SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.      )

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SUPERVALU INC.

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Notice of Annual Meeting of Stockholders

To Be Held Thursday, June 25, 2009

 

The Annual Meeting of Stockholders of SUPERVALU INC. will be held on Thursday, June 25, 2009, at 10:00 a.m., local time, at the Minneapolis Convention Center, 1301 Second Avenue South, Minneapolis, Minnesota 55403, for the following purposes:

 

1) to elect six directors;

 

2) to ratify the appointment of KPMG LLP as independent registered public accountants;

 

3) to consider and vote on a stockholder proposal regarding drugstore tobacco sales as described in the attached proxy statement;

 

4) to consider and vote on a stockholder proposal regarding say on pay as described in the attached proxy statement; and

 

5) to transact such other business as may properly come before the meeting.

 

Record Date

 

The Board of Directors has fixed the close of business on April 28, 2009 as the record date for the purpose of determining stockholders who are entitled to notice of and to vote at the meeting. Holders of SUPERVALU’s common stock are entitled to one vote for each share held of record on the record date.

 

IMPORTANT: We hope you will be able to attend the meeting in person and you are cordially invited to attend. If you expect to attend the meeting, please check the appropriate box on the proxy card when you return your proxy or follow the instructions on your proxy card to vote and confirm your attendance by telephone or Internet.

 

PLEASE NOTE THAT YOU WILL NEED AN ADMISSION TICKET OR PROOF
THAT YOU OWN SUPERVALU STOCK TO BE ADMITTED TO THE MEETING

 

Record stockholder: If your shares are registered directly in your name,
an admission ticket is printed on the enclosed proxy card.

 

Shares held in street name by a broker or a bank: If your shares are held for your account in
the name of a broker, bank or other nominee, please bring a current brokerage
statement, letter from your stockbroker or other proof of stock ownership to the meeting.

 

If you need special assistance because of a disability, please contact Burt M. Fealing, Corporate Secretary, by mail at P.O. Box 990, Minneapolis, Minnesota 55440 or by telephone at (952) 828-4000.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

/s/ Burt M. Fealing
Burt M. Fealing

Corporate Secretary

 

May 13, 2009

PROXY STATEMENT TABLE OF CONTENTS

 

PROXY STATEMENT

 

The Board of Directors of SUPERVALU INC. is soliciting proxies for use at the 2009 Annual Meeting of Stockholders to be held on Thursday, June 25, 2009, and at any adjournment or postponement of the meeting. This Proxy Statement and the accompanying form of proxy will first be mailed to stockholders who hold SUPERVALU common stock as of April 28, 2009, the record date for this meeting, on or about May 13, 2009.

 

Number of Shares Outstanding

 

SUPERVALU has one class of capital stock outstanding, common stock. The holders of common stock are entitled to one vote for each share held. 229,995,676 shares of common stock were outstanding as of the record date for the meeting and are eligible to vote at the meeting.

 

Vote Required and Method of Counting Votes

 

You may vote “FOR,” “AGAINST” or “ABSTAIN” on each of the items described below. If you submit your proxy, but abstain from voting, your shares will be counted as present at the meeting for the purpose of determining a quorum. If you hold your shares in street name and do not provide voting instructions to your broker, they will be counted as present at the meeting for the purpose of determining a quorum and may be voted on Item 1 (Election of Directors) and Item 2 (Ratification of the Appointment of Independent Registered Public Accountants) at the discretion of your broker.

 

The following is an explanation of the vote required for each of the items to be voted on.

 

Item 1.  Election of Directors.  Each director nominee receiving a majority of the votes cast will be elected as a director. This means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast “AGAINST” that director nominee in order for that nominee to be elected as a director. If, however, the number of nominees exceeds the number of directors to be elected (a situation we do not anticipate), the directors shall be elected by a plurality of the shares present in person or by proxy at the meeting and entitled to vote on the election of directors. A plurality means that the six director nominees that receive the highest number of votes cast will be elected. In either event, shares not present at the meeting and shares voting “ABSTAIN” have no effect on the election of directors.

 

Item 2.  Ratification of the Appointment of Independent Registered Public Accountants.  The affirmative vote of a majority of the shares of common stock present and entitled to vote at the meeting is required for the approval of this proposal. If you submit your proxy but abstain from voting, your shares will be counted as present at the meeting for the purpose of calculating the vote on this proposal. Shares voting “ABSTAIN” on this proposal have the same effect as a vote against this proposal.

 

Item 3.  Stockholder Proposal Regarding Drugstore Tobacco Sales.  The affirmative vote of a majority of the shares of common stock, present and entitled to vote at the meeting is required for the approval of this proposal. If you submit your proxy but abstain from voting, your shares will be counted as present at the meeting for the purpose of calculating the vote on this proposal. Shares voting “ABSTAIN” on this proposal have the same effect as a vote against this proposal.

 

Item 4.  Stockholder Proposal Regarding Say on Pay.  The affirmative vote of a majority of the shares of common stock, present and entitled to vote at the meeting is required for the approval of this proposal. If you submit your proxy but abstain from voting, your shares will be counted as present at the meeting for the purpose of calculating the vote on this proposal. Shares voting “ABSTAIN” on this proposal have the same effect as a vote against this proposal.

YOUR VOTE IS VERY IMPORTANT.  Whether or not you expect to attend the meeting, please submit your proxy vote in one of the following ways:

 

 

It is important that all stockholders vote. If you submit a proxy by mail, telephone or Internet without indicating how you want to vote, your shares will be voted as recommended by the Board of Directors.

 

If you plan to attend the Annual Meeting, you will not be admitted without an admission ticket or proof that you own SUPERVALU stock.

 

 

The following table sets forth information with respect to the only persons or groups known to us as of April 17, 2009, to be the beneficial owners of more than five percent of SUPERVALU common stock.

 

 

 

 

 

The following table sets forth information as of April 17, 2009 concerning beneficial ownership of SUPERVALU’s common stock by each director and director nominee, excluding Mr. Herkert, and for each of the executive officers named in the Summary Compensation Table (the “Named Executive Officers”) and all of our directors and executive officers as a group. For Mr. Herkert, his beneficial ownership is as of May 6, 2009. The definition of beneficial ownership for proxy statement purposes includes shares over which a person has sole or shared voting power or dispositive power, whether or not a person has any economic interest in the shares. The definition also includes shares that a person has a right to acquire currently or within 60 days.

 

 

 

 

The Board of Directors held six regular meetings and one special meeting during the last fiscal year. Each director attended at least 75 percent of the meetings of the Board and its committees on which the director served, except that Mr. Lillis was only able to attend 73 percent of the meetings due to scheduling conflicts.

 

The Board maintains four standing committees: Audit, Director Affairs, Executive Personnel and Compensation and Finance, each of which has a separate written charter that is available on SUPERVALU’s website at http://www.supervalu.com. Click on the tab “Site Map” and then the caption “Corporate Governance” under the heading “About Us.” Copies of the committee charters are also available to any stockholder who submits a request to the Corporate Secretary, SUPERVALU INC., P.O. Box 990, Minneapolis, Minnesota 55440.

 

Membership on the Audit, Director Affairs and Executive Personnel and Compensation Committees is limited to non-employee directors. The Board of Directors has determined that all of its non-employee directors, and therefore each member of the Audit, Director Affairs and Executive Personnel and Compensation Committees, are independent directors under the New York Stock Exchange (“NYSE”) listing standards.

 

Audit Committee

 

The following directors serve on the Audit Committee: Garnett L. Keith, Jr. (Chairperson), A. Gary Ames, Irwin S. Cohen, Marissa T. Peterson, Steven S. Rogers and Kathi P. Seifert. The Board has determined that all members of the Audit Committee are financially literate under the NYSE listing standards and that Irwin Cohen qualifies as an “audit committee financial expert” under the NYSE listing standards and the rules of the Securities and Exchange Commission (the “SEC”). The Audit Committee met seven times during the last fiscal year.

