Capital Performance Bonus Plan - Safeway Inc.
SAFEWAY INC.
BONUS PLAN
CAPITAL PERFORMANCE
A bonus will be calculated according to the Corporation's Capital Performance,
defined in terms of the return on investment (ROMV) generated by new stores and
remodel projects that have been (1) completed and audited in the current year
and (2) completed and audited two years earlier under this program.
Actual capital performance results will be compared to the RE-45 projected
capital performance results. The RE-45 is the financial justification,
established by the Real Estate Committee, for store openings, expansions
(considered new stores when adding 8,000 square feet or more) and major
remodels.
Bonus Based on First Year Audit Results: The return on each completed project
will be audited separately and will be based on the actual results compared
with the first year RE-45 projected ROMV over a twenty week period beginning
thirteen full periods after the new store completion date and from two to six
to twelve full periods after the remodel project completion date. (Wherever
seasonality is a factor in any capital project, the results will be adjusted to
reflect a full year's performance.) In order to earn a bonus under the first
year audit results there must be a sufficient number of projects to be
completed and/or capital budget expense during a bonus period. To the extent,
the year's capital program is insufficiently large to justify paying a bonus,
the Corporate Compensation Committee will provide a fair and equitable
alternative. The bonus is awarded only if the Corporation's new store and
remodel cost does not exceed 10% of the sum of the projects authorized.
Bonus Based on Third Year Audit Results: The return on each completed new
store and remodel project will be reaudited separately two years after the
initial audit and will be based on the current actual results measured over the
same twenty week time frame the initial audit covered and will be compared with
the third year RE-45 projected ROMV.
The established rates of return on investment (the hurdle rate) will be set at
25% IRR (Internal Rate of Return) for new stores and 30% IRR for remodel
projects but are subject to change.
Individual projects are labeled either as defensive or offensive investments.
For an offensive project, the measurement of performance is based on converting
the RE-45 projected ROMV to an adjusted, projected ROMV. The adjustment factor
used is equal to the hurdle rate divided by the projected IRR. In the case of
a defensive project an adjustment is not applicable.
An average target ROMV, weighted by each project's planned capital expenditure,
is calculated for all projects to be measured in a bonus year. Minimum and
maximum ROMV targets which serve to set the parameters around which bonus
payments are made are calculated as follow.
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A minimum target for a remodel project is established by adjusting planned
incremental cash flow downward by 10/30 and determining the resulting ROMV.
For a new store incremental cash flow is reduced by 10/25. The overall minimum
target is a weighted average of these lower ROMVs for all projects to be
measured.
A maximum target for a remodel project is established by adjusting planned
incremental cash flow upward by 5/30 and determining the resulting ROMV. For a
new store incremental cash flow is increased by 5/25. The overall maximum
target is a weighted average of these higher ROMVs for all project's to be
measured.
The actual ROMV for each project is determined by comparing annualized net cash
flow to annualized net assets. For seasonal projects, the annualized cash flow
is adjusted by a factor that accounts for the seasonality found in the periods
being measured. The overall ROMV is weighted by the individual projects
planned spending to total planned spending.
The capital maximum bonus potential varies by position and ranges from 18% to
30%. The calculation for each year is separate (1st and 3rd year results) and
is equally divided into two components. In the case of real estate executives
who are new in their position since the earlier of the two years being
measured, the entire capital bonus is based on the 1st year calculation.