RESOLVED: Shareholders request the Board Compensation Committee prepare a report assessing the feasibility of integrating environmental, social, and governance (ESG) metrics into performance measures or vesting conditions that may apply to senior executives under the Company’s compensation plans or arrangements.

SUPPORTING STATEMENT: Effectively managing for ESG-related goals offers positive opportunities for companies and is increasingly a key metric by which senior executives are judged. Linking ESG metrics to executive compensation could reduce risks related to ESG-related underperformance, incentivize employees to meet sustainability goals and increase accountability and the quality of outcomes. Metrics relevant to Kroger could include indicators related to its stated goals such as: environmental impacts and food waste, responsible sourcing, wages and benefits, and commitments to diversity, equity, and inclusion (DEI).

WHEREAS: Numerous studies suggest companies that integrate environmental, social, and governance (ESG) factors into their business strategy reduce reputational, legal, and regulatory risks and improve long-term performance.

Kroger has adopted more robust governance of ESG issues including board oversight and the adoption of ESG goals. Kroger states in its 2021 ESG Report under Business Integration that “Leaders are increasingly engaged in our new ESG strategy and targets and accountable for results.”1 However, it appears Kroger has not explicitly linked sustainability goals with senior executive incentives, which we believe would enhance Kroger’s approach. Investors seek clarity on how Kroger drives improvements on ESG issues and how that strategy is supported by executive accountability. BlackRock, the largest asset manager in the world, and major Kroger shareholder, states in its Investment Stewardship Commentary that “companies should explicitly disclose how incentive plans reflect strategy and incorporate performance metrics, including sustainability-related goals, aligned with long-term shareholder value drivers.”2

A 2021 PwC survey cites that 52 percent of surveyed directors support tying executive compensation to DEI goals and to employee engagement and attrition rate. 3 A 2016 Glass Lewis report In-Depth: Linking Compensation to Sustainability found a “mounting body of research showing that firms that operate in a more responsible manner may perform better financially.... Moreover, these companies were also more likely to tie top executive incentives to sustainability metrics.”

Many companies, including Intel, Chipotle, McDonald’s, PepsiCo, CVS, and Starbucks, have integrated sustainability metrics into their executive pay incentive plans, including diversity metrics in many cases.4 Another prominent example is Royal Dutch Shell, which announced in December 2018 its plans to tie a portion of executive pay to concrete targets linked to the company’s net carbon footprint.

The increasing incorporation of ESG metrics into executive pay evaluative criteria stems from the growing recognition that ESG business strategies can drive growth, as well as enhance profitability and shareholder value. Neglecting to do so could send a signal that ESG is not a priority for the company.

1 https://www.thekrogerco.com/wp-content/uploads/2021/07/Kroger-2021-ESG-Report.pdf

2 https://www.blackrock.com/corporate/literature/publication/blk-commentary-engagement-on-incentives-aligned-with-value- creation.pdf

3 https://www.pwc.com/us/en/services/governance-insights-center/assets/pwc-2021-annual-corporate-directors-survey.pdf

4 https://www.reuters.com/business/sustainable-business/more-us-companies-tie-ceo-pay-diversity-metrics-study-2021-07-27/