 

The primary responsibilities of the Audit Committee are to assist the Board of Directors in:

 

 

Director Affairs Committee

 

The following directors serve on the Director Affairs Committee: Lawrence A. Del Santo (Chairperson), Philip L. Francis, Edwin C. Gage, Marissa T. Peterson and Steven S. Rogers. Commencing with the first meeting of the Director Affairs Committee in fiscal 2010, Mr. Ronald E. Daly will join the Director Affairs Committee. The Director Affairs Committee met three times during the last fiscal year.

 

The mission of the Director Affairs Committee is to recommend a framework to assist the Board in fulfilling its corporate governance responsibilities. In carrying out its mission, the Director Affairs Committee establishes and regularly reviews the Board’s policies and procedures, which provide:

 

 

In addition, the Director Affairs Committee has the responsibility to:

 

 

 

For a description of the Director Affairs Committee’s processes and procedures for the consideration and determination of director compensation, see “Director Compensation.”

 

Executive Personnel and Compensation Committee

 

The following directors serve on the Executive Personnel and Compensation Committee: Susan E. Engel (Chairperson), Ronald E. Daly, Lawrence A. Del Santo, Edwin C. Gage, Charles M. Lillis, Wayne C. Sales and Kathi P. Seifert. The Executive Personnel and Compensation Committee met seven times during the last fiscal year.

 

The primary responsibilities of the Executive Personnel and Compensation Committee are to:

 

 

For a description of the Executive Personnel and Compensation Committee’s processes and procedures for the consideration and determination of executive compensation, see “Compensation Discussion and Analysis.”

 

Finance Committee

 

The following directors serve on the Finance Committee: Charles M. Lillis (Chairperson), A. Gary Ames, Irwin Cohen, Ronald E. Daly, Garnett L. Keith, Jr., Jeffrey Noddle and Wayne C. Sales. Commencing with the first meeting of the Finance Committee in fiscal 2010, Mr. Philip L. Francis will join the Finance Committee and Mr. Daly will cease to be a member of the Finance Committee. The Finance Committee met two times during the last fiscal year.

 

The primary responsibilities of the Finance Committee are to review our financial structure, policies and future financial plans and to make recommendations concerning them to the Board. In carrying out these responsibilities, the Finance Committee periodically reviews:

 

 

In order to help our stockholders better understand our Board practices, we are including the following description of current practices. The Director Affairs Committee periodically reviews these practices.

 

Evaluation of Board Performance

 

In order to continue to evaluate and improve the effectiveness of the Board, under the guidance of the Director Affairs Committee, our Board annually evaluates the Board’s performance as a whole. The evaluation process includes a survey of the individual views of all directors, a summary of which is then shared with the Board. Each active Board Committee also evaluates its own performance on a yearly basis.

 

Size of the Board

 

As provided by the Company’s Restated Bylaws, the Board of Directors currently consists of 15 members and the number of directors may be increased or decreased from time to time by resolution of a majority of the whole Board of Directors or of the holders of at least 75% of the stock of the Company entitled to vote, considered for the purpose as one class. The Board believes that the size of the Board should accommodate the objectives of effective discussion and decision-making and adequate staffing of Board committees.

 

Director Independence

 

The Board believes that a substantial majority of its members should be independent, non-employee directors. It is the Board’s policy that no more than three members of the Board will be employees of SUPERVALU. These management members will include the Chief Executive Officer and up to two additional persons whose duties and responsibilities identify them as key managers of SUPERVALU. Only two of our 15 current Board members are or will be employees of SUPERVALU. The Board has determined that all non-employee directors meet the requirements for independence under the NYSE listing standards.

 

Director Retirement

 

It is Board policy that non-employee directors retire at the annual meeting following the date they attain the age of 74 and that non-employee directors elected after February 27, 1994 may serve a maximum term of 15 years. Directors who change the occupation they held when initially elected to the Board are expected to offer to resign from the Board. At that time, the Director Affairs Committee will review the continuation of Board membership under these new circumstances and make a recommendation to the full Board. During fiscal 2008, the Board amended the Governance Principles (discussed below), to allow the current Lead Director, Mr. Del Santo, to serve beyond the retirement age of 74 at the discretion of the Board.

 

The Board also has adopted a policy that requires employee directors, other than the Chief Executive Officer, to retire from the Board at the time of a change in their status as an officer of SUPERVALU. A former Chief Executive Officer may continue to serve on the Board until the third anniversary after his or her separation from SUPERVALU. However, if a former Chief Executive Officer leaves SUPERVALU to accept another position, the Chief Executive Officer is expected to retire as a director effective simultaneously with his or her separation from SUPERVALU.

 

Selection of Directors

 

The Director Affairs Committee is the standing committee responsible for determining the slate of director nominees for election by stockholders. The Director Affairs Committee considers and evaluates potential Board candidates based on the criteria set forth below and makes its recommendation to the full Board. The criteria applied to director candidates stress independence, integrity, experience and sound judgment in areas relevant to our business, financial acumen, interpersonal skills, a proven record of accomplishment, a willingness to commit sufficient time to the Board and the ability to challenge and stimulate management. The Director Affairs Committee will use the same process and criteria for evaluating all nominees, regardless of whether the nominee is submitted by a stockholder or by some other source.

The Director Affairs Committee does not currently utilize the services of an executive recruiting firm to assist in the identification or evaluation of director candidates. However, the Director Affairs Committee has used such firms in the past and may engage a firm to provide such services in the future, as it deems necessary or appropriate.

 

Directors and management are encouraged to submit the name of any candidate they believe to be qualified to serve on the Board, together with background information on the candidate, to the Chairperson of the Director Affairs Committee. In accordance with procedures set forth in our bylaws, stockholders may propose, and the Director Affairs Committee will consider, nominees for election to the Board of Directors by giving timely written notice to the Corporate Secretary, which must be received at our principal executive offices no later than the close of business on February 25, 2010 and no earlier than January 26, 2010. Any such notice must include the name of the nominee, a biographical sketch and resume, contact information and such other background materials on such nominee as the Director Affairs Committee may request.

 

Board Meetings

 

The full Board meets at least six times each year. Board meetings normally do not exceed one day in length. Additionally, in alternating years, the Board holds either a multi-day off-site strategic planning meeting or a one-day strategic planning update meeting.

 

Executive Sessions of Outside Directors

 

Non-employee directors generally meet together as a group, without the Chief Executive Officer or any other employees in attendance, during each board meeting. The Lead Director presides over each executive session of the Board.

 

Lead Director

 

In August 2006, our Board established the position of Lead Director and elected Mr. Del Santo to serve as our Lead Director. The primary responsibilities of our Lead Director include:

 

 

Attendance at Stockholder Meetings

 

The Board does not have a formal policy regarding director attendance at the Annual Meeting of Stockholders. However, all directors are strongly encouraged to attend the meeting. Nine of the incumbent directors attended the 2008 Annual Meeting of Stockholders.

Stock Ownership Guidelines

 

Non-employee directors are required to acquire and own SUPERVALU common stock with a fair market value of five times a director’s annual retainer within five years after the director is first elected.

 

Governance Principles

 

The Board maintains a formal statement of Governance Principles that sets forth the corporate governance practices for SUPERVALU. The Governance Principles are available on our website at http://www.supervalu.com. Click on the tab “Site Map” and then the caption “Corporate Governance” under the heading “About Us.” Copies of the Governance Principles are also available to any stockholder who submits a request to the Corporate Secretary, SUPERVALU INC., P.O. Box 990, Minneapolis, Minnesota 55440.

