DEF 14A 1 d294291ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.     )

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x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

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Kraft Foods Inc.

 

(Name of Registrant as Specified In Its Charter)

 

 

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LOGO

 

IRENE B. ROSENFELD       THREE LAKES DRIVE
CHAIRMAN OF THE BOARD AND       NORTHFIELD, ILLINOIS 60093
CHIEF EXECUTIVE OFFICER      
      April 2, 2012

Dear Fellow Shareholder:

I am pleased to invite you to our 2012 Annual Meeting of Shareholders. We will hold the Annual Meeting at 9:00 a.m. CDT on Wednesday, May 23, 2012, at the North Shore Center for the Performing Arts in Skokie, Illinois. The Center will open to shareholders at 8:00 a.m. CDT.

We have prepared the following materials for the meeting:

 

   

a Notice of Annual Meeting of Shareholders;

 

   

a Proxy Statement describing the proposals to be voted on at the Annual Meeting; and

 

   

our letter to shareholders highlighting our 2011 financial and business performance.

We are once again mailing to our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access these materials and vote online. We believe electronic delivery expedites the receipt of materials, while lowering costs and reducing the environmental impact of our Annual Meeting. If you receive a Notice of Internet Availability of Proxy Materials by mail, you will not receive paper copies of these materials unless you specifically request them. You may request paper copies to be sent to you in the mail by following the instructions on the Notice.

Whether or not you plan to attend the Annual Meeting, your vote is important and I encourage you to vote promptly. The Notice contains instructions on how to vote via the Internet or by calling a toll-free number. If you receive paper copies of the proxy materials by mail, you may also vote by signing, dating and mailing your proxy card or voting instruction form. You may also vote in person at the Annual Meeting.

Please register in advance if you would like to attend the Annual Meeting. The Proxy Statement contains advance registration instructions.

On behalf of the Board of Directors, thank you for your continued interest and support.

Sincerely,

 

LOGO


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KRAFT FOODS INC.

Three Lakes Drive

Northfield, Illinois 60093

 

 

NOTICE OF 2012 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

TIME AND DATE:

9:00 a.m. CDT on Wednesday, May 23, 2012.

 

PLACE:

North Shore Center for the Performing Arts in Skokie

9501 Skokie Boulevard

Skokie, Illinois 60077

 

ITEMS OF BUSINESS:

(1)

To elect the 11 directors named in the Proxy Statement;

 

  (2) To hold an advisory vote to approve executive compensation;

 

  (3) To vote on a company proposal to amend the Amended and Restated Articles of Incorporation to change the company name;

 

  (4) To ratify the selection of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending December 31, 2012;

 

  (5) To vote on three shareholder proposals if properly presented at the meeting; and

 

  (6) To transact any other business properly presented at the meeting.

 

WHO MAY VOTE:

Shareholders of record at the close of business on March 15, 2012.

 

DATE OF DISTRIBUTION:

We mailed our Notice of Internet Availability of Proxy Materials on or about April 5, 2012. For shareholders who previously elected to receive a paper copy of the proxy materials, we mailed the Proxy Statement, our Annual Report on Form 10-K for the year ended December 31, 2011, our letter to shareholders and the proxy card on or about April 5, 2012.

LOGO

Carol J. Ward

Vice President and Corporate Secretary

April 2, 2012

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 23, 2012

 

Kraft Foods Inc.’s Proxy Statement and Annual Report on Form 10-K

are available at http://materials.proxyvote.com/50075N.

 


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TABLE OF CONTENTS

 

     Page  

PROXY STATEMENT SUMMARY

     1   

ITEM 1. ELECTION OF DIRECTORS

     3   

Process for Nominating Directors

     3   

Director Nominees

     5   

CORPORATE GOVERNANCE

     13   

Governance Guidelines and Codes of Conduct

     13   

Key Corporate Governance Practices

     14   

Board Leadership Structure

     15   

Director Independence

     16   

Oversight of Risk Management

     16   

Review of Transactions with Related Persons

     17   

Section 16(a) Beneficial Ownership Reporting Compliance

     18   

Communications with the Board

     18   

BOARD COMMITTEES AND MEMBERSHIP

     19   

Current Committee Membership

     19   

Meeting Attendance

     19   

Special Committees Related to Strategic Alternatives and Spin-off

     19   

Audit Committee

     19   

Audit Committee Report for the Year Ended December 31, 2011

     20   

Pre-Approval Policies

     22   

Independent Auditors’ Fees

     22   

Finance Committee

     23   

Governance, Membership and Public Affairs Committee

     23   

Human Resources and Compensation Committee

     24   

Compensation Committee Interlocks and Insider Participation

     24   

Responsibilities

     24   

Processes and Procedures

     25   

Independence of Compensation Consultant to the Committee

     25   

Analysis of Risk in the Compensation Architecture

     26   

Human Resources and Compensation Committee Report for the Year Ended December 31, 2011

     27   

COMPENSATION OF NON-EMPLOYEE DIRECTORS

     28   

COMPENSATION DISCUSSION AND ANALYSIS

     31   

Executive Summary

     31   

How the Committee Considered the Shareholder Advisory Vote on our 2010 Executive Compensation Program

     33   

Our Compensation Program Design

     33   

Elements of Executive Compensation

     37   

Compensation Paid to Named Executive Officers in 2011

     48   

Additional Information on Compensation Principles

     51   

Policy on Recoupment of Executive Incentive Compensation in the Event of Certain Restatements

     53   

Anti-Hedging Policy and Trading Restrictions

     54   

Policy with Respect to Qualifying Compensation for Tax Deductibility

     54   

EXECUTIVE COMPENSATION TABLES

     55   

2011 Summary Compensation Table

     55   

2011 Grants of Plan-Based Awards

     57   

2011 Outstanding Equity Awards at Fiscal Year-End

     58   

 

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2011 Option Exercises and Stock Vested

     60   

2011 Pension Benefits

     60   

Retirement Benefit Plan Descriptions

     61   

2011 Non-Qualified Deferred Compensation Benefits

     64   

Potential Payments upon Termination or Change in Control

     65   

OWNERSHIP OF EQUITY SECURITIES

     70   

ITEM 2. ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     72   

ITEM 3. APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO CHANGE COMPANY NAME

     74   

ITEM 4. RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS

     76   

SHAREHOLDER PROPOSALS

     76   

ITEM 5. Shareholder Proposal: Sustainable Forestry Report

     76   

ITEM 6. Shareholder Proposal: Report on Extended Producer Responsibility

     79   

ITEM 7. Shareholder Proposal: Report On Lobbying

     81   

OTHER MATTERS THAT MAY BE PRESENTED AT THE ANNUAL MEETING

     83   

FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING AND VOTING

     83   

2013 ANNUAL MEETING OF SHAREHOLDERS

     91   

Shareholder Nominations and Proposals for the 2013 Annual Meeting

     91   

EXHIBIT A: KRAFT FOODS INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP INFORMATION

     A-1   

MAPS AND DIRECTIONS TO THE ANNUAL MEETING

  

 

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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.

 

 

ANNUAL MEETING

 

Time and Date

  9:00 a.m. CDT on Wednesday, May 23, 2012

Place

 

North Shore Center for the Performing Arts in Skokie

9501 Skokie Boulevard

Skokie, Illinois 60077

Record Date

  March 15, 2012

Voting

  Each share is entitled to one vote on each matter to be voted upon at the Annual Meeting.

Admission

  You must register in advance in order to attend the Annual Meeting. Please follow the advance registration instructions described in Question 24 on page 89 of the Proxy Statement.

 

 

VOTING ITEMS

 

Item

       

Board
Recommendation

  

Page
Reference

Item 1 –

  Election of 11 Directors    For all nominees    3

Item 2 –

  Advisory Vote to Approve Executive Compensation    For    72

Item 3 –

  Approval of Amendment to Amended and Restated Articles of Incorporation to Change Company Name    For    74

Item 4 –

  Ratification of PricewaterhouseCoopers LLP as Auditors for 2012    For    76

Item 5 –

  Shareholder Proposal: Sustainable Forestry Report    Against    76

Item 6 –

  Shareholder Proposal: Report on Extended Producer Responsibility    Against    79

Item 7 –

 

Shareholder Proposal: Report on Lobbying

 

   Against    81
Transact any other business that properly comes before the meeting      

 

 

DIRECTOR NOMINEES

 

Name

 

Age

 

Director
Since

  Occupation and Experience  

Independent

  Board Committees*
         

Audit

 

Finance

 

HRCC

 

GMPAC

Myra M. Hart

  71   2007   Professor, Harvard
Business School
(Retired)
  Yes   X       Chair

Peter B. Henry

  42   2011   Dean, Leonard N. Stern

School of Business,
New York University

  Yes         X

Lois D. Juliber

  63   2007   Former Vice Chairman
and COO, Colgate-
Palmolive Company
  Yes       Vice Chair   X

Mark D. Ketchum

  62   2007   Former President and
CEO, Newell
Rubbermaid Inc.
 

Yes

(Lead Director)

  X      

Terry J. Lundgren

  60   New Nominee   President and CEO,
Macy’s, Inc.
  Yes        

Mackey J. McDonald

  65   2010   Senior Advisor,
Crestview Partners
  Yes   X   X    

Jorge S. Mesquita

  50   New Nominee   Group President – New
Business Creation and
Innovation, The Procter
& Gamble Company
  Yes        

 

 

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Name

 

Age

 

Director
Since

 

Occupation and
Experience

 

Independent

  Board Committees*
         

Audit

 

Finance

 

HRCC

 

GMPAC

John C. Pope

  63   2001   Chairman, PFI Group, LLC   Yes     Chair   X  

Fredric G. Reynolds

  61   2007   Former Executive Vice President and CFO, CBS Corporation   Yes   Chair   X    

Irene B. Rosenfeld

  58   2006   Chairman and CEO, Kraft Foods Inc.   No        

Jean-François M. L.

van Boxmeer

  50   2010   Chairman and CEO, Heineken N.V.   Yes       X   X

 

* Audit – Audit Committee; Finance – Finance Committee; HRCC – Human Resources and Compensation Committee; GMPAC – Governance, Membership and Public Affairs Committee

 

 

EXECUTIVE COMPENSATION

Consistent with our shareholders’ preference as indicated at our 2011 annual meeting, our Board has adopted a policy providing that shareholders vote annually to approve, on an advisory (non-binding) basis, the compensation of our Named Executive Officers as disclosed in the proxy statement. This vote is not intended to address any specific item of our compensation program, but rather to address our overall approach to the compensation of our Named Executive Officers as described in this Proxy Statement.

We believe that our executive compensation program is strongly aligned with delivering sustainable top-tier performance and reflects competitive practices for executive compensation. We designed our executive compensation programs to attract, retain and motivate superior executive talent, including our Named Executive Officers, who are critical to our success. Under these programs, we seek to align pay and performance by making a significant portion of our Named Executive Officers’ compensation dependent on:

 

  (1) the achievement of specific annual and long-term strategic and financial goals; and
  (2) the realization of increased shareholder value.

Our “Named Executive Officers” are those individuals who served as our Chief Executive Officer and Chief Financial Officer during 2011 and our three other most highly compensated officers. Please read “Compensation Discussion and Analysis” beginning on page 31 and “Executive Compensation Tables” beginning on page 55 for additional details about our executive compensation programs, including information about our Named Executive Officers’ fiscal year 2011 compensation.

