Attention Shoppers Execuitve

Compensation At Kroger,
Safeway, Costco and Whole
Foods Case
 Company Profile
Kroger Safeway Costco Whole Food
Year of Establishment 1883 1900 1983 1980
The second largest after Wal- The fourth largest after Wal-
Position - -
Mart Mart
Sales (2006) $66.1 billion $40.2 billion $59.0 billion $5.6 billion
Food, groceries, medicines, third Food, sundries, equipment,
Food, medicine, fuel, and Natural food and food
Products party gift cards, and prepaid electronics, office supplies,
jewelry ingredients
cards clothing, and jewelry.
Safeway, Pak'n Save Foods, Vons,
Kroger, Ralphs, Fred Meyer, Food
Brands Pavilions, Dominicks, Randall's - Whole Foods
4 Less, Fry's and Dillons
and Tom Thumb

1761 food and drug stores and

Blackhawk (a specialized
600 food and drug stores and company that distributes third- 458 warehouses in 37 states
gas stations, 779 department party gift cards and prepaid (Canada, United Kingdom, 186 stores in 31 states, Canada
Stores managed
stores, 412 jewelry stores and 42 cards branded for use in large Korea, Taiwan and Japan) and 29 and the United Kingdom.
food processing plants. retail or general use under the warehouses in Mexico
name American Express,
MasterCard, and Visa)

Salary, performance-based
annual cash bonuses,
Salary, annual bonus, equity, Salary, annual cash bonus equity, Basic salary, cash bonus, and
Compensation performance-based long-term
pension, and other benefits. and other benefits and rewards. equity.
cash bonuses, equity, pensions
and benefits, and rewards.
Problem Formulation
• Situation :
• Currently the retail wholesale industry is experiencing intense
competition, so grocery stores are under pressure to reduce
operating costs to maintain profitability.
• Solution :
• Find effective and appropriate strategies to be able to attract
customers from competitors and increase sales in order to survive in
the competition.
PROBLEM SYMPTOM

Market High Competition Reduce Operating Cost

Root Cause Environment Management

Food fierce price

competition
Under pressure to
maintain profitability

Competitive
industry Reduce operating
cost
Market High
Competition
Lack of
compensation

Based on company
achievement

Motivation
 Company Strategy Problem

Kroger • Manufactured products under one private label as it sought to build Compensation: “Kroger does not believe that it is necessary
on a reputation for quality for the attraction or retention of management talent to
• Relying on findings from their store data to refine store format provide the named executive officers a substantial amount of
• Adjust its product mix on a store-by-store basis compensation in the form of perquisites.”
• Mail promotional coupons to Kroger loyalty cardholders
• Compensation: Salary, performance-based annual cash bonuses,
performance-based long-term cash bonuses, equity, pensions and
benefits, and rewards.
Safeway • Implemented a series of innovations to increase its competitiveness Compensation: “Safeway placed greater emphasis than other
in the industry companies on the objective of increasing the market value of
• Launched a major renovation campaign, replacing older stores with their stock rather than on the achievement of individual
larger supermarkets which included expanded produce, dairy, meat, goals.”
and frozen food sections.
• Doing expansion overseas, opening stores in England, Australia,
Hawaii, and Alaska.
• Invested heavily in updating its management information systems
and expanded its consumer marketing programs.
• Redesign every one of its more than 1,700 stores over the following
six year
• Compensation: Salary, annual bonus, equity, pension, and other
benefits
Costco • Selling items in bulk sizes if the per-unit price of the item was lower Compensation: “Costco’s board of directors did not employ
than the per-unit price offered by their competitors compensation consultants in setting executive compensation
• Required customers to purchase a one-year membership in order to levels. The board reviewed compensation packages at
access the items at the store a set of peer companies, but did not rely on mid-point
• Compensation: Salary, annual cash bonus equity, and other benefits ranges or other quantitative comparisons in setting pay
and rewards levels, instead reviewing such data for “general reference”.”
Whole Foods • Attracted more well-off clientele who were willing to pay premium Compensation: “the company “endeavors to ensure that our
prices for natural foods that were minimally processed or free from compensation program is perceived as fundamentally fair
artificial ingredients and preservatives to all stakeholders” so, the cash compensation
• the operating decisions were decentralized allowing store managers that executives could receive was subject to limitations.
to adjust their product mix to local tastes given their discretion
• Compensation: Basic salary, cash bonus, and equity
 Company Strategy Problem