 

Policy and Procedures Regarding Transactions with Related Persons

 

The Board of Directors of the Company has adopted a Policy and Procedures Regarding Transactions with Related Persons. This policy delegates to the Audit Committee responsibility for reviewing, approving or ratifying transactions with “related persons” that are required to be disclosed under the rules of the SEC. Under the policy, a “related person” includes any of the directors or executive officers of the Company, certain stockholders and their immediate families. The policy applies to transactions where the Company is a participant, a related person will have a direct or indirect material interest and the amount involved exceeds $120,000. Under the policy, management of the Company is responsible for disclosing to the Audit Committee all material information related to any covered transaction in order to give the Audit Committee an opportunity to authorize, approve or ratify the covered transaction based upon its determination that the covered transaction is fair and reasonable and on terms no less favorable to the Company than could be obtained in a comparable arm’s length transaction with an unrelated third party. A copy of the Policy and Procedures Regarding Transactions with Related Persons is available on SUPERVALU’s website at http://www.supervalu.com. Click on the tab “Site Map” and then the caption “Corporate Governance” under the heading “About Us.”

 

The Board currently is divided into three classes, with the number of directors to be divided as equally as possible among the three classes. In December 2008, the Board voted to declassify the Board, thereby repealing the staggered terms of directors, beginning with the class of directors up for election at this meeting. Beginning with this election of directors, directors are elected for a term of one year. If a vacancy exists or occurs during the year, the vacant directorship may be filled by the vote of the remaining directors until the next annual meeting, at which time the stockholders elect a director to fill the vacancy. There are currently 15 members of the Board.

 

Our bylaws require directors to be elected by the majority of the votes cast with respect to such director in uncontested elections. A majority of the votes cast means that the number of shares voted “FOR” a director must exceed the number of votes cast “AGAINST” that director. In a contested election, a situation in which the number of nominees exceeds the number of directors to be elected, the standard for election of directors will be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. A plurality means that the nominees receiving the highest number of votes cast will be elected.

 

If a nominee who is serving as a director is not elected at the Annual Meeting, under Delaware law the director would continue to serve on the Board as a “holdover director.” However, under our bylaws, any director who fails to be elected must offer to tender his or her resignation to the Board of Directors. The Director Affairs Committee will then make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the Director Affairs Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. The director who tenders his or her resignation will not participate in the Board’s decision. If a nominee who was not already serving as a director is not elected at the Annual Meeting, under Delaware law that nominee would not become a director and would not continue to serve on the Board of Directors as a “holdover director.” All nominees

for the election of directors at the 2009 Annual Meeting of Stockholders are currently serving on the Board of Directors.

 

Irwin S. Cohen, Ronald E. Daly, Lawrence A. Del Santo, Susan E. Engel, Craig R. Herkert and Kathi P. Seifert are nominated for one-year terms expiring in 2010. Mr. Herkert’s election by the Board as Chief Executive Officer and appointment to the Board of Directors, to occur in May 2009, occurred as the result of an 18 month search process using a third-party executive search firm. The Board of Directors is informed that each nominee is willing to serve as a director. However, if any nominee is unable to serve or for good cause will not serve, the proxy may be voted for another person as the persons named on the proxies decide. If all of the nominees are elected, following the Annual Meeting there will be ten directors with terms expiring in 2010 and 5 directors with terms expiring in 2011. Beginning with the 2011 Annual Meeting of Stockholders, all 15 directors will stand for election annually.

 

The following sets forth information, as of April 28, 2009, concerning the six nominees and the nine directors whose terms of office will continue after the Annual Meeting, based on the current composition of the Board.

 

NOMINEES FOR ELECTION AS DIRECTORS AT THE ANNUAL MEETING
FOR A ONE-YEAR TERM EXPIRING IN 2010

 

 

DIRECTORS WHOSE CURRENT THREE-YEAR TERMS EXPIRE

AT THE ANNUAL MEETING IN 2010

 

DIRECTORS WHOSE CURRENT THREE-YEAR TERMS EXPIRE
AT THE ANNUAL MEETING IN 2011

 

 

The Director Affairs Committee reviews the compensation of our directors on a periodic basis. Based upon its review, the Director Affairs Committee makes recommendations to the Board of Directors. Annual compensation for non-employee directors is comprised of the following components: cash compensation, consisting of an annual retainer and meeting fees, and equity compensation, consisting of stock options and an annual deferred retainer payable in SUPERVALU common stock. Each of these components is described in more detail below.

 

Annual Board/Committee Chairperson Retainer

 

Non-employee directors receive an annual cash retainer of $80,000 per year. The Lead Director receives an additional annual cash retainer of $25,000. In addition, the Chairperson of each Board committee receives the following annual retainer: Audit Committee Chairperson, $25,000; Executive Personnel and Compensation Committee, Finance and Director Affairs Committee Chairpersons, $20,000. Also, each non-employee director committee member receives an annual retainer for each committee served on of $10,000 per committee, except Audit Committee members who receive $15,000 for their service on the Audit Committee.

 

Stock Options

 

Non-employee directors are granted stock options valued at $55,000 in May of each year, at the same time as the Company grants options to its employees. Options are granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant. Options are fully exercisable upon grant.

 

Annual Deferred Stock Retainer

 

Each non-employee director is paid $60,000 on each July 1 in the form of SUPERVALU common stock that is credited in share units to the SUPERVALU INC. Directors’ Deferred Compensation Plan (2009 Restatement) described below. The number of shares credited to each director’s account is based upon the price of the Company’s common stock on each July 1.

 

Retirement Program

 

Effective June 27, 1996, our Directors Retirement Program was discontinued and benefits previously earned by directors were frozen. A non-employee director first elected to our Board prior to June 27, 1996, will receive an annual payment of $20,000 per year for the number of years of the director’s service on the Board prior to June 27, 1996, but for not more than ten years of such service, after such director ceases to be a member of the Board. Directors first elected to the Board after June 27, 1996, do not participate in the Directors Retirement Program. As a result of this benefit, Mr. Gage, Mr. Keith and Mr. Lillis are each entitled to an aggregate of $200,000 (payable in annual installments of $20,000) following their resignation from the Board.

 

Deferred Compensation Program

 

Effective as of December 31, 2008, the SUPERVALU INC. Deferred Compensation Plan for Non-Employee Directors was merged with and into the SUPERVALU INC. Non-Employee Directors Deferred Stock Plan. The resulting plan was amended and restated in the Directors’ Deferred Compensation Plan and was effective as of January 1, 2009.

 

Directors may elect to defer payment of their retainer and meeting fees under the Deferred Compensation Plan for Non-Employee Directors prior to the merger described above or the Directors’ Deferred Compensation Plan. Under the Deferred Compensation Plan for Non-Employee Directors, fees and quarterly interest were credited to an account for the director until payment was made from the plan following retirement from the Board. Interest was payable on the amount of deferred cash compensation at an annual rate equal to the prime rate as reported in The Wall Street Journal as of the beginning of the fiscal year. Any payment for the 2009 fiscal year deferred under the Deferred Compensation Plan for Non-Employee Directors was transferred to the Directors’ Deferred Compensation Plan in connection with the merger described above.