 

 

COMPANY NAME CHANGE

We are asking our shareholders to approve an amendment to our Amended and Restated Articles of Incorporation to change our company’s name from Kraft Foods Inc. to Mondelēz International, Inc. On August 4, 2011, we publicly announced our intent to create two independent public companies – a global snacks business and a North American grocery business – via a spin-off of the North American grocery business. Having determined that the Kraft name should remain with the grocery business, the Board sought and decided on a new name which it believes appropriately reflects the key attributes of the future global snacks business. The Board has adopted a proposed amendment to the Amended and Restated Articles of Incorporation to change the company’s name and recommends that the amendment be approved by our shareholders. For more information, please see page 74 in this Proxy Statement.

 

 

AUDITORS

As a matter of good governance, we are asking shareholders to ratify the selection of PricewaterhouseCoopers as our independent auditors for 2012. We provide information on fees paid to PwC in 2011 and 2010 on page 22 of this Proxy Statement.

 

 

SHAREHOLDER PROPOSALS

In accordance with SEC rules, we include in this Proxy Statement three shareholder proposals (Items 5 through 7). The Board recommends a vote AGAINST each of these proposals for the reasons set forth following each proposal.

 

 

FREQUENTLY ASKED QUESTIONS

We provide answers to many frequently asked questions about the annual meeting and voting, including how to vote shares held in employee benefit plans, in the Q&A section beginning on page 83 of this Proxy Statement.

 

 

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ITEM 1. ELECTION OF DIRECTORS

Process for Nominating Directors

The Governance, Membership and Public Affairs Committee of our Board of Directors, which we also refer to in this “Item 1. Election of Directors” section as the “Committee,” is responsible for identifying, evaluating and recommending to the Board nominees for election at the 2012 Annual Meeting of Shareholders (and any adjournments or postponements of the meeting) (the “Annual Meeting”). The Committee relies on nominee suggestions from the directors, shareholders, management and others. From time to time, the Committee retains executive search and board advisory firms to assist in identifying and evaluating potential nominees. During 2011, the Committee retained Heidrick & Struggles to assist in the search and recruitment of directors, resulting in the Board’s nomination of Terry J. Lundgren and Jorge S. Mesquita as director nominees at the Annual Meeting.

General Qualifications

The Board believes all directors should possess certain personal characteristics, including integrity, sound business judgment and vision, to serve on our Board. We believe these characteristics are necessary to establish a competent, ethical and well-functioning Board that best represents the interests of our business, shareholders, employees, business partners and consumers. Under our Corporate Governance Guidelines (the “Guidelines”), when evaluating the suitability of individuals for nomination, the Committee takes into account many factors. These include the individual’s general understanding of the varied disciplines relevant to the success of a large, publicly traded company in a global business environment, understanding of our global businesses and markets, professional expertise and education. The Committee also considers an individual’s ability to devote sufficient time and effort to fulfill his or her Kraft Foods’ responsibilities, taking into account the individual’s other commitments. In addition, the Board considers whether an individual meets various independence requirements, including whether his or her service on boards and committees of other organizations is consistent with our conflicts of interest policy.

When determining whether to recommend a director for re-election, the Committee also considers the director’s attendance at Board and committee meetings and participation in, and contributions to, Board and committee activities. In addition, under the Guidelines, the Committee generally will not recommend, and the Board will not approve, the nomination for re-election of an independent director who has reached the age of 75. However, if the Board determines that the director’s nomination for re-election is in our shareholders’ best interests, the Committee may recommend, and the Board may approve, the director’s nomination for re-election for up to two annual terms following his or her 75th birthday. An employee director must resign from the Board upon ceasing to be a Kraft Foods’ officer.

Diversity

The Guidelines provide that the Committee will consider factors that promote diversity of views and experience when evaluating the suitability of individuals for nomination. While we have no formal written policy regarding what specific factors would create a diversity of views and experience, the Committee recognizes diversity’s significant benefit to the Board and Kraft Foods, as varying viewpoints contribute to a more informed and effective decision-making process. The Committee seeks broad experience in relevant industries, professions and areas of expertise important to our operations, including global business, manufacturing, marketing, science, finance and accounting, academia, law and government. The Committee also recognizes the importance of having directors with significant international experiences and backgrounds given our global, multicultural business.

As shown below, our director nominees have varied experiences, backgrounds and personal characteristics, which ensure that the Board will have a diversity of viewpoints and enable it to effectively represent our business, shareholders, employees, business partners and consumers:

 

   

7 director nominees are current or former presidents or chief executive officers of large, complex enterprises;

 

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7 director nominees currently hold or held key positions at major consumer products or retail companies, including food and beverage companies;

 

   

3 director nominees have significant financial and accounting backgrounds;

 

   

2 director nominees are current or former professors at leading institutions;

 

   

3 director nominees are women, including the Chairman;

 

   

3 director nominees are living and working or have lived and worked outside the United States;

 

   

1 director nominee is African-American; and

 

   

the age range for the director nominees is 42 – 71.

Individual Skills and Experience

When evaluating potential director nominees, the Committee considers each individual’s professional expertise and educational background in addition to the general qualifications. The Committee evaluates each individual in the context of the Board as a whole. The Committee works with the Board to determine the appropriate mix of backgrounds and experiences that would establish and maintain a Board that is strong in its collective knowledge, allowing the Board to fulfill its responsibilities and best perpetuate our long-term success and represent our shareholders’ interests. To help the Committee determine whether director nominees qualify to serve on our Board and would contribute to the Board’s current and future needs, director nominees complete questionnaires regarding their backgrounds, qualifications, skills and potential conflicts of interest. Additionally, the Committee annually conducts evaluations of the Board, the Board’s committees and individual directors that assess the experience, skills, qualifications, diversity and contributions of each individual and of the group as a whole.

The Committee regularly communicates with the Board to identify characteristics, professional experience and areas of expertise that are particularly desirable for our directors to possess to help meet specific Board needs, including:

 

   

industry knowledge, which is vital in understanding and reviewing our strategy, including the acquisition of businesses that offer complementary products or services;

 

   

significant operating experience as current or former executives, which gives directors specific insight into, and expertise that will foster active participation in, the development and implementation of our operating plan and business strategy;

 

   

leadership experience, as directors who have served in significant leadership positions possess strong abilities to motivate and manage others and to identify and develop leadership qualities in others;

 

   

substantial global business experience, which is particularly important given our global presence;

 

   

accounting and financial expertise, which enables directors to analyze our financial statements, capital structure and complex financial transactions and oversee our accounting and financial reporting processes;

 

   

product development and marketing experience in complementary industries, which contributes to our identification and development of new food and beverage products and implementation of marketing strategies that will improve our performance;

 

   

public company board and corporate governance experience at large publicly traded companies, which provides directors with a solid understanding of their extensive and complex oversight responsibilities and furthers our goals of greater transparency, accountability for management and the Board and protection of shareholder interests; and

 

   

academic and research experience, which brings to the Board strong critical thinking and verbal communications skills as well as a greater diversity of views and backgrounds.

 

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The following table highlights each director nominee’s specific skills, knowledge and experiences that the Committee relied upon when determining whether to nominate the individual for election. A particular nominee may possess other skills, knowledge or experience even though they are not indicated below.

 

    Industry   Operating   Leadership   Global
Business
  Accounting
and
Financial
  Product
Development
and
Marketing
  Public
Company
Board/
Corporate
Governance
  Academic
and
Research

Myra M. Hart

  Ö   Ö   Ö       Ö   Ö   Ö

Peter B. Henry

      Ö   Ö   Ö       Ö

Lois D. Juliber

  Ö   Ö   Ö   Ö     Ö   Ö  

Mark D. Ketchum

  Ö   Ö   Ö   Ö     Ö   Ö  

Terry J. Lundgren

    Ö   Ö       Ö   Ö  

Mackey J. McDonald

  Ö   Ö   Ö   Ö       Ö  

Jorge S. Mesquita

  Ö   Ö   Ö   Ö     Ö    

John C. Pope

    Ö   Ö   Ö   Ö   Ö   Ö  

Fredric G. Reynolds

  Ö   Ö   Ö   Ö   Ö     Ö  

Irene B. Rosenfeld

  Ö   Ö   Ö   Ö     Ö   Ö  

Jean-François M.L. van Boxmeer

  Ö   Ö   Ö   Ö     Ö    

The Board believes that all the director nominees for election at the Annual Meeting are highly qualified. As the table shows, the nominees have significant leadership and professional experience, knowledge and skills that qualify them for service on our Board. As a group they represent diverse views, experiences and backgrounds. Each nominee other than the Chairman satisfies independence requirements. All director nominees satisfy the criteria set forth in our Guidelines and possess the personal characteristics that are essential for the proper and effective functioning of the Board. Each nominee’s biography below contains additional information regarding his or her professional experience, qualifications and skills.

Director Nominees

All Board members are subject to annual election. Our Board currently has 11 directors all of whom were elected at the 2011 Annual Meeting. Ajaypal S. Banga and Richard A. Lerner have declined to stand for re-election due to other commitments and will step down from the Board at the time of the Annual Meeting. The balance of our current directors are standing for re-election. Additionally, Terry J. Lundgren and Jorge S. Mesquita will stand for election.

In March 2012, the Committee recommended, and the Board nominated, each of the 11 director nominees listed below for election at the Annual Meeting, for a term ending at the 2013 Annual Meeting or until his or her successor has been duly elected and qualified. Each nominee has consented to his or her nomination for election to the Board. As we announced on August 4, 2011, our company is pursuing the creation of two independent public companies – a global snacks business and a North American grocery business – via a spin-off of the North American grocery business (the “Spin-off”) by year-end 2012. In connection with the Spin-off, we anticipate that some of our directors will become directors of the North American grocery company, to be known as Kraft Foods Group, Inc., and therefore will resign from our Board of Directors. The Spin-off is subject to various conditions precedent, including approval by our Board of Directors, and there can be no assurance that the transaction will be completed.

 

 

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The following table presents information regarding each director nominee as of March 23, 2012, including information about each nominee’s professional experience, educational background and qualifications that led the Board to nominate him or her for election. The following also includes information about all public company directorships each nominee currently holds and held during the past five years. In addition to the public company directorships listed below, the nominees also serve on the boards of various charitable, educational and cultural institutions.

The persons named as proxies in the proxy card or electronic voting form will vote the shares represented by the proxy card or electronic voting form FOR or AGAINST the director nominees or ABSTAIN from voting, as instructed in the proxy card or electronic voting form. If a director nominee should become unavailable to serve as a director, an event that we do not anticipate occurring, the persons named as proxies intend to vote the shares for the person whom the Board may designate to replace that nominee. In lieu of naming a substitute, the Board may reduce the number of directors on our Board.

The Board recommends shareholders vote FOR the election of each of these nominees.

 

   

LOGO

 

Myra M. Hart

 

Professor, Harvard Business School (Retired)

 

Director since December 2007

 

Committees:

•    Chair, Governance, Membership and Public Affairs

•    Audit

 

Age: 71

  

Professional Experience:

Dr. Hart joined the faculty of the Harvard Business School in 1995 as a professor of management practice and retired to its senior faculty in 2008. From 1985 until 1990, Dr. Hart was a member of the team that founded Staples, Inc., an office supply retail store chain, leading operations, strategic planning and growth implementation in new and existing markets. She was Director of Marketing for Star Market, a division of SUPERVALU Inc., a U.S. grocery company, from 1983 to 1985.

 

Education:

Dr. Hart received a Bachelor’s Degree from Cornell University and a Master of Business Administration and a Doctor of Business Administration from Harvard University.

 

Public Company Boards:

Dr. Hart is a director of Office Depot Inc. and was formerly a director of Royal Ahold N.V. and Summer Infant, Inc.

