1. Discuss whether the structure of the executive compensation program is consistent with the corporate strategy for each company. At a minimum, consider the mix of compensation (i.e., fixed vs. contingent, short-term vs. long-term, accounting or stock price-based vs. non-financial-based). In your opinion, does the compensation program motivate executives to achieve strategic success?
Kroger’s corporate strategy consists of continuously innovating and creating new ways of bring value to the customer. They were pioneers for many of the things that we now consider norms in grocery stores. In the past, Kroger had rapidly expanded to many store locations to gain market share. This expansion strategy caused them to lose profits in some of their stores. Even though Kroger closed a few of its stores, and the new executive pay structure did no encourage an expansion strategy, Kroger was able to earn higher profit because of it.
Kroger issued a performance based cash bonus resulting from the successful completion of one-year financial and operational targets. As per the case, in 2007 30% of the plan was earned based on identical sales growth targets; 30% was based on EBITDA targets: 30% was based on implementation targets; and 10% was based on performance of new capital projects compared to budget. I think that Kroger should have a percentage of the bonus allocated towards expanding the number of locations, and implementing new innovation in the grocery industry. They missed these two targets that were very important to their overall strategy up to this point.
The additional annual payments for chair of the board of directors and other leadership roles are consistent with Kroger’s strategy of encouraging leadership and innovation. That will give incentive for the board of directors to take leadership roles and lead the company to innovation.
Safeway was more concerned about growth in the latter half of the 20th century. They grew...
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