 

Under the Directors’ Deferred Compensation Plan, a non-employee director may elect to have payment of all or a portion of the director’s fees deferred and credited to a deferred stock account or into a deferred cash account. If a director chooses to defer fees into a deferred stock account, SUPERVALU then credits the director’s account with an additional amount equal to 10 percent of the amount of fees the director has elected to defer and contributes the

total amount in the director’s account to an irrevocable grantor (“rabbi”) trust that uses the amount to purchase shares of SUPERVALU common stock, which are then allocated to an account for the director under the trust. Each director is entitled to direct the trustee to vote all shares allocated to the director’s account in the trust. The common stock in each director’s deferred stock account will be distributed to the director after the director leaves the Board. Until that time, the trust assets remain subject to the claims of our creditors. Dividends paid on the shares of common stock held in each of the directors’ accounts are used to purchase additional shares for these accounts each quarter. If a director chooses to defer all or a portion of fees into a deferred cash account, interest is payable on the amount of deferred cash compensation at an annual rate equal to the twelve-month rolling average of Moody’s Corporate Average Bond Index for the twelve-month period ending in the month of October preceding the first day of the calendar year. Payment in cash is made from the cash account following retirement from the Board.

 

Reimbursements and Expenses

 

Non-employee directors are reimbursed for expenses (including costs of travel, food and lodging) incurred in attending Board, committee and stockholder meetings. While travel to such meetings may include the use of the Company aircraft, if available or appropriate under the circumstances, the directors generally use commercial air service. Directors are also reimbursed for participation in director education programs in the amount of $7,500 for each director, plus expenses, to be used every two years. Reimbursements for any non-employee director did not exceed the $10,000 threshold in fiscal 2009 and thus are not included in “Director Compensation for Fiscal 2009” below.

 

From time to time, spouses may also join non-employee directors on the Company aircraft when a non-employee director is traveling to or from a Board, committee or stockholder meeting or any other meeting of the Company where such non-employee director is invited to do so by the Company’s Chief Executive Officer. This travel may result in the non-employee director recognizing income for tax purposes. The Company does not reimburse the non-employee director for the taxes incurred in connection with such income.

 

Non-employee directors are eligible to use the Company aircraft for personal purposes to the extent that the Company aircraft is already traveling on Company business or at the direction of the Company’s Chief Executive Officer and there is available space for such non-employee director. Any such personal use of the Company aircraft may result in the non-employee director recognizing income for tax purposes, and the Company does not reimburse the non-employee directors for any taxes incurred in connection with such personal use.

 

DIRECTOR COMPENSATION FOR FISCAL 2009

 

 

 

Introduction

 

This Compensation Discussion and Analysis describes the material elements of compensation awarded to each of our executive officers that served as Named Executive Officers during fiscal 2009. It should be read in connection with the Summary Compensation Table and related tables and narrative disclosure under “Executive Compensation” in this Proxy Statement. The Executive Personnel and Compensation Committee (the “Committee”) of the Board of Directors oversees the design and administration of our executive compensation program. For more information on the Committee, its members and its processes, see “Meetings of the Board of Directors and Committees of the Board” in this Proxy Statement.

 

In June 2006, SUPERVALU completed a transaction to acquire the core supermarket business formerly owned by Albertson’s, Inc., which doubled our revenues and greatly increased the number of our employees and retail stores in our network. We refer to this transaction as the Albertson’s acquisition. The Albertson’s acquisition also resulted in SUPERVALU becoming the nation’s third-largest supermarket chain, as measured by revenue.

Program Objectives and Reward Philosophy

 

The Committee regularly reviews its compensation philosophy. As part of a fiscal 2009 review, the Committee reaffirmed that SUPERVALU’s executive compensation program will:

 

 

Overview

 

SUPERVALU’s executive compensation program is reviewed on an element-by-element and an overall basis, with consideration given to the following factors:

 

 

The Committee weighs these factors, and any others deemed relevant, to establish and administer a compensation program intended to result in achievement of maximum value for stockholders. The Committee uses available data and resources to create a compensation program, including competitive pay practices, which the Committee believes to be in the best interest of our stockholders. In addition, the Committee maintains the discretion to exercise judgment in developing, establishing and administering the Company’s executive compensation program.

 

SUPERVALU’s executive compensation program is structured to provide a mix of fixed and variable compensation, with variable compensation delivered via short-term and long-term incentives that help to align the priorities and actions of executives with the interests of our stockholders. Therefore, a significant portion (71 to 86 percent) of targeted compensation will be performance-based. The total target compensation opportunity is calibrated to the median of the competitive market (defined below). The variable components of the compensation program are designed so that our executives’ total compensation will be above the median of our competitive market when our results are above the target levels of performance established by the Committee and below the median of our competitive market when our results fall below this targeted performance. These target performance levels will be established based on both internal standards and external comparisons. This relative fluctuation in compensation value increases or decreases by the significant use of equity-based components in the program, namely performance shares, stock options and, for Mr. Noddle only, stock appreciation rights (“SARs”). Therefore, actual total compensation realized, as compared to established targets, will significantly increase or decrease in direct correlation to our stock price. Significant use of equity-based components, along with stringent ownership and retention requirements (described below), ensures alignment of executive compensation with stockholder value.

 

Competitive Market.  The Company seeks to offer its executives compensation opportunities targeted at the median of the competitive market. In assessing competitiveness, the Committee reviews compensation information for similarly-situated executives at companies in a self-constructed comparison group, as well as compensation information available from third-party surveys. This information is used to inform the Committee of competitive pay practices, including the relative mix among elements of compensation. This information is also used to determine, as a point of reference for each Named Executive Officer, a midpoint (or median) within the competitive compensation range, for base salary, annual cash incentive, long-term equity incentives and the total of these

elements. The Committee believes that evaluating each executive’s pay elements and the total target pay opportunity relative to a median helps it to assess the overall competitiveness in the marketplace of the Company’s compensation. However, the Committee also recognizes that comparative pay assessments have inherent limitations, due to the lack of precise comparability of executive positions between companies as well as the companies themselves. As a result, the competitive medians are used only as a guide and are not the sole determinative factor in making compensation decisions for the Named Executive Officers. In exercising its judgment, the Committee looks beyond the competitive market data and places significant weight on individual job responsibilities, individual performance, experience, compensation history, internal comparisons and compensation at former employers (in the case of new hires).

 

The Committee defines our competitive market for our Named Executive Officers to be the median range of publicly available compensation information using a self-constructed comparison group and several third-party compensation surveys. The surveys used by the Committee provide data on similarly sized organizations based on revenue and industry. In fiscal 2009, the Committee looked at third-party wholesale, retail and general industry surveys conducted by Hewitt Associates, Towers Perrin and Watson Wyatt. Those surveys were the Hewitt Total Compensation Management Database, the Towers Perrin Retail/Wholesale Executive Compensation Database and the Watson Wyatt Industry Report on Top Management Compensation — Retail/Wholesale Sector. The Committee assesses the reasonableness of our total compensation levels and mix relative to the competitive benchmark data through a competitive assessment.

 

For fiscal 2009, our competitive comparison group consisted of the following 25 retail and distribution companies:

 

 

The 25-company competitive comparison group approved by the Committee and disclosed above was reviewed during fiscal 2008 by our independent compensation consultant, Towers Perrin, with input from the Committee, and was selected from U.S.-based companies based on revenue, size and industry.

 

With respect to the competitive comparison group, the Committee looked at revenue, operating income, net income, total assets, total equity and market capitalization to create a composite rank. SUPERVALU’s composite ranking was in the middle of this 25-company competitive comparison group.

 

Generally, the Committee will maintain the continuity of the companies within the competitive comparison group from year to year; however, changes in the composition of the group may occur as companies enter or exit the publicly-traded marketplace or as the relative size of the companies in the comparison group changes. For fiscal 2009, there were no changes to this group from the prior fiscal year.