 

Director Qualifications:

•    Leadership and Operating experience – founding officer of a global office products company

•    Industry Knowledge and Marketing experience – former Director of Marketing of a division of a large U.S. grocery company and former Director of a global supermarket company

•    Public Company Board and Corporate Governance experience – current and former director of several public companies

•    Academic experience – retired professor of management practice at a leading business school

 

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LOGO

 

Peter B. Henry

 

Dean, Leonard N. Stern School of Business, New York University

 

Director since May 2011

 

Committees:

 

• Governance, Membership and Public Affairs

 

Age: 42

  

Professional Experience:

Dr. Henry has been Dean of the Leonard N. Stern School of Business at New York University since January 2010. Prior to that, Dr. Henry was on the faculty at Stanford University since 1997, where he held various positions, including Konosuke Matsushita Professor of International Economics, John and Cynthia Fry Gunn Faculty Scholar and Associate Director of the Stanford Center for Global Business and the Economy from 2008 to 2009, Professor of Economics from 2007 to 2008 and Tenured Associate Professor of Economics from 2005 to 2007.

 

Education:

Dr. Henry received a Bachelor’s Degree in Economics from the University of North Carolina at Chapel Hill; a Bachelor’s Degree in Mathematics from Oxford University; and a Doctor of Philosophy in Economics from Massachusetts Institute of Technology.

 

Director Qualifications:

• Leadership and Global Business experience and Financial expertise – Dean of a leading business school and associate director of a global business center; served in governmental advisory roles, including leadership of President Obama’s Transition Team’s review of international lending agencies and an economic advisor to governments in developing markets

• Academic and Research experience – Dean and professor of economics at leading business schools and member of economic research and foreign relations organizations

   

LOGO

 

Lois D. Juliber

 

Former Vice Chairman and
Chief Operating Officer,
Colgate-Palmolive Company

 

Director since November 2007

 

Committees:

 

•    Vice Chair, Human Resources and Compensation

•    Governance, Membership and Public Affairs

 

Age: 63

  

Professional Experience:

Ms. Juliber served as a Vice Chairman of the Colgate-Palmolive Company, a global consumer products company, from July 2004 until April 2005. She served as Colgate-Palmolive’s Chief Operating Officer from March 2000 to July 2004, Executive Vice President – North America and Europe from 1997 until March 2000 and President of Colgate North America from 1994 to 1997. Prior to joining Colgate-Palmolive, Ms. Juliber spent 15 years at Kraft Foods’ predecessor, General Foods Corporation, in a variety of key marketing and general management positions.

 

Education:

Ms. Juliber received a Bachelor’s Degree from Wellesley College and a Master of Business Administration from Harvard University.

 

Public Company Boards:

Ms. Juliber is a director of E.I. du Pont De Nemours and Company and Goldman Sachs Group, Inc.

 

Director Qualifications:

•    Leadership and Operating experience – former Vice Chairman and Chief Operating Officer of a global consumer products company

•    Industry Knowledge and Marketing and Global Business experience – 32 years working in the global consumer products industry

•    Public Company Board and Corporate Governance experience – current director of two global public companies

 

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LOGO

 

Mark D. Ketchum

 

Former President and
Chief Executive Officer, Newell Rubbermaid Inc.

 

Director since April 2007

 

Lead Director since January 2009

 

Committees:

 

•    Audit

 

Age: 62

  

Professional Experience:

Mr. Ketchum served as President and Chief Executive Officer of Newell Rubbermaid Inc., a global marketer of consumer and commercial products, from October 2005 to June 2011 and has been a member of its board of directors since November 2004. From 1999 to 2004, Mr. Ketchum was President, Global Baby and Family Care of The Procter & Gamble Company, a global marketer of consumer products. Mr. Ketchum joined The Procter & Gamble Company in 1971, where he served in a variety of roles, including Vice President and General Manager – Tissue/Towel from 1990 to 1996 and President–North American Paper Sector from 1996 to 1999.

 

Education:

Mr. Ketchum received a Bachelor’s Degree in Industrial Engineering and Operations Research from Cornell University.

 

Public Company Boards:

Mr. Ketchum is a director of Newell Rubbermaid Inc. He was formerly a director of Hillenbrand Industries, Inc.

 

Director Qualifications:

• Leadership and Operating experience – former President and Chief Executive Officer of a global products company and former President of a division of a global consumer products company

• Industry Knowledge and Product Development, Marketing and Global Business experience – held key roles at global consumer products companies for four decades

• Public Company Board and Corporate Governance experience – current and former director of global public companies

   

LOGO

 

Terry J. Lundgren

 

President and

Chief Executive Officer,

Macy’s, Inc.

 

New Nominee

 

Age: 60

  

Professional Experience:

Mr. Lundgren has served as President and Chief Executive Officer of Macy’s, Inc., a national retailer, since 2003 and has served as a director since 1997, becoming Chairman of the Board in 2004. Prior to that, he served as the President and Chief Operating Officer from 2002 to 2003, President and Chief Merchandising Officer from 1997 until 2002 and Chairman and Chief Executive Officer, Federated Merchandising Group from 1994 until 1997. Prior to joining Federated Department Stores, Inc., Macy’s predecessor, in 1994, Mr. Lundgren was with The Neiman Marcus Group from 1988 to 1994, serving as Chairman and Chief Executive Officer, Neiman Marcus Stores from 1990 to 1994.

 

Education:

Mr. Lundgren received a Bachelor’s Degree from the University of Arizona.

 

Public Company Boards:

Mr. Lundgren is a director of Macy’s, Inc.

 

Director Qualifications:

•    Leadership, Operating and Marketing experience – current President and Chief Executive Officer, and former Chief Operating Officer and Chief Merchandising Office, of a leading national retailer

•    Public Company Board and Corporate Governance experience – many years’ experience as a director and Chairman of the Board of leading national retailers

 

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LOGO

 

Mackey J. McDonald

 

Senior Advisor, Crestview Partners

 

Director since January 2010

 

Committees:

 

• Audit

• Finance

 

Age: 65

  

Professional Experience:

Mr. McDonald has served as a senior advisor to Crestview Partners, a private equity firm, since 2008. Mr. McDonald served as Chief Executive Officer of VF Corporation, an apparel manufacturer, from 1996 to January 2008 and as President from 1993 to 1996. He also served as a director of VF Corporation from 1993, and as Chairman from 1998 until he retired in August 2008.

 

Education:

Mr. McDonald received a Bachelor’s Degree in English from Davidson College and a Master of Business Administration from Georgia State University.

 

Public Company Boards:

Mr. McDonald is a director of Hyatt Hotels Corporation and Wells Fargo & Company. Mr. McDonald was formerly a director of The Hershey Company, Tyco International, Ltd. and Wachovia Corporation.

 

Director Qualifications:

•    Leadership, Operating and Global Business experience – former President and Chief Executive Officer of a global consumer products company

•    Industry Knowledge and Public Company Board and Corporate Governance experience – current and former director of several global public companies, including companies in the food and consumer products industries

LOGO

 

Jorge S. Mesquita

 

Group President – New Business Creation and Innovation, The Procter &

Gamble Company

 

New Nominee

 

Age: 50

  

Professional Experience:

Mr. Mesquita has served as Group President – New Business Creation and Innovation of The Procter & Gamble Company, a global marketer of consumer products, since March 14, 2012 and served as Group President - Special Assignment from January 1, 2012 until March 13, 2012. Prior to that, he served as Group President, Global Fabric Care from 2007 to 2011 and as President, Global Home Care from 2001 to 2007, also serving as President of Commercial Products and President of P&G Professional from 2006 to 2007. Mr. Mesquita has been employed continuously by The Procter & Gamble Company, in various marketing and leadership capacities, since 1984.

 

Education:

Mr. Mesquita received a Bachelor’s Degree in Chemical Engineering from the Florida Institute of Technology.

 

Director Qualifications:

• Leadership, Operating and Global Business experience – current Group President of major division of global marketer of consumer products

• Industry Knowledge and Marketing experience – former President of major divisions of global marketer of consumer products

 

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LOGO

 

John C. Pope

 

Chairman, PFI Group, LLC

 

Director since July 2001

 

Committees:

 

• Chair, Finance

• Human Resources and Compensation

 

Age: 63

  

Professional Experience:

Mr. Pope has served as Chairman of PFI Group, LLC, a financial management firm that invests primarily in private equity opportunities, since July 1994. From December 1995 to November 1999, Mr. Pope was Chairman of the Board of MotivePower Industries, Inc., a manufacturer and remanufacturer of locomotives and locomotive components. Prior to joining MotivePower Industries, Inc., Mr. Pope served in various capacities with United Airlines and its parent, UAL Corporation, including as Director, Vice Chairman, President, Chief Operating Officer, Chief Financial Officer and Executive Vice President, Marketing and Finance.

 

Education:

Mr. Pope received a Bachelor’s Degree in Engineering and Applied Science from Yale University and a Master of Business Administration from Harvard University.

 

Public Company Boards:

Mr. Pope is a director of Con-way, Inc., Dollar Thrifty Automotive Group, Inc., R.R. Donnelley and Sons Co. and Waste Management, Inc. Mr. Pope was formerly a director of Federal-Mogul Corporation and MotivePower Industries, Inc.

 

Director Qualifications:

•    Leadership, Operating, Marketing and Global Business experience – held key leadership roles, including President, Chief Operating Officer, Chief Financial Officer and Executive Vice President, Marketing and Finance of a global company

•    Accounting and Financial expertise – Chairman of a financial management firm and former Chief Financial Officer and Executive Vice President, Marketing and Finance of a global company

•    Public Company Board and Corporate Governance experience – current and former director and audit committee member of several public companies

 

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LOGO

 

Fredric G. Reynolds

 

Former Executive Vice President and Chief Financial Officer, CBS Corporation

 

Director since December 2007

 

Committees:

 

• Chair, Audit

• Finance

 

Age: 61

  

Professional Experience:

Mr. Reynolds served as Executive Vice President and Chief Financial Officer of CBS Corporation, a mass media company, from January 2006 until his retirement in August 2009. From 2001 until 2006, Mr. Reynolds served as President and Chief Executive Officer of Viacom Television Stations Group and Executive Vice President and Chief Financial Officer of the businesses that comprised Viacom Inc. He also served as Executive Vice President and Chief Financial Officer of CBS Corporation and its predecessor, Westinghouse Electric Corporation, from 1994 to 2000. Prior to that, Mr. Reynolds served in various capacities with PepsiCo, Inc., a food and beverage company, for twelve years, including Chief Financial Officer or Financial Officer at Pizza Hut, Pepsi Cola International, Kentucky Fried Chicken Worldwide and Frito-Lay.

 

Education:

Mr. Reynolds received a Bachelor’s Degree in Business Administration in Finance from the University of Miami and is a certified public accountant.

 

Public Company Boards:

Mr. Reynolds is a director of AOL, Inc.

 

Director Qualifications:

•    Leadership, Operating and Global Business experience – former President, Chief Executive Officer, Executive Vice President and Chief Financial Officer of global media companies and divisions of a global food and beverage company

•    Industry Knowledge – twelve years in various positions, including key roles, at a global food and beverage company

•    Accounting and Financial expertise – former Chief Financial Officer of a mass media company and divisions of a global food and beverage company, and certified public accountant

•    Public Company Board and Corporate Governance experience – current director of another global public company

 

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LOGO

 

Irene B. Rosenfeld

 

Chairman and Chief Executive Officer, Kraft Foods Inc.

