Kroger CEO's raise erased by stock slide

Kroger CEO Rodney McMullen received a $1.5 million raise in 2015, new government filings show.

But the Downtown Cincinnati-based supermarket titan's sliding stock since March has rendered $2.3 million worth of McMullen's stock options underwater – or worthless until shares recover. McMullen's $11.1 million pay package for 2015 was disclosed last week in Kroger's annual proxy.

Nearly 60 percent of McMullen's annual compensation was in the form of $4.3 million in company stock and the stock options. Major companies frequently pay top executives with a heavy proportion of compensation from stock and options with the intent of aligning their CEO's personal financial interests with shareholders.

McMullen's example illustrates how that works: the $38.33 strike price on his options to buy 235,000 shares of Kroger stock have no value until they rise above that level, but he makes nearly $2,400 for every penny the stock climbs above it.

Kroger's stock closed at $40.65 on March 2 the day before a massive selloff a day later when it reported sales that fell short of Wall Street expectations. The stock has traded in the mid to upper 30s this spring. The stock closed at $34.76 on Monday, down 10 cents.

McMullen's cash compensation rose.

Last year, McMullen took home a $1.2 million salary, up 9.1 percent from his base pay in 2014. He also collected $3 million in non-equity incentive pay – a cash performance-based type of bonus – that jumped 25 percent from the $2.4 million he received in 2014.

McMullen also collected nearly $280,000 worth of other compensation. The perks included $152,000 in dividends paid on unvested restricted stock; $51,000 in dividend equivalents on earned performance stock units; and $76,000 in life insurance premiums.