 

Compensation Process.  For the Named Executive Officers other than the CEO, the Committee reviews and approves all compensation decisions. As part of that review, the Committee takes into consideration competitive market analyses and the recommendations of our human resources staff, the independent compensation consultants and Mr. Noddle. The Committee will review periodically the relationship of target compensation levels for each Named Executive Officer relative to the compensation target for the CEO. In addition, the Committee periodically will review internal equity relationships for comparable positions across peer companies. For the CEO, the Committee prepares compensation recommendations for ultimate review and approval by the Board of Directors, with the CEO abstaining from such review and approval. In making its compensation recommendations regarding

our CEO, the Committee takes into consideration the Board of Directors’ annual performance evaluation of our CEO, internal equity relationships, competitive market analyses for other chief executive officers based on publicly available information and information provided by our human resources staff and independent compensation consultant. Recommendations with respect to compensation of our CEO are not shared with the CEO during this process.

 

Annually, the Committee reviews and recommends to the full Board of Directors for approval with respect to the CEO, and approves, for the other Named Executive Officers, base salaries, annual cash incentive, long-term equity incentives and any other agreements that we would enter into with any Named Executive Officer. For fiscal 2009, the review for all executives (including the Named Executive Officers and Mr. Noddle) was conducted in May 2008.

 

Compensation Consultant

 

The Committee has the authority to retain outside compensation consultants to assist in the evaluation of executive compensation or to otherwise advise the Committee. The Committee directs the work of such consultants, and decisions regarding compensation of our Named Executive Officers are ultimately made by the Committee and, in the case of our CEO, by the Board.

 

The Committee has retained Towers Perrin as its compensation consultant to assist the Committee with its evaluation and assessment of executive compensation. The compensation consultant also assisted the Committee with the development of its self-selected comparison group used for purposes of benchmarking compensation levels and relative mix for fiscal 2009.

 

Towers Perrin does not provide any other services to SUPERVALU or its management, other than as described in the “Director Compensation” section of this Proxy Statement.

 

Elements of Compensation

 

For fiscal 2009, the principal elements of our executive compensation program consisted of the following components:

 

 

Compensation Mix

 

In previous years, the mix of compensation elements (base salary, annual cash incentive opportunity and long-term equity incentive opportunity) approximated the relative mix found in the competitive market for each of the Named Executive Officers. In fiscal 2009, the Committee chose to place greater emphasis on performance-based compensation and to decrease the emphasis on fixed compensation (in the form of base salary), when compared to the competitive market.

The table below illustrates how the primary components of target executive compensation (base salary, annual cash incentive opportunity and long-term equity incentive opportunity) is allocated between performance and non-performance based components, how performance-based compensation is allocated between annual and long-term components and how total compensation is allocated between cash and equity components. For our Named Executive Officers in fiscal 2009, that target allocation was as follows:

 

 

 

 

The Committee believes that this compensation mix aligns with the Company’s compensation philosophy of pay-for-performance and goals because:

 

 

Fiscal 2009 Compensation Decisions

 

In May 2008, the Committee approved (or in the case of Mr. Noddle, recommended to the Board of Directors, who later reviewed and approved) the targeted annual compensation for fiscal 2009 listed below for each of the Named Executive Officers. The fiscal 2009 target amount is comprised of the following primary components of compensation reviewed and approved for each Named Executive Officer by the Committee on an annual basis: base salary, annual cash incentive award assuming achievement of target performance, stock options and any SARs granted during the fiscal year valued as of the grant date and an annual allocation of the long-term incentive award assuming achievement of target performance at the end of the two-year performance cycle.

 

 

The fiscal 2009 target amounts differ from the amounts reflected in the Summary Compensation Table because:

 

 

Base Salaries

 

SUPERVALU provides the Named Executive Officers and other executives with an annual base salary that is not subject to performance risk. Salary levels for our Named Executive Officers are based on individual performance and experience, job responsibility, internal equity and salary levels that reflect the competitive market. For fiscal 2009, the Committee determined that, as part of its focus on pay-for-performance, base salaries for Named Executive Officers and certain other officers would not be increased from fiscal 2008 levels. Because the Company had a 53rd week in fiscal 2009, base salary as reflected in the Summary Compensation Table will reflect an additional week of pay. Annualized salaries for fiscal 2008 and fiscal 2009 are the same.

 

Annual Cash Incentive

 

In General.  SUPERVALU provides its Named Executive Officers and other executives an annual cash incentive opportunity in order to align executive compensation with the achievement of SUPERVALU financial goals that support our business plans.

The Committee establishes annual target award opportunities expressed as a percentage of base salary paid during the fiscal year, as well as threshold and maximum award opportunities expressed as a percentage of base salary. For fiscal 2009, annual cash incentive opportunities for the Named Executive Officers ranged from 100 percent to 150 percent (for the CEO only) of base salary paid for the year, at target levels of performance, up to a possible range of 200 percent to 300 percent (for the CEO only) of base salary for performance meeting or exceeding the maximum performance level, subject to the effect of the corporate same-store sales multiplier. This was a change from fiscal 2008, when the annual cash incentive opportunities for the Named Executive Officers ranged from 70 percent to 125 percent (for the CEO only) of base salary paid for the year, at target levels of performance, up to a possible range of 140 percent to 250 percent (for the CEO only) of base salary for performance meeting or exceeding the maximum performance level.

 

The increase from fiscal 2008 annual cash incentive opportunities was driven by the determination of the Committee that while total targeted compensation for fiscal 2009 would increase over fiscal 2008 levels, base salaries for Named Executive Officers and certain other officers would not be increased from fiscal 2008 levels, in line with the Committee’s desire to have a greater portion of targeted compensation be performance-based and to emphasize pay-for-performance.

 

Performance Measures and Objectives.  For fiscal 2009, the Committee selected, for each of our Named Executive Officers who are Corporate Executives as noted in the table below, Corporate Net Earnings as the primary performance measure for our annual cash incentive plan because it believes that corporate net earnings growth correlates directly with our business objectives and the creation of fundamental value for our stockholders. For each of our Named Executive Officers who are Retail Executives as noted in the table below, the primary performance measure is Business Unit Earnings. Both Corporate Net Earnings and Business Unit Earnings are subject to the corporate same-store sales growth multiplier ranging from 0.8 to 1.2 based on the level of same-store sales growth achieved.

 

If any payout is to be made under the annual cash incentive plan, the Corporate Net Earnings or Business Unit Earnings threshold must be met. If that threshold is met, then the executive will be eligible for payout under the other components of the program.

 

The other components are Corporate Cash Flow for Corporate Executives, Corporate Results for Retail Executives and Diversity for each of the Named Executive Officers. “Corporate Results” is a combination of Corporate Net Earnings, subject to the corporate same-store sales growth multiplier, and Corporate Cash Flow. The Diversity component for each of the Named Executive Officers, including Mr. Noddle, is based on increasing diversity within management of the Company. This component is paid out based on improvements in diversity representation over fiscal 2008.

 

The Business Unit Earnings performance measures for the Retail Executives correspond to our retail regions which align executive incentives more closely with the business unit over which they have responsibility and control. Performance goals for the Retail Executives are established in support of Company-wide earnings and sales targets with additional consideration given to business unit-specific market conditions. At the time that they are set, the goals that the Committee establishes for Business Unit Earnings, Corporate Cash Flow and Corporate Results are substantially uncertain to be achieved. The threshold-level goals can be characterized as “stretch but attainable,” meaning that based on historical performance, although attainment of this performance level is uncertain, it can reasonably be anticipated that threshold performance may be achieved, while the target and maximum goals represent increasingly challenging and aggressive levels of performance. The Company does not publicly disclose specific retail region earnings objectives, as its business plan is highly confidential. Disclosing specific objectives would provide competitors and other third parties with insights into the planning process, as well as the strategic initiatives of the Company, and would therefore cause competitive harm.