 

Director since June 2006

 

Age: 58

  

Professional Experience:

Ms. Rosenfeld was appointed Chief Executive Officer and a member of the Board of Kraft Foods in June 2006 and Chairman of the Board in March 2007. Prior to that, she had been Chairman and Chief Executive Officer of Frito-Lay, a division of PepsiCo, Inc., a food and beverage company, from September 2004 to June 2006. Previously, Ms. Rosenfeld was employed continuously by Kraft Foods and its predecessor, General Foods Corporation, in various capacities from 1981 until 2003, including President of Kraft Foods North America and President of Operations, Technology, Information Systems and Kraft Foods Canada, Mexico and Puerto Rico.

 

Education:

Ms. Rosenfeld received a Bachelor’s Degree in Psychology, a Master of Science in Business Administration and a Doctor of Philosophy in Marketing and Statistics from Cornell University.

 

Public Company Boards:

Ms. Rosenfeld was formerly a director of AutoNation Inc.

 

Director Qualifications:

• Leadership and Operating experience – current Chairman and Chief Executive Officer of Kraft Foods and former Chairman and Chief Executive Officer of a major business unit of another global food and beverage company

• Industry Knowledge and Product Development, Marketing and Global Business experience – long-time service in various positions, including key roles, at Kraft Foods and another global food and beverage company

• Public Company Board and Corporate Governance experience – former director of another public company

LOGO

 

Jean-François M. L. van Boxmeer

 

Chairman of the Executive

Board and Chief Executive Officer of Heineken N.V.

 

Director since January 2010

 

Committees:

 

• Human Resources and Compensation

• Governance, Membership and Public Affairs

 

Age: 50

  

Professional Experience:

Mr. van Boxmeer has been Chairman of the Executive Board and Chief Executive Officer of Heineken N.V., a brewing company, since 2005 and a member of its Executive Board since 2001. He has been employed continuously by Heineken, in various capacities, since 1984, including General Manager of Heineken Italia from 2000 to 2001.

 

Education:

Mr. van Boxmeer received a Master Degree in Economics at les Faculté universitaires Notre Dame de la Paix S.J.

 

Director Qualifications:

• Leadership and Operating experience – Chairman and Chief Executive Officer of a global brewing company

• Industry Knowledge and Product Development, Marketing and Global Business experience – over two decades in various positions, including key roles, at a global brewing company

 

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CORPORATE GOVERNANCE

 

We believe that a strong corporate governance framework is essential to the long-term success of our company. This section describes our governance policies, key governance practices, Board leadership structure and oversight functions.

Governance Guidelines and Codes of Conduct

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines that articulate our governance philosophy, practices and policies in a range of areas, including: the Board’s role and responsibilities; composition and structure of the Board; establishment and responsibilities of the committees of the Board; executive and director performance evaluations; and succession planning.

At least annually, the Board’s Governance, Membership and Public Affairs Committee reviews the Guidelines and recommends any changes to the Board. Shareholders and others can access the Guidelines on our website as described below.

Code of Business Conduct and Ethics for Non-Employee Directors and Code of Conduct for Employees

We have adopted a Code of Business Conduct and Ethics for Non-Employee Directors (the “Directors Ethics Code”). It fosters a culture of honesty and integrity, focuses on areas of ethical risk, guides non-employee directors in recognizing and handling ethical issues and provides mechanisms to report unethical conduct. Annually, each non-employee director must acknowledge in writing that he or she has received, reviewed and understands the Directors Ethics Code.

We also have a Code of Conduct that applies to all of our employees. It includes a set of employee policies that cover ethical and legal practices for nearly every aspect of our business. The Code of Conduct reflects our values, the foremost being trust, and contains important rules our employees must follow when conducting business to promote compliance and integrity. The Code of Conduct is part of our global compliance and integrity program that provides support and training throughout our company and encourages reporting of wrongdoing by offering anonymous reporting options and a non-retaliation policy. Shareholders and others can access our Code of Conduct on our website at www.kraftfoodscompany.com/responsibility/compliance-integrity.

We will disclose in the Corporate Governance section of our website (described below) any amendments to our Directors Ethics Code or Code of Conduct and any waiver granted to an executive officer or director under these codes.

Corporate Governance Materials Available on Our Website

We include the following documents in the Corporate Governance section of our website at www.kraftfoodscompany.com/investor/corporate-governance:

 

   

our Articles of Incorporation,

 

   

our By-Laws,

 

   

the Guidelines,

 

   

our Board committee charters, and

 

   

the Directors Ethics Code.

The information on our website is not, and will not be deemed to be, a part of this Proxy Statement or incorporated into any of our other filings with the U.S. Securities and Exchange Commission (“SEC”).

 

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Key Corporate Governance Practices

We have adopted several corporate governance practices that enhance the Board’s independent leadership, accountability and oversight:

 

   

Leadership Structure. As described further below under “Board Leadership Structure,” our Guidelines currently provide that the Chief Executive Officer serves as Chairman of the Board and an independent director serves as Lead Director.

 

   

Limitation on Management Directors. The Guidelines provide that the Chairman and Chief Executive Officer generally should be the only member of management to serve as a director.

 

   

Independent Committees. The Board determined that all Board committees should consist entirely of independent directors.

 

   

Executive Sessions. At each Board meeting, our independent directors meet without the Chief Executive Officer or any other members of management present to discuss issues important to Kraft Foods, including matters concerning management.

 

   

Special Meetings of the Board. Our By-Laws allow the Lead Director, in addition to the Chairman, to call special meetings of the Board.

 

   

Annual Chairman and CEO Evaluation. The Human Resources and Compensation Committee annually evaluates the Chief Executive Officer’s performance. Additionally, the Governance, Membership and Public Affairs Committee annually reviews the Chief Executive Officer’s performance and suitability as Chairman when determining whether to nominate him or her for re-election.

 

   

Special Meetings of Shareholders. Our By-Laws allow shareholders of record of at least twenty percent (20%) of the voting power of the outstanding stock to call a special meeting of shareholders.

 

   

Majority Voting in Director Elections. Our By-Laws provide that in uncontested elections, director nominees must be elected by a majority of the votes cast.

 

   

Annual Election of Directors. Our By-Laws provide that our shareholders elect all directors annually.

 

   

Stock Holding Requirements. The Guidelines provide that directors are expected to hold Kraft Foods common stock in an amount equal to five (5) times the annual Board retainer within five (5) years of joining the Board. Equity grants awarded to directors in May 2010 or thereafter must be held until six (6) months after the director concludes service on the Board.

 

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Board Leadership Structure

Our current Board leadership structure consists of:

 

   

a combined Chairman and Chief Executive Officer;

 

   

an independent Lead Director;

 

   

all independent directors except the Chairman and CEO;

 

   

independent Board committees; and

 

   

governance practices that promote independent leadership and oversight.

Combined Chairman and CEO

Our By-Laws provide the Board flexibility in determining its leadership structure. The Guidelines currently provide that the Chief Executive Officer serves as Chairman of the Board and an independent director serves as Lead Director. Having one individual serve as both Chief Executive Officer and Chairman benefits Kraft Foods and our shareholders by contributing to the Board’s efficiency and effectiveness. The Board believes that the Chief Executive Officer is generally in the best position to inform our independent directors about our global operations and issues important to Kraft Foods. Combining these roles also allows timely communication between management and the Board on critical business matters given the complexity and global reach of our business and ensures alignment of our business and strategic plans. At the same time, as described below under “Independent Director Leadership and Oversight,” we believe that our governance practices ensure that skilled and experienced independent directors provide independent leadership.

Our By-Laws permit one person to hold one or more offices such as chief executive officer and chairman, and provide that the Board may appoint, and designate the duties of, a lead director. The Board periodically evaluates our leadership structure and determines whether combining the roles of Chief Executive Officer and Chairman is in our best interests based on circumstances existing at the time. When determining the leadership structure that will allow the Board to effectively carry out its responsibilities and best represent our shareholders’ interests, the Board considers various factors, including our specific business needs, our operating and financial performance, industry conditions, the economic and regulatory environment, Board and committee annual self-evaluations, advantages and disadvantages of alternative leadership structures and our corporate governance practices.

Ms. Rosenfeld has served as our Chief Executive Officer and a director since June 2006. In 2007, the Board concluded that Ms. Rosenfeld should also serve as Chairman because of her extensive knowledge of Kraft Foods, the food industry and the competitive environment, her leadership experience and her dedication to working closely with other members of the Board. The Board believes that this leadership structure best meets our needs at this time, as it has provided an effective balance of strong leadership and independent oversight during the last several years.

Independent Director Leadership and Oversight

Because the Board believes that independent Board leadership is important, it established the role of Lead Director for times when one individual serves as Chairman and Chief Executive Officer. The Lead Director is an independent director who serves as the principal liaison between the Chairman and the other independent directors and has similar responsibilities to those of the Chairman. The Board created the Lead Director position to increase the Board’s effectiveness and promote open communication among independent directors. The Lead Director works with the Chairman and other members of the Board to provide independent leadership of the Board’s affairs on behalf of our shareholders.

 

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Under the Guidelines, the Lead Director, in consultation with the other independent directors, is responsible for:

 

   

advising the Chairman as to an appropriate schedule of Board meetings;

 

   

reviewing and providing the Chairman with input regarding the agendas and materials for the Board meetings;

 

   

presiding at all Board meetings at which the Chairman is not present, including executive sessions of the independent directors at regularly scheduled Board meetings, and, as appropriate, apprising the Chairman of the topics considered;

 

   

being available for consultation and direct communication with our shareholders;

 

   

calling meetings of the independent directors when necessary and appropriate;

 

   

serving as an unofficial member of all Board committees of which he or she is not a member; and

 

   

performing such other duties as the Board may from time-to-time delegate.

Our current Lead Director is Mark D. Ketchum, whom the Board appointed to that position in 2009. The Board believes that Mr. Ketchum is an effective Lead Director due to his independence, leadership and operating experience from formerly serving as president and chief executive officer of a global consumer products company and his corporate governance experience acquired while serving on public company boards.

Director Independence

The Guidelines require that at least 75% of the directors on our Board meet the New York Stock Exchange (“NYSE”) listing standards’ “independence” requirements. For a director to be considered independent, the Board must affirmatively determine, after reviewing all relevant information, that a director has no direct or indirect material relationship with Kraft Foods. To assist in this determination, the Board adopted categorical standards of director independence, including whether a director or a member of the director’s immediate family has any current or past employment or affiliation with Kraft Foods or our independent registered public accountants. These categorical standards are listed as Annex A to the Guidelines, which are available on our website at www.kraftfoodscompany.com/investor/corporate-governance.

The Board determined that, under our categorical standards and the NYSE listing standards, the following director nominees are independent: Myra M. Hart; Peter B. Henry; Lois D. Juliber; Mark D. Ketchum; Terry J. Lundgren; Mackey J. McDonald; Jorge S. Mesquita; John C. Pope; Fredric G. Reynolds and Jean-François M.L. van Boxmeer. Irene B. Rosenfeld is not independent because she is an executive officer of Kraft Foods.

