I was reading through the Compensation Discussion and Analysis in the definitive proxy statement of The Kroger Company yesterday and saw that they had added a section to the CD&A covering their 2020 compensation program and raising the possibility of design changes to the program because of the COVID-19 pandemic (at page 36):
As of the date of this Proxy Statement, Kroger’s operations have been affected by the COVID-19 pandemic. Numerous uncertainties have been created by the pandemic, and certain aspects of our compensation programs may later be revised or modified once the Compensation Committee has had an opportunity to fully evaluate the impact of COVID-19 on our business. The Compensation Committee will work with its independent compensation consultant, Korn Ferry, to evaluate any potential changes to our executive compensation design. With that important caveat, we are providing a preview of our 2020 compensation programs.
- Our 2020 Annual Cash Bonus Plan is likely to have the following components: ID sales, excluding fuel and adjusted FIFO operating profit, including fuel, with an associate experience kicker.
- With respect to our long-term performance-based compensation, since 2018, Kroger’s metrics in its Long-Term Incentive Plans have focused on key Restock Kroger metrics. With the three-year financial targets of the 2018-2020 Restock Kroger plan concluding in 2020, the Compensation Committee reconsidered the long-term incentive plan framework. In November 2019, Kroger committed to investors an 8-11% Total Shareholder Return (TSR) target. The Committee determined that going forward, the Long-Term Incentive Plan metrics should align with Kroger’s long-term business plans and guidance that we communicated to shareholders. Accordingly, the 2020-2022 Long-Term Bonus Plan is likely to have the following components which support our long term business plans: total sales without fuel + fuel gallons; cumulative growth in net operating profit; cumulative growth in free cash flow; a fresh metric; and a total shareholder return modifier.
Although the likelihood of a re-design or other modification remains problematic, Kroger, like many other companies, is letting its shareholders know well in advance that its programs could change as we get further into the year if the pandemic continues to plague the economy. I would expect that any mid-stream changes to either the short-term or long-term incentive program will be disclosed in a timely Form 8-K filing, although that necessarily will be decided at the appropriate time based on the extant facts and circumstances. And, of course, this will be followed up with a more comprehensive discussion and almost certainly a more thorough analysis in next year’s CD&A. It’s pretty clear from the guidance that Institutional Shareholder Services has published on COVID-19 that they want shareholders to be kept apprised of a company’s decisions about changes to its compensation program every step of the way as we work our way through the current crisis.
-Mark Borges, CompensationStandards.com May 13, 2020