The fiscal 2009 performance measures for our annual cash incentive plan were as follows:

 

 

 

 

For fiscal 2009, the Corporate Net Earnings performance goals under our annual cash incentive plan were as follows:

 

 

In fiscal 2007, the award payout was set at 75 percent for achieving the threshold level of performance. For fiscal 2008 and beyond, the award payout was reduced to 50 percent for reaching the threshold level of performance. It was determined that this adjustment to the Company’s annual cash incentive plan design was appropriate to (1) better reflect annual incentive practices in the competitive market (assessed by the Committee as described above) and (2) align the annual incentive practices following the Albertson’s acquisition between legacy SUPERVALU annual incentives and legacy Albertson’s annual incentives.

 

The threshold performance level for Corporate Net Earnings for fiscal 2009 was the Company’s fiscal 2008 reported net earnings before one-time acquisition-related costs. In setting the threshold performance level for Fiscal 2009 Corporate Net Earnings, the Committee determined that results of the 53rd week in fiscal 2009 would not be included so that there would be no additional impact to results. The target performance level for fiscal 2009 was an increase of eight percent over the threshold performance level. The maximum performance level for fiscal 2009 was an increase of 15 percent over the threshold performance level.

 

For fiscal 2009, the threshold Corporate Cash Flow performance level was set at 50 percent of the award, the target performance level was set at 100 percent and the maximum performance level was set at 200 percent. Corporate Cash Flow is generally defined by the Committee to be earnings before interest, taxes, depreciation and amortization (EBITDA) plus one-time transaction costs related to the Albertson’s acquisition and stock option expense, less interest, dividends, taxes and capital expenditures, net of proceeds from asset sales.

 

For fiscal 2009, the threshold Diversity performance level was set at 50 percent of the award, the target performance level was set at 100 percent and the maximum performance level was set at 200 percent.

 

Discretionary Adjustments.  The Committee reviews the quality of the Company’s performance and determines the extent to which performance goals under the annual cash incentive plan are met in April of each year, after completion of the Company’s financial statements. In making this determination, the Committee may apply discretion such that the numbers used for our annual cash incentive performance goals may differ from the numbers reported in the Company’s financial statements. In applying this discretion, the Committee may exclude all or a portion of both the positive or negative effect of external events that are outside the control of our executives, such as natural disasters, litigation or regulatory changes in accounting or taxation standards, including in fiscal 2009, the impact of the Company’s write-down of approximately $3.3 billion in goodwill and other intangible assets. These adjustments may also exclude all or a portion of both the positive or negative effect of unusual or significant strategic events that are within the control of our executives, but that are undertaken with an expectation of

improving our long-term financial performance, including restructurings, acquisitions or divestitures. For fiscal 2009, the Committee reviewed the impact of the write-down of goodwill described above on Corporate Net Earnings, and used its discretion to adjust actual results, although the exercise of this discretion did not result in any payments awarded.

 

Actual Award Payments.  For fiscal 2009, Corporate Net Earnings did not meet the threshold required by the Committee, resulting in no award payment to our Corporate Executives. Although we exceeded the threshold for Corporate Cash Flow and Diversity, there was no payout because Corporate Net Earnings did not meet the threshold amount. Our Business Unit Earnings for our Retail Executives were under the threshold level as well, resulting in no award payment to our Retail Executives. Because Corporate Net Earnings did not meet the threshold amount, there was no payout to Retail Executives for the achievement of Corporate Results or Diversity targets.

 

Annual Discretionary Bonus Pool.  An annual discretionary bonus pool exists from which our CEO may make discretionary cash awards to the Named Executive Officers and other corporate officers (other than himself) in recognition of their extraordinary achievements during any given fiscal year. Awards from the pool may not exceed $750,000 in the aggregate or $100,000 to any one individual during any fiscal year. For fiscal 2009, Mr. Noddle provided discretionary awards to certain of the Company’s officers, not including any of the Named Executive Officers.

 

Long-term Equity Incentives

 

In General.  SUPERVALU provides the Named Executive Officers and other executives with a long-term equity incentive award in order to tie a significant portion of each executive’s total compensation to the long-term financial results of the Company and to align incentives more meaningfully with the interests of our stockholders. On an annual basis, SUPERVALU provides a grant of stock options. Prior to fiscal 2010, SUPERVALU also provided a biennial grant of performance shares. Beginning with fiscal 2010, the Committee changed the design of its performance share program from a two-year performance cycle to a three-year performance cycle. This change is described in the section entitled “Fiscal 2010” in this Compensation Discussion and Analysis.

 

The Committee believes that various forms of long-term awards provide incentives to executives that can further different corporate objectives. The Committee feels that the granting of stock options is a source of motivation for SUPERVALU employees, more closely aligning long-term employee interest with the interests of the Company’s stockholders. The Committee believes that the granting of performance shares can align an employee’s long-term interest with the Company’s stockholders and can serve as a method of retention for key employees.

 

For fiscal 2009, the long-term equity incentive program for Named Executive Officers and other executives consisted of an annual grant of stock options. The Committee established the total value of the long-term award for each Named Executive Officer in such a manner that achievement of the target levels of performance would result in long-term incentives within the median range of the competitive market.

 

Stock Options.  Stock options directly link a portion of each executive’s compensation to stock price appreciation. Each Named Executive Officer’s stock option grant is established by the Committee as described above with respect to awards of total long-term incentives. Stock options generally have a “grant date” that is the same date as the date of Committee approval, or Board approval in the case of our CEO, and have an exercise price equal to the fair market value on the grant date. In the event that stock markets are closed for trading on the approval date, options are then priced based on the fair market value of the Company’s stock on the first day in which markets are open for trading following the approval date. In addition, stock options currently have a seven-year contractual exercise term and vest 20 percent on the date of grant and 20 percent on each of the next four anniversaries of the date of grant, subject to the following post-termination and change of control provisions:

 

 

 

In April 2007, our equity compensation plans were amended to change the definition of fair market value from the average of the opening and closing market price of the Company’s stock to the closing market price of the Company’s stock on the applicable date; provided, however, for options approved by the Committee or the Board on a date that Company executives would otherwise be restricted from trading in our stock as a result of a “black-out” trading restriction relating to the release of earnings results or other corporate matters, the grant date will be delayed until the first trading day after the expiration of the black-out period. We do not have any other program, plan or practice to time stock option grants to executives in coordination with the release of material non-public information. In addition, we have a pre-established black-out policy that prohibits employees from trading in our stock during periods when they are aware of material non-public information.

 

Stock options granted prior to April 2005 have a 10-year contractual exercise term, and provide for an automatic one-time reload or restoration stock option upon the exercise of the original stock option using shares of SUPERVALU stock to pay the exercise price. The restoration stock option is for the same number of shares used to pay the exercise price and applicable withholding taxes, has an exercise price equal to the fair market value of SUPERVALU stock on the date of exercise and is exercisable for the remaining contractual exercise term of the original stock option.

 

Stock Appreciation Rights.  As part of Mr. Noddle’s fiscal 2009 compensation package, the Committee determined that Mr. Noddle’s long-term incentive award should be comprised of 50 percent long-term performance shares, 25 percent stock options and 25 percent SARs. In discussing the form that Mr. Noddle’s long-term incentive award should take, the Committee discussed the trends in executive compensation and the Company’s commitment to maintain average annual equity grants at a level not greater than 2.91 percent of common stock outstanding over the three-year period ending with fiscal 2010, while continuing to provide an incentive that is aligned with the interests of the Company’s stockholders. The Committee decided that, in addition to an annual grant of stock options, cash-settled SARs were an appropriate method of achieving such goals. Thus, in fiscal 2009, Mr. Noddle was granted 178,678 SARs. These SARs vest 20 percent on the date of grant and 20 percent on each of the next four anniversaries of the date of grant. If Mr. Noddle retires before these SARs are fully vested, the SARs will vest in full at retirement, because Mr. Noddle meets the retirement definition set forth in the plan under which this award was granted.