Oversight of Risk Management

Our business faces various risks, including strategic, financial, legal, regulatory, operational, accounting and reputational risks. Management is responsible for the day-to-day management and mitigation of risk. Identifying, managing and mitigating our exposure to these risks and effectively overseeing this process are critical to our operational decision-making and annual planning processes. Our Board has ultimate responsibility for risk oversight, but it has delegated primary responsibility for overseeing risk assessment and management to the Audit Committee. As required by NYSE listing standards, the Audit Committee discusses guidelines and policies to govern the process by which management assesses and manages risk. In addition, pursuant to its charter, the Audit Committee reviews and discusses risk assessment and risk management guidelines, policies and processes utilized in our Enterprise Risk Management (“ERM”) approach. Our ERM approach is an ongoing process effected at all levels of our operations and across business units to identify, assess, monitor, manage and mitigate risk. The ERM approach facilitates open communication between management

 

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and the Board to advance the Board’s and committees’ understanding of our risk management process, how it is functioning, the participants in the process, key risks to our business and performance and the information gathered through the approach. The Audit Committee annually reviews the ERM approach, as well as the results of the annual ERM assessment, to assure the process continues to function effectively.

Annually, the Audit Committee allocates responsibility for overseeing the review and assessment of key risk exposures and management’s response to those exposures to the full Board or it retains those responsibilities as appropriate. Management provides reports to the Board and Audit Committee, in advance of meetings, regarding these key risks and the actions management has taken to monitor, control and mitigate these risks. Management also attends Board and Audit Committee meetings to discuss these reports and provide any updates. The Audit Committee reports key risk discussions to the Board following its meetings. Board members may also further discuss the risk management process directly with members of management.

In addition to the ERM approach, throughout the year, the Board and each committee review and assess risks related to our business and operations as follows:

 

Board

 

Audit

 

Governance,
Membership and
Public Affairs

 

Human Resources
and Compensation*

 

Finance

Strategy

 

Operations

 

Food safety (including supply chain and food defense)

 

Competition (including private label and customer concentration)

 

Financial statements

 

Financial reporting process

 

Accounting matters

 

Legal, compliance and regulatory matters

 

Operations

 

Sovereign Risk

 

Governance programs

 

Board organization, membership and structure

 

Related person transactions

 

Social accountability

 

Public policy

 

Kraft Foods’ public image and reputation

 

Compensation policies and practices for all employees (including executives)

 

Succession planning

 

Human resources policies and practices

 

Financial risk management (including foreign exchange, commodities and interest rate exposure)

 

Capital structure

 

Financial strategies and transactions

 

* For a discussion about risk oversight relating to our compensation programs, see “Board Membership and Committees – Human Resources and Compensation Committee – Analysis of Risk in the Compensation Architecture” below in this Proxy Statement.

The Board frequently discusses our strategic plans, issues and opportunities in light of circumstances in the food and beverage industry and the global economic environment. Additionally, the Board devotes several days each year to a highly focused review of our strategic plans, which includes discussion of strategic and operational risks.

The Board believes our current leadership structure enhances its oversight of risk management because our Chief Executive Officer, who is ultimately responsible for our risk management process, is also our Chairman, placing her in the best position to discuss with the Board these key risks and management’s response to them.

Review of Transactions with Related Persons

The Board has adopted a written policy regarding the review, approval or ratification of “related person transactions.” A related person transaction is one in which Kraft Foods Inc. is a participant, in which the amount involved exceeds $120,000 and in which any “related person” had, has or will have a direct or indirect material interest. In general, “related persons” are the following persons and their immediate family members: our directors, executive officers and shareholders beneficially owning more than 5% of our outstanding common stock. In accordance with this policy, the Committee reviews transactions that might qualify as related person transactions. If the Committee determines that a transaction qualifies as a related person transaction, then the Committee reviews, and approves, disapproves or ratifies the related person transaction. The Committee approves or ratifies

 

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only those related person transactions that are fair and reasonable to Kraft Foods and in our and our shareholders’ best interests. The chair of the Committee reviews and approves or ratifies potential related person transactions when it is not practicable or desirable to delay review of a transaction until a committee meeting. The chair reports to the Committee any transaction so approved or ratified. The Committee, in the course of its review and approval or ratification of a related person transaction under this policy, considers, among other things:

 

   

the commercial reasonableness of the transaction;

 

   

the materiality of the related person’s direct or indirect interest in the transaction;

 

   

whether the transaction may involve an actual, or the appearance of a, conflict of interest;

 

   

the impact of the transaction on the related person’s independence (as defined in the Guidelines and the NYSE listing standards); and

 

   

whether the transaction would violate any provision of our Directors Ethics Code or Code of Conduct.

Any member of the Committee who is a related person with respect to a transaction under review may not participate in the deliberations or decisions regarding the transaction.

Pursuant to our policy, the Committee determined since the beginning of 2011, that no transaction submitted for its review was a related person transaction.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires our executive officers, directors and persons who beneficially own more than 10% of our common stock to report to the SEC their ownership of our common stock and changes in that ownership. As a practical matter, our Office of the Corporate Secretary assists our directors and executive officers by monitoring their transactions and completing and filing Section 16(a) reports on their behalf.

We reviewed copies of reports filed pursuant to Section 16(a) of the Exchange Act and written representations from reporting persons that all reportable transactions were reported. Based solely on that review, we believe that during the fiscal year ended December 31, 2011, all required filings were timely made in accordance with Exchange Act requirements.

Communications with the Board

Information for shareholders and other parties interested in communicating with the Lead Director, the Board or our independent directors, individually or as a group, is available on our website at www.kraftfoodscompany.com/investor/corporate-governance/contact_bod. Our Corporate Secretary forwards communications relating to matters within the Board’s purview to the independent directors; communications relating to matters within a Board committee’s area of responsibility to the chair of the appropriate committee; and communications relating to ordinary business matters, such as suggestions, inquiries and consumer complaints, to the appropriate Kraft Foods executive or employee. Our Corporate Secretary does not forward solicitations, junk mail and obviously frivolous or inappropriate communications, but makes them available to any independent director who requests them.

 

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BOARD COMMITTEES AND MEMBERSHIP

Our Board designates the committee members and chairs based on the Governance, Membership and Public Affairs Committee’s recommendations. In 2011, the Board had four standing committees: Audit, Finance, Human Resources and Compensation, and Governance, Membership and Public Affairs. The Board has adopted a written charter for each committee. The charters define each committee’s roles and responsibilities. All committee charters are available on our website at www.kraftfoodscompany.com/investor/corporate-governance. Our current committee membership is listed in the table below.

Current Committee Membership*

 

Name

   Audit    Human
Resources
and
Compensation
   Finance    Governance,
Membership and
Public Affairs

Ajaypal S. Banga

     —      Chair    X      —  

Myra M. Hart

   X      —        —      Chair

Peter B. Henry

     —        —        —      X

Lois D. Juliber

     —      Vice Chair      —      X

Mark D. Ketchum

   X      —        —        —  

Richard A. Lerner, M.D.

     —        —        —      X

Mackey J. McDonald

   X      —      X      —  

John C. Pope

     —      X    Chair      —  

Fredric G. Reynolds

   Chair      —      X      —  

Jean-François M.L. van Boxmeer

     —      X      —      X

 

  

 

  

 

  

 

  

 

Number of Total Meetings in 2011    11    9    8    5

 

  * The Board periodically reviews committee membership and rotates membership during the year. Accordingly, the membership described in the table may change during 2012.

Meeting Attendance

We expect directors to attend all Board meetings, the Annual Meeting and all meetings of the committees on which they serve. We understand, however, that occasionally a director may be unable to attend a meeting. The Board held 14 meetings in 2011. All incumbent directors who served as directors in 2011 attended more than 87% of the aggregate number of meetings of the Board and all committees on which they served. Additionally, all then-incumbent directors attended the 2011 Annual Meeting of Shareholders.

Special Committees Related to Strategic Alternatives and Spin-off

During 2011, the Board formed three special committees of the Board to address various matters related to Kraft Foods’ strategy and the Spin-off. The directors who served on one or more of these committees were Ajaypal S. Banga; Myra M. Hart; Peter B. Henry; Lois D. Juliber; Mark D. Ketchum; Mackey J. McDonald; John C. Pope; Fredric G. Reynolds and Irene B. Rosenfeld. These special committees held a total of 20 meetings in 2011.

Audit Committee

The Board established the Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The Board determined that all members of the Audit Committee are independent within the meaning of the NYSE listing standards and Rule 10A-3 of the Exchange Act. The Board also

 

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determined that all Audit Committee members are financially literate within the meaning of the NYSE listing standards and that Fredric G. Reynolds is an audit committee financial expert” within the meaning of SEC regulations. No Audit Committee member received any payments in 2011 from us other than compensation for service as a director.

Under its charter, the Audit Committee is responsible for overseeing our accounting and financial reporting processes and audits of our financial statements. The Audit Committee is directly responsible for the appointment and oversight of our independent auditors, including review of their qualifications, independence and performance.

Among other duties, the Audit Committee also oversees:

 

   

the integrity of our financial statements, our accounting and financial reporting processes, our systems of internal control over financial reporting and safeguarding our assets;

 

   

our compliance with legal and regulatory requirements;

 

   

the performance of our internal auditors and internal audit functions; and

 

   

our guidelines and policies with respect to risk assessment and risk management.

The Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of any complaints we receive. We encourage employees and third-party individuals and organizations to report concerns about our accounting controls, auditing matters or anything else that appears to involve financial or other wrongdoing. To report such matters, please e-mail us at Kraft-FinancialIntegrity@kraft.com.

 

Audit Committee Report for the Year Ended December 31, 2011

 

To our Shareholders:

Management has primary responsibility for Kraft Foods’ financial statements and the reporting process, including the systems of internal control over financial reporting. Our role as the Audit Committee of the Kraft Foods Board of Directors is to oversee Kraft Foods’ accounting and financial reporting processes, and audits of its financial statements. In addition, we assist the Board in its oversight of:

 

   

The integrity of Kraft Foods’ financial statements and Kraft Foods’ accounting and financial reporting processes and systems of internal control over financial reporting and safeguarding the company’s assets;

 

   

Kraft Foods’ compliance with legal and regulatory requirements;

 

   

Kraft Foods’ independent auditors’ qualifications, independence and performance;

 

   

The performance of Kraft Foods’ internal auditor and the internal audit function; and

 

   

Kraft Foods’ guidelines and policies with respect to risk assessment and risk management.

Our Committee operates under a written charter that the Board last amended and restated on January 19, 2011. You may view the charter in the Corporate Governance section of the Investor Center tab on Kraft Foods’ website: www.kraftfoodscompany.com.

Our duties include overseeing Kraft Foods’ management, the internal auditor department and the independent auditors in their performance of the following functions, for which they are responsible:

Management

 

   

Preparing Kraft Foods’ consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP);

 

   

Assessing and establishing effective financial reporting systems and internal controls and procedures; and

 

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Reporting on the effectiveness of Kraft Foods’ internal control over financial reporting.

Internal Audit Department

 

   

Independently assessing management’s system of internal controls and procedures; and

 

   

Reporting on the effectiveness of that system.

Independent Auditors

 

   

Auditing Kraft Foods’ financial statements;

 

   

Issuing an opinion about whether the financial statements conform with U.S. GAAP; and

 

   

Annually auditing the effectiveness of Kraft Foods’ internal control over financial reporting.

Periodically, we meet, both independently and collectively, with management, the internal auditor and the independent auditors, among other things, to:

 

   

Discuss the quality of Kraft Foods’ accounting and financial reporting processes and the adequacy and effectiveness of its internal controls and procedures;

 

   

Review significant audit findings prepared by each of the independent auditors and internal auditor department, together with management’s responses; and

 

   

Review the overall scope and plans for the 2012 audits by the internal auditor department and the independent auditors.

