumstances. The actual bonuses payable to each executive may be less (but not more) than the maximum bonus amount determined pursuant to the performance criteria. We believe the target total cash compensation (base salary plus “target” bonus – which includes the Capital Bonus Plan, discussed below) for our executive officers averages below the median of the peer group.

With respect to our 2006 fiscal year, the operating profit performance threshold under the Operating Bonus Plan (subject to adjustments for unusual or other items) was set at $898 million. Based on our actual results for our 2006 fiscal year, which reflected operating profit of $1,600 million, our performance exceeded the threshold of operating profit performance under the Operating Bonus Plan. The target levels under the Operating Bonus Plan (i.e., for payment of 50% of the maximum bonus) were for identical-store sales growth of 3.0% (excluding fuel) and operating profit of $1,548 million. Because identical-store sales growth was 3.3% (excluding fuel), an increase over the target amount of 3%, and because operating profit was $1,600 million, an increase over the target amount of $1,548 million, the Committee determined the CEO and other named executive officers would be paid 100% of the maximum bonus under the Operating Bonus Plan.