Performance Shares.  Currently, our performance share program is based on a two-year performance cycle for fiscal 2009-2010. Beginning with fiscal 2010, the Committee changed the design of its performance share program from a two-year performance cycle to a three-year performance cycle. This change is described in the section entitled “Fiscal 2010” in this Compensation Discussion and Analysis. As with stock options, awards of performance shares are established by the Committee as described above with respect to awards of total long-term incentives. The material provisions of the performance share awards for fiscal 2009-2010 are summarized below:

 

 

The Committee chose return on invested capital, referred to as ROIC and defined above, as the performance measure for the performance share program because it believes this measure is an accurate assessment of how well the Company is performing from a financial standpoint. ROIC indicates how efficiently and effectively capital is deployed by management. Performance goals are established in connection with the Company’s annual financial planning process. In establishing our performance goals for this measure, the Committee considers the extent to which the Company will generate a return on invested capital for the performance cycle that represents an appropriate improvement, as determined by the Committee. The Committee takes into consideration a variety of factors, including future expectations of operating earnings and capital deployment in our strategic plans.

 

The Committee reviews the quality of the Company’s performance and determines the extent to which performance goals are met in April at the end of the two-year performance cycle, after completion of the Company’s financial statements, for the purposes of determining the actual number of shares of restricted stock and the number

of cash-settled units that will be granted to each executive under the terms of the performance share award. In making this determination, the Committee may apply discretion such that the numbers used for our performance share goals may differ from the numbers reported in the Company’s financial statements. In applying this discretion, the Committee may exclude all or a portion of both the positive or negative effect of external events that are outside the control of our executives, such as natural disasters, litigation or regulatory changes in accounting or taxation standards, including in fiscal 2009, the impact of the Company’s write-down of approximately $3.3 billion in goodwill and other intangible assets. These adjustments may also exclude all or a portion of both the positive or negative effect of unusual or significant strategic events that are within the control of our executives, but are undertaken with an expectation of improving our long-term financial performance, including restructurings, acquisitions or divestitures.

 

Retention Incentive Awards for Certain NEOs.  In connection with the Albertson’s acquisition, Mr. Mac Naughton and Mr. Tripp, as well as certain other executives, were granted retention incentive awards as part of their employment with SUPERVALU. Under the terms of the retention award, the recipient received a retention incentive award comprised 50 percent of deferred cash and 50 percent of restricted stock (valued as of the date of the closing of the Albertson’s acquisition). The awards were subject to restrictions on transfer and potential forfeiture. With the exception of certain qualifying terminations, including termination without cause, the vesting of the restricted stock portion of the award and payment of the deferred cash portion was contingent on continued employment with SUPERVALU, according to the following schedule:

 

 

Due to their continued employment, Mr. Mac Naughton and Mr. Tripp received 100% of the total cash retention and 100% of the total restricted shares issued in connection with the Albertson’s acquisition.

 

Executive Change of Control Policy

 

Our objective is to provide our Named Executive Officers and other executives with protection under a market competitive change of control severance agreement. The Committee believes that this benefit helps to maintain the impartiality and objectivity of our executives in the event of a change of control situation so that our stockholders’ interests are protected. The Committee reviews this change of control policy periodically to address whether these protections are consistent with those provided in our competitive market and to be in compliance with federal tax rules affecting nonqualified deferred compensation.

 

We previously entered into retention agreements with certain of our executive officers in relation to the Albertson’s acquisition, including two of our Named Executive Officers, Mr. Mac Naughton and Mr. Tripp, which provided temporary protection against a change of control. Those agreements expired on June 2, 2008, at which time the Company entered into change of control agreements with those executives.

For fiscal 2009, our change of control agreements for the Named Executive Officers are summarized below:

 

 

Our change of control agreements in effect at February 28, 2009, are described in more detail under “Potential Payments upon Termination or Change of Control.”

 

In fiscal 2010, the Committee reviewed the Company’s change of control program and determined that certain changes were needed to bring the Company’s program in line with the Committee’s philosophy and current market trends. As a result of this review, on April 25, 2009, the Committee approved a new form of change of control agreement and a severance plan.

 

The new change of control agreement supersedes the existing change of control agreements for the Named Executive Officers. The new change of control agreement is expected to be executed by each of the Named Executive Officers and the Company. Until the new change of control agreement is so executed, the existing change

of control agreements continue in effect for each of these parties. The new change of control agreement is summarized below:

 

The severance plan is effective May 2, 2009 and is summarized below:

 

 

Deferred Compensation

 

Under the Company’s Executive Deferred Compensation Plan (2008 Statement), eligible executives may elect to defer on a pre-tax basis up to 50 percent of base salary and may elect to defer up to 100 percent of annual incentive compensation during the plan year. The program allows executives to save for retirement on a tax-deferred basis. Under this unfunded plan, amounts deferred by the executive accumulate on a tax-deferred basis and are credited at an effective annual interest rate equal to Moody’s Corporate Bond Index, set as of October 1 of the preceding year. The Executive Deferred Compensation Plan also provides for additional make-up contributions that are credited to the participant’s account in the Executive Deferred Compensation Plan.

 

Retirement Benefits

 

Consistent with our overall compensation philosophy, SUPERVALU maintains a retirement plan for all non-union employees under which a maximum of $185,000 per year in annual benefits may be paid upon retirement based on limitations imposed by Section 415 of the Internal Revenue Code (the “Code”). In addition, SUPERVALU maintains a non-qualified supplemental executive retirement plan and a non-qualified excess benefit plan for certain highly compensated employees, including the Named Executive Officers, that allow for the payment of additional benefits so that such retiring employees may receive, in the aggregate, at least the benefits they would have been entitled to receive if the Code did not impose maximum limitations. Our retirement plans are described in more detail following the Pension Benefits Table under “Executive Compensation.”

 

SUPERVALU provides post-retirement death benefits for certain designated retired executive officers, which would include the Named Executive Officers if they meet the retirement definition of termination at or after age 55 with 10 or more years of service. Currently, Mr. Noddle, Ms. Knous and Mr. Jackson meet the retirement definition mentioned above. The death benefit is fixed at an amount approximately equal to, on an after-tax basis, an eligible executive’s final base salary. The benefits may be funded through life insurance policies owned by SUPERVALU.

 

For all employees who participate in the SUPERVALU STAR 401(k) Plan, including Named Executive Officers, the Company makes a matching contribution of $1 for every $1 the participant contributes, up to the first four percent of pay and $0.50 for each $1 the participant contributes on the next two percent of pay. The Company may also make additional profit-sharing contributions, at the discretion of the Company’s management, of up to a maximum of three percent of the eligible participant’s compensation.

Perquisites

 

SUPERVALU provides our Named Executive Officers and other executives with a limited perquisites program. This limited perquisite program is consistent with the Committee’s focus on performance-based compensation. The Company continues to reimburse executives for an annual physical to encourage executives to be physically healthy, such that executives can better focus on the business affairs of the Company. Similarly, providing our CEO with limited personal use of the Company’s aircraft encourages and allows him to make travel arrangements that maximize the efficient use of his limited personal time, allowing him more time to focus on the Company’s business for the benefit of the Company’s stockholders.

 

The Committee will continue to review this perquisites program periodically. In fiscal 2008, as a result of the Committee’s review, the Post-Retirement Death Benefit Coverage was scaled back and further benefits under this program were eliminated. In fiscal 2009, the Financial Counseling and Tax Planning benefit was discontinued.