Prior to Kraft Foods’ filing of its Annual Report on Form 10-K for the year ended December 31, 2011, with the SEC, we also:

 

   

Reviewed and discussed the audited financial statements with management and the independent auditors;

 

   

Discussed with the independent auditors their evaluation of the accounting principles, practices and judgments applied by management;

 

   

Discussed any other items the independent auditors are required to communicate to the Audit Committee in accordance with applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence;

 

   

Received from the independent auditors the written disclosures and the letter describing any relationships with Kraft Foods that may bear on the auditors’ independence; and

 

   

Discussed with the independent auditors their independence from Kraft Foods, including reviewing non-audit services and fees to assure compliance with (i) regulations prohibiting the independent auditors from performing specified services that could impair their independence, and (ii) with Kraft Foods’ and the Audit Committee’s policies.

Based upon the reports and discussions described in this report and without other independent verification, and subject to the limitations of our role and responsibilities outlined in this report and in our written charter, we recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in Kraft Foods’ Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on February 27, 2012.

Audit Committee:

Fredric G. Reynolds, Chair

Myra M. Hart

Mark D. Ketchum

Mackey J. McDonald

 

The information contained in the above report will not be deemed to be “soliciting material” or “filed” with the SEC, nor will this information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Kraft Foods specifically incorporates it by reference in such filing.

 

 

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Pre-Approval Policies

Our Audit Committee’s policy, which it reviews annually, is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other permissible non-audit services. The pre-approval authority details the particular service or category of service that the independent auditors will perform and is subject to a specific engagement authorization by management within the pre-approved category spending limits. The Committee’s policy also requires management to report at Committee meetings throughout the year on the actual fees charged by the independent auditors for each category of service.

During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval authority. In those instances, the Committee approves the services before we engage the independent auditors. If pre-approval is needed before a scheduled Committee meeting, the Committee delegated pre-approval authority to its chair. The chair must report on such pre-approval decisions at the Committee’s next regular meeting.

During 2011, the Audit Committee pre-approved all audit and non-audit services provided by the independent auditors.

Independent Auditors’ Fees

Aggregate fees for professional services rendered by our independent auditors, PricewaterhouseCoopers LLP, for 2011 and 2010 were:

 

     2011      2010  

Audit Fees

   $ 20,827,000       $ 25,029,000   

Audit-Related Fees

     478,000         531,000   

Tax Fees

     12,373,000         14,781,000   

All Other Fees

     9,000         89,000   
  

 

 

    

 

 

 

Total

   $ 33,687,000       $ 40,430,000   
  

 

 

    

 

 

 

 

   

“Audit Fees” include (a) the integrated audit of our consolidated financial statements, including statutory audits of the financial statements of our affiliates, and our internal control over financial reporting and (b) the reviews of our unaudited condensed consolidated interim financial statements (quarterly financial statements). In 2011, audit fees include work related to the Spin-off. Audit fees in 2010 reflect additional work related to the Cadbury acquisition.

 

   

“Audit-Related Fees” include professional services in connection with employee benefit plan audits, due diligence related to acquisitions and divestitures and procedures related to various other audit and special reports.

 

   

“Tax Fees” include professional services in connection with tax compliance and advice. The 2011 audit fees include work related to the Spin-off. In 2010, tax fees also include tax advice and professional services related to the Cadbury integration.

 

   

“All Other Fees” include professional services in connection with benchmarking studies and seminars.

 

   

All fees above include out-of-pocket expenses.

 

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Finance Committee

The Finance Committee is responsible for considering and making recommendations to the Board on the management of our financial resources and major financial strategies and transactions as set forth in its charter. The Committee reviews and makes recommendations to the Board on financial matters, including:

 

   

our annual and long-term financing plans, including our projected financial structure and funding requirements;

 

   

issuances, sales or repurchases of equity and debt securities;

 

   

our external dividend policy and dividend recommendations;

 

   

proposed major investments, acquisitions, divestitures, joint ventures, significant asset sales and purchase commitments;

 

   

financial risk management activities, such as foreign exchange, commodities and interest rate exposure;

 

   

director and officer insurance program; and

 

   

Board and management authorization levels with respect to financing matters.

Governance, Membership and Public Affairs Committee

The Board determined that all of the Governance, Membership and Public Affairs Committee members are independent within the meaning of the NYSE listing standards. The Committee’s responsibilities include, among others:

 

   

identifying qualified individuals for Board membership consistent with criteria approved by the Board;

 

   

considering the performance and suitability of incumbent directors in determining whether to nominate them for re-election;

 

   

making recommendations to the Board as to directors’ independence;

 

   

recommending to the Board the appropriate size, function, needs and composition of the Board and its committees;

 

   

recommending to the Board the membership of each committee;

 

   

monitoring directors’ compliance with our stock ownership guidelines;

 

   

reviewing and evaluating opportunities for Board members to engage in continuing education;

 

   

advising the Board on corporate governance matters, including developing and recommending to the Board revisions to our corporate governance principles;

 

   

developing and recommending to the Board and overseeing an annual self-evaluation process for the Board and its committees;

 

   

administering and reviewing the Directors Ethics Code;

 

   

overseeing Kraft Foods’ policies and programs related to corporate citizenship, social responsibility, and public policy issues significant to Kraft Foods such as sustainability and environmental responsibility; food labeling, marketing and packaging; and philanthropic and political activities and contributions; and

 

   

monitoring issues, trends, internal and external factors and relationships that may affect the public image and reputation of Kraft Foods and the food and beverage industry.

 

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The Governance, Membership and Public Affairs Committee will consider any candidate a shareholder properly presents for election to the Board in accordance with the procedures set forth in the By-Laws. The Committee uses the same criteria set forth in the Guidelines to evaluate a candidate suggested by a shareholder as the Committee uses to evaluate a candidate it identifies, as described above under “Item 1. Election of Directors – Process for Nominating Directors,” and makes a recommendation to the Board regarding the candidate’s appointment or nomination for election to the Board. After the Board’s consideration of the candidate suggested by a shareholder, our Corporate Secretary will notify that shareholder whether the Board decided to appoint or nominate the candidate.

For a description of how shareholders may nominate a candidate for election to the Board at an annual meeting of shareholders and have that nomination included in the proxy statement for that meeting, see “2013 Annual Meeting of Shareholders” in this Proxy Statement.

Human Resources and Compensation Committee

Compensation Committee Interlocks and Insider Participation

The Board has determined that all of the directors who served on the Human Resources and Compensation Committee during 2011 are independent within the meaning of the NYSE listing standards. None of the Committee’s members:

 

   

is or was an officer or employee of Kraft Foods;

 

   

is or was a participant in a “related person” transaction since the beginning of 2011 (for a description of our policy on related person transactions, see “Corporate Governance – Review of Transactions with Related Persons” in this Proxy Statement); or

 

   

is an executive officer of another entity at which one of our executive officers serves on the board of directors.

Responsibilities

The Human Resources and Compensation Committee’s responsibilities are set forth in its charter. The Committee’s responsibilities include, among other duties:

 

   

assessing the appropriateness and competitiveness of our executive compensation programs;

 

   

reviewing and approving the Chief Executive Officer’s goals and objectives, evaluating her performance against these goals and objectives and, based upon its evaluation, determining both the elements and amounts of the Chief Executive Officer’s compensation;

 

   

reviewing and approving the compensation of the Chief Executive Officer’s direct reports and other officers subject to Section 16(a) of the Exchange Act;

 

   

determining annual incentive compensation, equity awards and other long-term incentive awards granted under our equity and long-term incentive plans to eligible participants;

 

   

reviewing our compensation policies and practices for employees, including non-executive and executive officers, as they relate to our risk management practices and risk-taking incentives;

 

   

overseeing the management development and succession planning process (including succession planning for emergencies) for the Chief Executive Officer and her direct reports and, as appropriate, evaluating potential candidates;

 

   

monitoring our policies, objectives and programs related to diversity and reviewing periodically our diversity performance against appropriate measures;

 

   

assessing the appropriateness of, and advising the Board regarding, the compensation of non-employee directors for service on the Board and its committees; and

 

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reviewing and discussing with management the Compensation Discussion and Analysis and preparing and approving the Committee’s report to shareholders included in our annual Proxy Statement.

Processes and Procedures

The Compensation Discussion and Analysis, included in this Proxy Statement, addresses the Committee’s primary processes for establishing and overseeing executive compensation. Additional processes and procedures include:

 

   

Meetings. The Committee meets several times each year to address our compensation programs, benefit plans and policies.

 

   

Role of Independent Compensation Consultant. In 2011, the Committee retained Compensation Advisory Partners, LLC as its independent compensation consultant to assist the Committee in evaluating executive compensation programs and to advise the Committee regarding the amount and form of executive and director compensation. The use of a consultant provides additional assurance that our executive compensation programs are reasonable, competitive and consistent with our objectives. The consultant is engaged directly by the Committee, regularly participates in Committee meetings, including executive sessions of the Committee that excludes management, and advises the Committee with respect to compensation trends and best practices, plan design and the reasonableness of compensation awards. In addition, with respect to the Chief Executive Officer, the consultant prepares specific compensation analyses for the Committee’s consideration. The Chief Executive Officer does not participate in the development of these analyses and has no knowledge of the information in these analyses. The consultant plays a similar role in analyzing the amount and form of director compensation, as discussed below.

 

   

Role of Executive Officers and Management. Each year, the Chief Executive Officer presents her compensation recommendations for each of the other Named Executive Officers, her remaining direct reports and other executive officers (as described under “Compensation Discussion and Analysis”). The Committee reviews and discusses these recommendations with the Chief Executive Officer and has full discretion over all recommended compensation actions. Executive officers do not play a role in determining or recommending the amount or form of director compensation.

Independence of Compensation Consultant to the Committee

Compensation Advisory Partners has served as the Committee’s independent compensation consultant since September 2009. During 2011, Compensation Advisory Partners provided the Committee advice and services, including:

 

   

participating in Committee meetings;

 

   

providing competitive market compensation data for executive positions;

 

   

conducting periodic reviews of elements of compensation;

 

   

analyzing “best practices” and providing advice about design of our annual and long-term incentive plans, including selecting performance metrics;

 

   

advising on the composition of our peer groups for benchmarking pay and performance;

 

   

advising on compensation matters related to the Spin-off; and

 

   

updating the Committee on executive compensation trends, issues and regulatory developments.

The Committee believes that its consultant should be able to advise the Committee independent of management’s influence. As discussed above, in September 2009, after an extensive selection and

 

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interview process, the Committee retained Compensation Advisory Partners as its compensation consultant. The Committee believed that it was in the best interests of the Committee and Kraft Foods to engage a compensation consulting firm that provides no other services to Kraft Foods. For the year ended December 31, 2011, Compensation Advisory Partners provided no services to Kraft Foods other than executive and director compensation consulting services to the Committee.

At least annually, the Committee reviews the types of advice and services provided by Compensation Advisory Partners and the fees charged for those services. The consultant reports directly to the Committee on all executive and director compensation matters; regularly meets separately with the Committee outside the presence of management; and, speaks separately with the Committee chair and other Committee members between meetings, as necessary or desired.

Analysis of Risk in the Compensation Architecture

In 2011, the Human Resources and Compensation Committee evaluated the current risk profile of our executive and broad-based compensation programs. In its evaluation, the Committee reviewed our executive compensation structure to determine whether our compensation policies and practices encourage our executive officers or employees to take unnecessary or excessive risks and whether these policies and practices properly mitigate risk. As described below under “Compensation Discussion and Analysis,” our compensation structure is designed to incentivize executives and employees to achieve company financial and strategic goals as well as individual performance goals that promote long-term shareholder returns. The compensation architecture balances this design with multiple elements intended to discourage excessive risk-taking by executives and employees to obtain short-term benefits that may be harmful to Kraft Foods and our shareholders in the long term. The Committee identified numerous safeguards that effectively manage or mitigate risk, including:

 

   

Corporate and Business Unit Weighting. The balance of corporate and business unit weighting in incentive plans encourages participants to focus on overall corporate performance as well as business unit performance in order to prevent actions that may improve business unit performance and maximize awards but harm our overall health.