Kroger • Product Mix (Food, Gas, Prepared meal, Drugs, Jewelry) Compensation: “Kroger does not believe that it is necessary for the attraction
• Backward Integration (42 Food Processing Plants) or retention of management talent to provide the named executive officers a
• Vertical Integration (Purchase of food chains) substantial amount of compensation in the form of perquisites.”
• Quality Assurance
• High Expansion Rate
• Loyalty Cards
• Compensation: Salary, performance-based annual cash bonuses, performance-based
long-term cash bonuses, equity, pensions and benefits, and rewards.
Safeway • Increasing sales Compensation: “Safeway placed greater emphasis than other companies on
• Holding down Cost the objective of increasing the market value of their stock rather than on the
• Reducing Debt Loan achievement of individual goals.”
• Redesigning Store
• Format
• Wide Verity of Fresh &
• Prepared Food
• Natural & Organic Food
• Ancillary Services (like Gift Cards)
• Membership Cards
• Compensation: Salary, annual bonus, equity, pension, and other benefits
Costco • Joint Ventures Compensation: “Costco’s board of directors did not employ compensation
• Product Mix (Electronics, Office Supplies, Jewelry, Food, Grocery, Gas, Drugs, Optical) consultants in setting executive compensation
• One Hr Photo Center levels. The board reviewed compensation packages at
• High Volume Sales a set of peer companies, but did not rely on mid-point
• Low Margins ranges or other quantitative comparisons in setting pay
• Limited Verity levels, instead reviewing such data for “general reference”.”
• Membership Cards/
• Discounts
• Compensation: Salary, annual cash bonus equity, and other benefits and rewards
Whole Foods • Modest Expansion Compensation: “the company “endeavors to ensure that our
• Decentralized Decision compensation program is perceived as fundamentally fair
• Making to all stakeholders” so, the cash compensation
• Premium Quality that executives could receive was subject to limitations.
• Premium Customers
• Niche Marketing (Health conscious Customers)
• Organic/ Pure Food
• Compensation: Basic salary, cash bonus, and equity
The structure of the programs are consistent to their corporate strategies. Each company identified all the factors needed for them to maximize
their profits and sales over the course of them being in operation. They have reviewed and even found discrepancies in their compensation
policies where they have made substantial updates and informed their stakeholders. The mix of compensation varies amongst the companies,
but all have stock market aspects, retirement plans, and addressed the bonuses intended to align the interests of management with the interests
of shareholders.
Each company had at least 3 elements including: base salary, cash bonus, and equity.

Company Mix of Compensation

Kroger There is performance-based long-term and long-term cash bonus that were components of
being a phase-in approach.
Safeway It sought to provide cash compensation that was below the median of its peer group that
was used to set performance-based equity incentives above the median of its peer group, to
the extent that the company achieved outperformance.
Costco The company noted that the compensation levels are fair to the company in which they were
awarded based on the achievement of certain performance metrics including minimum
thresholds for total sales growth and growth in pretax income.
Whole Foods The company handled its compensations slightly different from the rest which based on a
calculation of economic value added (EVA). This is equivalent to net operating profits after
taxes minus a charge for the cost of capital necessary to generate profits. It generated a pool
for each induvial and was paid out annually.

All these companies became successful due to having a differentiated strategy and can grow organically. They have been under constant pressure
to innovate and remain efficient to maintain their profitability and customer loyalty.