 

For fiscal 2009, SUPERVALU provided the following executive benefits and perquisites to our Named Executives Officers:

 

 

Executive Stock Ownership and Retention Program

 

SUPERVALU has an executive stock ownership and retention program for our Named Executive Officers and other executives so that these executives will experience the same downside risk and upside potential as our stockholders experience. In fiscal 2009, the Committee reviewed the Executive Stock Ownership and Retention Program. After a review of current market trends which show that the more prevalent design for such programs involved ownership levels based on a multiple of base pay, the Committee modified the ownership requirements for our executives, including the Named Executive Officers as follows:

 

 

 

 

For purposes of complying with our Executive Stock Ownership and Retention Program, stock is considered owned if the shares are owned outright or in a vested tax qualified or nonqualified deferred compensation plan, if the shares are owned by immediate family members or legal entities established for their benefit, and if the shares are in

the form of unvested restricted stock. Outstanding unexercised stock options are not considered owned for purposes of our program. Our Named Executive Officers and other executives may not pledge owned shares as security or enter into any risk hedging arrangements.

 

Prior to achieving their ownership objective, executives are required to retain shares equal to 100 percent of the net after-tax profit shares received from stock option exercises or the vesting of restricted stock. After they meet their ownership goal, Named Executive Officers are required to retain shares equal to 50 percent of the net after-tax profit shares received from stock option exercises or the vesting of restricted stock. This 50 percent retention requirement can be satisfied on either an individual basis for each stock option exercise or restricted stock vesting event, or on a cumulative basis by aggregating all shares held from the exercise of stock options or the vesting of restricted stock from the date the executive first met our stock ownership requirement.

 

For fiscal 2009, each of our Named Executive Officers has met their ownership objective. All of our Named Executive Officers are in compliance with our program.

 

Tax and Accounting Considerations

 

The Committee monitors changes in the regulatory environment when assessing the financial efficiency of the various elements of our executive compensation program. Tax and accounting consequences are analyzed when adopting new or modifying existing elements of our executive compensation program.

 

The Committee has designed and administered our annual cash incentive plan and long-term equity incentive programs for executive officers in a manner that generally preserves our federal income tax deductions. Our annual cash incentives for executive officers are administered under a stockholder-approved plan that specifies a formula for determining a maximum annual individual award limit. Our stock options, SARs and performance shares for executive officers are granted under other stockholder-approved plans that specify the maximum number of shares that may be awarded annually to plan participants. Our restricted stock unit awards are granted for attraction and retention purposes and are not performance-based. Thus, our federal tax deductions from restricted stock awards may be disallowed under certain circumstances. Although recent changes to accounting standards have made stock option grants less favorable, SUPERVALU continues to grant stock options in our long-term equity incentive program because these grants help to align the priorities and actions of executives with the interests of our stockholders. The historic economic value delivered to executives from these programs has been reasonable in relation to the compensation cost reported in our financial statements.

 

The Committee has designed and administered our deferred compensation, equity compensation and change of control severance plans to be in compliance with federal tax rules affecting nonqualified deferred compensation.

 

Fiscal 2010

 

At the February 2009 meeting, the Committee instituted a three-year overlapping performance cycle for the fiscal 2010-2012 performance period. The Committee determined that a three-year performance cycle would focus employees on longer-term results and eliminate wide swings in payouts of long-term awards. The Committee reviewed the Company’s performance for fiscal 2009 and determined that there was a potential for the results of the fiscal 2009-2010 performance program to be below threshold, therefore resulting in no payout. The Committee also noted that the exercise price for the stock options granted in recent years were well in excess of the market price of the Company’s common stock. In order to motivate and retain employees in such circumstances, the Committee instituted the new long-term incentive program. The fiscal 2010-2012 long-term incentive program will be based on the achievement of ROIC (return on invested capital) goals.

 

In addition, the Committee approved the plan design for the annual cash incentive plan for fiscal 2010. The corporate net earnings target will be based on the Company’s fiscal 2010 budget, not year-over-year growth as in past years. The Committee also determined, in the case of Corporate Executives, that payouts for cash flow and diversity results will not be dependent on meeting minimum corporate net earnings performance and that these elements can pay out independent of corporate net earnings and of each other. The Committee also approved a corresponding change for Retail Executives, such that the annual cash incentive plan elements for fiscal 2010 can

pay out independent of each other. The Committee also added an inventory days supply performance measure for certain executives in retail, merchandising and supply chain leadership roles.

 

On April 25, 2009, the Committee approved a new form of change of control agreement and severance plan for our Named Executive Officers, as further described in the section entitled “Executive Change of Control Policy.”

 

On May 6, 2009, the Board of Directors elected Craig R. Herkert to serve as Chief Executive Officer of the Company and appointed him to serve as a member of the Board of Directors of the Company, with an expected start date to occur in May 2009. Mr. Herkert, age 49, will succeed Mr. Noddle, who will retire as Chief Executive Officer of the Company upon Mr. Herkert’s commencement as Chief Executive Officer. Mr. Noddle will remain employed by the Company in the role of Executive Chairman and will continue to serve on the Board of Directors of the Company as Executive Chairman of the Board.

 

In connection with Mr. Herkert’s election to serve as Chief Executive Officer of the Company, Mr. Herkert will be entitled to receive annual base compensation of $850,000 and is eligible to receive an annual bonus under the Company’s annual cash incentive plan for fiscal 2010 with a target amount of 150 percent of his base salary. The actual bonus amount earned will be based on the Company’s performance against targets established by the Committee for Corporate Net Earnings, Corporate Cash Flow and Diversity and could range from 0 to 300 percent of base salary. In addition, following the commencement of his employment with the Company, the Board of Directors of the Company will approve the grant of a nonqualified stock option to Mr. Herkert with a value of $2.0 million that will vest 20 percent immediately upon the date of grant and 20 percent per year for the next four years. The Board of Directors will also grant Mr. Herkert a one-time restricted stock award with a value of $5.0 million. The shares will be subject to restriction which will lapse over a period of four years with 25 percent of the shares vesting on the first anniversary of the date of grant and the remaining shares vesting annually in equal increments on successive anniversaries of the date of grant. Mr. Herkert is also eligible for a long-term incentive award with a target payout value of $2.0 million in stock and cash and an actual payout value of $0 to $4.0 million based on the Company’s performance for the fiscal 2010-2012 performance period. Finally, he is entitled to the Company’s standard perquisites for the CEO. The stock options, restricted stock and long-term incentive awards granted to Mr. Herkert will be subject to the Company’s standard terms and conditions of such awards for executive officers on file with the SEC.

 

In his capacity as Executive Chairman, Mr. Noddle’s base salary and annual incentive bonus opportunity for fiscal 2010 will remain the same and he will be entitled to a prorated portion of his long-term incentive award for the fiscal 2010-2012 performance period. However, in his new position, Mr. Noddle will not receive any additional grants of stock options or stock appreciation rights.

 

REPORT OF THE EXECUTIVE PERSONNEL AND COMPENSATION COMMITTEE

 

The Executive Personnel and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Respectfully submitted,

 

Susan E. Engel, Chairperson

Ronald E. Daly

Lawrence A. Del Santo

Edwin C. Gage

Charles M. Lillis

Wayne C. Sales

Kathi P. Seifert

 

The following tables and accompanying narrative disclosure should be read in conjunction with the “Compensation Discussion and Analysis,” which sets forth the objectives of SUPERVALU’s executive compensation and benefit program.

 

Because the Company had a 53^rd week in fiscal 2009, base salary as reflected in this Summary Compensation Table reflects an additional week of pay. Annualized salaries for fiscal 2008 and fiscal 2009 are identical and reflect no increase in base salary for fiscal 2009.

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

 

 

 

 

GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2009

 

 

 

OUTSTANDING EQUITY AWARDS AT FEBRUARY 28, 2009