 

   

Short-Term/Long-Term Incentive Mix. The balanced mix between short-term and long-term incentives discourages executives and employees from maximizing short-term performance at the expense of long-term performance. Our executive compensation is heavily weighted toward long-term incentive compensation to encourage sustainable shareholder value and ensure accountability for long-term results.

 

   

Award Caps. Our compensation plans provide for a limit on annual incentive awards to discourage short-term actions that may harm our long-term interests.

 

   

Multiple Performance Measures. Our incentive plans use multiple performance measures to discourage participants from focusing on achievement of one performance measure at the expense of another. Our incentive plans also include individual performance criteria to ensure that goals do not favor achievement without regard for risks taken.

 

   

Committee Discretion. The Committee has discretion to reduce incentive awards based on unforeseen or unintended consequences.

 

   

Long-Term Incentive Mix. We use a portfolio of long-term incentives, which are all stock-based, to motivate executives to achieve long-term financial goals and top-tier performance results. Multi-year vesting features and multi-year performance cycles of long-term incentive compensation promote sustainable shareholder value creation and long-term growth as well as encourage retention.

 

   

Stock Ownership Guidelines and Holding Requirements. We use meaningful stock ownership guidelines that are higher than those of our peer companies and stock holding requirements to align our executives’ interests with our shareholders’ interests and ultimately focus our executives on attaining sustainable long-term shareholder returns.

 

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Clawback and Anti-Hedging Policies. Our clawback policy allows Kraft Foods to recapture any incentive compensation paid in the event of a restatement of our financial statements, which discourages inappropriate risk-taking behavior. Our anti-hedging policies further align our executives’ and employees’ interests with those of our shareholders.

 

   

Ethics and Compliance Programs. The Audit Committee oversees our ethics and compliance programs that educate executives and employees on appropriate behavior and the consequences of inappropriate actions. These programs use innovative and effective approaches to promote compliance and integrity and encourage employees and others to report concerns by providing multiple reporting avenues with a no retaliation policy.

 

   

Governance Practices. We have implemented good pay and governance practices that are critical to driving sustained shareholder value, including targeting pay at the median of our peer group, benchmarking compensation, using quantitative and qualitative results to determine incentive awards, engaging an independent compensation consultant, communicating with our shareholders to understand their views and concerns and conducting annual risk assessments.

The Committee also analyzed our overall enterprise risks and whether our compensation programs could impact individual behavior so as to exacerbate these enterprise risks. The Human Resources and Compensation Committee collaborated with the Audit Committee in this analysis.

In addition to the Committee’s evaluation, Compensation Advisory Partners also reviewed our executive and broad-based incentive plans and noted similar terms in our incentive plans that mitigate risk.

In light of these analyses, the Human Resources and Compensation Committee believes that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on Kraft Foods.

 

Human Resources and Compensation Committee Report for the Year Ended December 31, 2011

The Human Resources and Compensation Committee oversees our compensation programs on behalf of the Board. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. In reliance on that review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Proxy Statement to be filed with the SEC in connection with our Annual Meeting and incorporated by reference in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on February 27, 2012.

Human Resources and Compensation Committee:

Ajaypal S. Banga, Chair

Lois D. Juliber

Mark D. Ketchum*

John C. Pope

Jean-François M.L. van Boxmeer

 

  * Mr. Ketchum served as a member of the Committee through May 23, 2011 and participated in part of the compensation actions described under “Compensation Discussion and Analysis” included in this Proxy Statement.

 

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COMPENSATION OF NON-EMPLOYEE DIRECTORS

Directors who are full-time Kraft Foods employees (currently only Irene Rosenfeld) receive no compensation for their services as directors.

We strive to provide competitive compensation to attract and retain highly qualified non-employee directors who will best represent our shareholders’ interests. With its compensation consultant’s assistance, the Human Resources and Compensation Committee periodically benchmarks non-employee director compensation against a compensation peer group and general industry data, considers the appropriateness of the form and amount of non-employee director compensation and makes recommendations to the Board concerning such compensation.

The table below summarizes the cash and equity compensation elements in place during 2011 for our non-employee directors.

 

Compensation Elements

      

Annual Board Retainer

   $ 110,000   

Annual Committee Chair Retainer

   $ 10,000   

Annual Lead Director Retainer

   $ 30,000   

Annual Stock Grant Value(1)

   $ 125,000   

 

  (1) In 2011, non-employee directors were awarded deferred shares that were immediately vested, but receipt of the shares is deferred until six months after the non-employee director no longer serves on the Board. Dividends on deferred stock are reinvested in deferred shares until the distribution date.  

We pay the non-employee directors their cash retainers quarterly. Non-employee directors can defer 25%, 50%, 75% or 100% of their cash retainers into accounts that mirror the funds in the Kraft Foods Inc. Thrift 401(k) Plan pursuant to the Kraft Foods Inc. 2001 Compensation Plan for Non-Employee Directors. Non-employee directors also receive an annual stock award that is granted at the Board meeting immediately following our annual meeting of shareholders. At the non-employee director’s election, he or she may receive the annual stock award in the form of (i) unrestricted shares of our common stock, subject to a holding period ending six months after the director no longer serves on the Board or (ii) vested deferred shares, delivery of which is deferred until six months after he or she no longer serves on the Board.

To further align our non-employee directors’ and shareholders’ interests, we require that they hold shares of our common stock in an amount equal to five times the annual Board retainer (equivalent to $550,000) within five years of becoming a director. If a non-employee director does not meet the stock ownership requirement within the timeline, the Lead Director will consider the director’s particular situation and may take any further action as he or she deems appropriate. As of March 1, 2012, all individuals who have served as our directors for five or more years satisfy the stock ownership requirement.

Non-employee directors may also participate in the Kraft Foods Foundation Matching Gift Program on the same terms as our employees. Under the program, the Kraft Foods Foundation matches up to $15,000 per director, per year, of contributions to 501(c)(3) non-profit organizations.

 

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2011 Non-Employee Director Compensation Table

 

Name

   Fees Earned or
Paid in  Cash

($)(1)
   Stock Awards
($)(2)
   All Other
Compensation
($)(3)
  Total
($)
    

 

Banga, Ajaypal

   120,000    125,049    20,000     265,049      

Hart, Myra

   120,000    125,049    30,000     275,049      

Henry, Peter(4)

     66,484    125,049            —       191,533      

Juliber, Lois

   110,000    125,049    12,500     247,549      

Ketchum, Mark

   140,000    125,049            —       265,049      

Lerner, Richard

   110,000    125,049            —       235,049      

McDonald, Mackey

   110,000    125,049    30,000     265,049      

Pope, John

   120,000    125,049        2,200     247,249      

Reynolds, Fredric

   120,000    125,049    30,000     275,049      

van Boxmeer, Jean-François

   110,000    125,049            —       235,049      

Wright, Deborah(5)

     47,802             —              —       47,802      

Zarb, Frank(5)

     43,819             —              —       43,819      

 

  (1) Includes all retainer fees paid or deferred pursuant to the Kraft Foods Inc. 2001 Compensation Plan for Non-Employee Directors. Non-employee directors do not receive meeting fees.

 

  (2) The amounts shown in this column represent the full grant date fair value of the deferred stock awards granted in 2011 as computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The deferred shares are immediately vested, but receipt of the shares is deferred until six months after the director no longer serves on the Board. The 2011 Non-Employee Director Stock Awards Table below provides further detail on the non-employee director grants made in 2011 and the number of stock awards and stock options outstanding as of December 31, 2011.

 

  (3) Represents Kraft Foods Foundation contributions made as part of the Kraft Foods Foundation Matching Gift Program. For Ms. Hart and Messrs. Banga, McDonald and Reynolds, includes an additional amount of Kraft Foods Foundation contributions above the general $15,000 annual limit. In January and October 2011, the Foundation offered a two-for-one match promotion under which the Kraft Foods Foundation contributed amounts over the general annual limit to non-profit organizations on the director’s behalf. This two-for-one promotion was available to all our U.S. employees and directors on the same terms.

 

  (4) Mr. Henry joined the Board on May 24, 2011.

 

  (5) Ms. Wright and Mr. Zarb completed their terms on the Board on May 24, 2011.

 

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2011 Non-Employee Director Stock Awards Table

 

     Stock Awards     

Name

   Number of Shares
of Stock Granted
   Grant Date Fair
Value of  Stock
Granted(1)
($)
    

Banga, Ajaypal

   3,580    125,049   

Hart, Myra

   3,580    125,049   

Henry, Peter

   3,580    125,049   

Juliber, Lois

   3,580    125,049   

Ketchum, Mark

   3,580    125,049   

Lerner, Richard

   3,580    125,049   

McDonald, Mackey

   3,580    125,049   

Pope, John

   3,580    125,049   

Reynolds, Fredric

   3,580    125,049   

van Boxmeer, Jean-François

   3,580    125,049   

Wright, Deborah(2)

   —      —     

Zarb, Frank(2)

   —      —     

 

  (1) The amounts shown in this column represent the full grant date fair value of the deferred stock awards granted in 2011 as computed in accordance with FASB ASC Topic 718.
  (2) Ms. Wright and Mr. Zarb completed their terms on May 24, 2011 prior to the 2011 annual stock grant.

As of December 31, 2011, each non-employee director had an aggregate of 7,701 deferred stock awards outstanding, except for Mr. Henry who had 3,580 deferred stock awards outstanding. In addition, as of December 31, 2011, Mr. Pope held options to purchase 1,710 shares of our common stock.

 

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COMPENSATION DISCUSSION AND ANALYSIS

In our Compensation Discussion and Analysis, we:

 

   

describe our goals for compensating our executive officers;

 

   

describe how we designed our compensation program and explain how executive compensation decisions reflect both Kraft Foods’ business performance and the individual performance goals for each of our Named Executive Officers; and

 

   

explain the tables and other disclosures that follow.

This Compensation Discussion and Analysis presents compensation information for the following individuals (referred to as our “Named Executive Officers”):

 

   

Irene Rosenfeld, who served as our Chairman and Chief Executive Officer (“CEO”) in 2011;

 

   

David Brearton, who served as our Chief Financial Officer for part of 2011;

 

   

Timothy McLevish, who served as our Chief Financial Officer for part of 2011; and

 

   

Sanjay Khosla, W. Anthony Vernon and Mary Beth West, our three other most highly compensated executive officers during 2011.

The Named Executive Officers include Timothy McLevish who concluded his tenure as Chief Financial Officer effective May 9, 2011. He continues to serve as our Executive Vice President. David Brearton has served as our Executive Vice President and Chief Financial Officer since May 9, 2011.

 

Executive Summary

In this section we highlight our 2011 performance and the key actions the Human Resources and Compensation Committee (referred to in this Compensation Discussion and Analysis as the “Committee”) took to further align the interests of our Named Executive Officers with those of our shareholders. We also include a summary of our compensation governance highlights to provide a better understanding of the Committee’s pay decisions relative to company performance in 2011 and our most recently completed three-year (2009 – 2011) performance cycle.

