Kroger CEO Dave Dillon's pay package grew 66% in 2011 to US$8.9M, largely because of company's improved performance, analysis finds

Cindy Allen

NEW YORK , May 11, 2012 (Associated Press) – The Kroger Co. gave CEO David Dillon a 66 percent pay bump last year largely as a reward for the company's improved performance.

The nation's largest traditional supermarket chain gave its top executive a pay package worth $8.9 million, up from $5.4 million in 2010, according to an Associated Press analysis of a regulatory filing made Friday.

The hike reflected a bigger cash performance bonus, which rose to $2.7 million, from $808,020. The Cincinnati-based grocer, which operates Kroger, Ralphs, Food 4 Less and other chains, uses a formula based on the company's financial results to determine annual incentive pay for its executives. The higher payout this year also included a long-term bonus of $619,000 that was instituted in 2008.

Since then, the board has twice instituted additional long-term bonuses that will result in Dillon collecting extra pay for the next two years as well. That's on top of the annual bonuses he will get.

Dillon, who became CEO in 2003, also saw his stock and option awards rise to $5.2 million last year, from $2.9 million in 2010. His salary edged up 1 percent to $1.3 million. All other compensation for the 61-year-old executive came to $115,600 and primarily covered insurance premiums.

Kroger, like many supermarkets chains, has struggled to keep prices low for customers in recent years because rising commodity costs are forcing it to pay more to stock its shelves. Kroger has managed the balancing act by controlling its operating and administrative costs. It has also intensified its focus on marketing its store brands, which help keep costs in check.

In its filing with the Securities and Exchange Commission, Kroger noted that revenue at supermarkets open at least a year rose 4.9 percent in 2011 compared with the year before; the company noted that was substantially better than most its competitors and above its own goals.

Adjusted earnings, excluding charges related to the consolidation of worker pension plan, were $2 a share for the year, which also exceeded the company's expectations. Adjusted net income in 2010 was $1.76 per share

The AP formula for CEO pay includes salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.

The value that a company assigned to an executive's stock and option awards for 2011 was the present value of what the company expected the awards to be worth over time. Companies use one of several formulas to calculate that value. But the number is just an estimate and what an executive ultimately receives will depend on the performance of the company's stock.

Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options

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