2011 Performance

In 2011, we delivered superior financial performance including top-tier revenue growth and earnings results. Our net revenues grew 10.5% while our Organic Net Revenue Growth(1) was 6.6%. Operating Earnings Per Share (“EPS”) was $2.29, an increase of 13.4%, driven primarily by operating gains, lower tax cost and favorable foreign currency. Each of our geographical segments contributed to our strong performance. Strong operating gains, cost management and delivery on our Cadbury integration synergies all contributed to drive our strong profitability growth. Cash flow results were also strong for the second straight year. Our Total Shareholder Return during 2011 was 22.7%, which significantly exceeded the median of our Performance Peer Group (10.2%).

In the midst of delivering strong operating performance, we announced the Spin-off, which the Committee considered when evaluating our Named Executive Officers’ performance in 2011.

2011 Performance and Impact to Annual Cash Incentive Payouts

In early 2012, the Committee reviewed performance with respect to the 2011 Annual Cash Incentive Program objectives. We significantly exceeded our top line growth goal and were slightly below our aggressive profitability and cash flow goals. Our 2011 performance, which drove Annual Cash Incentive Program payouts for our Named Executive Officers, is as follows:

 

   

Organic Net Revenue Growth – 6.6%

 

(1) See Exhibit A to this Proxy Statement for a reconciliation of GAAP to non-GAAP financial measures.

 

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Adjusted Operating Income(1) – $7.1 billion

 

   

Free Cash Flow(1) – $2.7 billion

Based on these results, our overall Annual Cash Incentive Plan rating for 2011 was 130% of target. See “– Elements of Executive Compensation – Annual Cash Incentive Program – 2011 Business Unit Ratings” below for more information about our results relative to targets. See “- Additional Information on Compensation Principles – Providing Competitive Pay – Composition and Purpose of the Performance Peer Group” below for additional information regarding our Performance Peer Group.

2009 – 2011 Performance and Impact to Long-Term Incentive Plan (“LTIP”) Payouts

Overall, we delivered above target results during the three-year performance cycle from 2009 to 2011. Strong Operating EPS Growth and Cumulative Adjusted Free Cash Flow generation, combined with slightly below target Organic Net Revenue Growth results, significantly impacted the final payout. During this period, our Relative Total Shareholder Return outperformed the median of our Performance Peer Group.

Our 2009 – 2011 performance that drove LTIP payouts for our eligible Named Executive Officers was as follows:

 

   

Organic Net Revenue Growth – 3.9%

 

   

Operating EPS Growth – 10.7%

 

   

Cumulative Adjusted Free Cash Flow – $10.2 billion

 

   

Annualized Relative Total Shareholder Return – Above Performance Peer Group median (Kraft Foods annualized Total Shareholder Return of 16.1% compared to 15.3% median for the Performance Peer Group)

 

Based on these results relative to target, our overall LTIP rating for the 2009 – 2011 performance cycle was 141% of target. See “– Elements of Executive Compensation – Long-Term Incentives – LTIP – Performance Shares (2009 – 2011 Performance Cycle)” below for more information about our results relative to targets.

Compensation Governance Highlights

The Committee continues to ensure that we compensate our Named Executive Officers effectively and consistent with shareholder expectations. We have adopted the following compensation practices to promote strong governance and alignment with shareholder interests:

 

   

Compensation Governance
Highlight

  

Kraft Foods Highlight

   
  High Proportion of At-Risk Compensation   

Approximately 85% of our CEO’s total compensation is at–risk, incentive-based compensation. This weighting is higher than the average of other CEOs in our Compensation Survey Group.

See “—Additional Information on Compensation Principles – Providing Competitive Pay—Composition and Purpose of the Compensation Survey Group” for additional information regarding our Compensation Survey Group.

 

 
  Long-Term Incentives Are Entirely Stock-Based   

We deliver 50% of long-term incentives in performance shares, 25% in stock options and 25% in restricted stock. This mix promotes alignment of our executives’ interests with shareholder interests.

 

 
(1) See Exhibit A to this Proxy Statement for a reconciliation of GAAP to non-GAAP financial measures.

 

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Compensation Governance
Highlight

  

Kraft Foods Highlight

Pay Targeted to Size-Adjusted Median of Peer Group   

Based on our principles, we generally target compensation levels at or near the size-adjusted median of our Compensation Survey Group. The median revenues of this peer group are well below Kraft Foods’ revenue. As stated below under “ – Compensation Paid to Named Executive Officers in 2011,” the actual target compensation for some of our Named Executive Officers is below the median.

 

   
Stock Ownership Guidelines and Holding Requirements Exceed Market Levels   

Our CEO is expected to own eight times her salary in Kraft Foods common stock and our other Named Executive Officers are expected to own four times their salary in Kraft Foods common stock. These guidelines exceed the median levels of our peers. Our CEO and each of our Named Executive Officers have met or exceeded the required ownership levels. In addition, our holding requirements are more stringent than typical requirements. Starting in 2011, our executive officers, including our Named Executive Officers, are required to hold 100% of all shares acquired from stock option exercises and restricted stock and performance share vestings, net of shares withheld for taxes or payment of exercise price, for a period of one year.

 

   
Perquisites are Conservative   

While we offer certain perquisites to our Named Executive Officers, the types and amounts are at or below the median levels of our peers. We do not pay tax gross ups for any perquisites.

 

   
Compensation Risk is Assessed Frequently    The Committee performs a comprehensive compensation risk assessment annually. We have also established significant and effective safeguards to protect against undue risk such as reasonable caps on incentive payouts, use of diverse mix of performance measures, incentive clawbacks and appropriate discretion by the Committee on award payouts.

How the Committee Considered the Shareholder Advisory Vote on our 2010 Executive Compensation Program

The Committee believes that our executive compensation program is strongly aligned with delivering sustainable top-tier performance and reflects competitive practices for executive compensation. At our 2011 Annual Meeting of Shareholders, we held our first shareholder advisory vote on the compensation of our Named Executive Officers and our shareholders approved our fiscal year 2010 executive compensation program with 83.8% of votes cast. The Committee has considered the results of the vote on our 2010 executive compensation program and concluded that the program continues to provide a competitive pay-for-performance package that effectively incents our Named Executive Officers and encourages long-term shareholder value. Kraft Foods’ strong financial performance in fiscal year 2011 reinforces the Committee’s view that our executive compensation program is achieving its objectives, and the Committee made no significant changes to the program during the year. The Committee will continue to consider the results of future shareholder advisory votes as well as shareholder views about our core compensation principles, objectives and program design when determining executive compensation.

 

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Our Compensation Program Design

Our executive compensation program’s four primary goals are:

 

   

attract, retain and motivate talented executive officers and develop world-class business leaders;

 

   

support business strategies that promote superior long-term shareholder returns;

 

   

align pay and performance by making a significant portion of our Named Executive Officers’ and other executive officers’ compensation dependent on achieving financial and other critical strategic and individual goals; and

 

   

align our executive officers’ and shareholders’ interests through stock ownership guidelines, equity-based incentive awards and other long-term incentive awards that link executive compensation to sustained and superior Total Shareholder Return.

Our executive compensation program is designed to achieve these goals by using the following principles:

 

   

Providing Competitive Pay. We annually benchmark our target and actual compensation levels and pay-mix with our Compensation Survey Group. We use this comparison to ensure that our executive compensation and benefits package is competitive with the Compensation Survey Group. The Committee generally targets total executive compensation at or near the size-adjusted median total compensation of the group and allows business and individual performance to determine whether actual pay is above or below the median. The Committee uses a size-adjusted median because our revenues are significantly higher than the revenues of companies in our peer group. In addition, the Committee compares Kraft Foods’ financial and Total Shareholder Return performance against our Performance Peer Group. The Performance Peer Group comparison allows us to link long-term incentive compensation to the delivery of superior financial results relative to industry peers. More information about the Compensation Survey Group, the Performance Peer Group and the methodology for the size-adjusted median can be found below under “—Additional Information on Compensation Principles—Providing Competitive Pay”;

 

   

Providing Fixed and Variable Compensation. We provide a mix of fixed and variable compensation (heavily weighted to variable compensation for our Named Executive Officers) designed to attract, retain and motivate top-performing executives, as well as appropriately align compensation levels with achieving relevant financial and strategic goals;

 

   

Providing Equity and Cash Incentives. We provide a mix of equity and cash incentives to focus executive officers on achieving performance results that drive long-term sustainable superior Total Shareholder Returns;

 

   

Assessing Individual Performance and Potential. Incentive awards are based in part on the individual’s performance and potential for advancement within the organization; and

 

   

Requiring Stock Ownership and Holding Periods. Our executive officers, including our Named Executive Officers, are required to maintain or exceed specific levels of Kraft Foods stock ownership in order to further align their interests with those of our shareholders. Our compensation programs facilitate high levels of stock ownership. Our executive officers are also required to hold shares upon exercise of stock options and vesting of restricted stock and performance shares for at least one year. More information about stock ownership guidelines for executive officers can be found below under “—Additional Information on Compensation Principles—Requiring Stock Ownership.”

 

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Overall Pay Mix

The chart below shows the total compensation mix, on average, for our CEO and other Named Executive Officers (NEOs), based on target awards in 2011, compared with the average of the Compensation Survey Group. Our mix is well–aligned to the mix paid by companies in the Compensation Survey Group. In the case of our CEO, the incentive mix is slightly more weighted towards long-term incentives and less weighted in annual incentives compared to the Compensation Survey Group, consistent with our focus on delivering top-tier sustainable performance over the long-term.

 

LOGO

 

(1) For Kraft Foods, long-term incentives include restricted stock, non-qualified stock options and performance shares; for Compensation Survey Group peers, long-term incentives include all types of long-term incentive awards.

 

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Summary of 2011 Compensation Program

The following table summarizes the elements and program objectives of our 2011 compensation program for executive officers, including Named Executive Officers.

 

Program

  

Description

  

Program Objective

Annual Cash Compensation

Base Salary

   Ongoing cash compensation based on the executive officer’s role and responsibilities.   

•    Retention and attraction

•    Drive top-tier performance

–    Individual contribution

Annual Cash Incentive

Program

   Annual incentive with target award amounts for each executive officer. Actual cash payouts may be higher or lower than target, based on business and individual performance.   

•    Drive top-tier performance

–    Across entire organization

–    Within business units

–    Individual contribution

Long-Term/Stock-Based Incentive Compensation

Performance Shares or Long- Term Incentive Program   

Long-term incentive with target award amounts established for each executive officer. Actual awards are linked to achievement of three-year Kraft Foods’ goals and can be 0% – 200% of target, based on Kraft Foods’ performance. Payout will be in Kraft Foods common stock at the end of the three-year program. No dividends or dividend equivalents are paid or earned on unvested performance shares.

  

•    Drive top-tier performance

–    Across entire organization

–    Focus on long-term sustained success

•    Stock ownership/alignment to shareholders

•    Retention

Stock Options

   Each executive officer has an award opportunity based on his or her role, long-term performance and potential for advancement.   

•    Drive top-tier performance

–    Long-term individual contribution

–    Recognize advancement potential

•    Stock ownership/alignment to shareholders

•    Realized value linked entirely to stock appreciation

•    Retention

Restricted Stock    Each executive officer has an award opportunity based on his or her role, long-term performance and potential for advancement.   

•    Drive top-tier performance

–    Long-term individual contribution

–    Recognize advancement potential

•    Stock ownership/alignment to shareholders

•    Retention

 

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Program

  

Description

  

Program Objective

Executive Benefits

Voluntary Non-Qualified Deferred Compensation

Plan

   Program that allows U.S. executive officers to defer, on a pre-tax basis, certain defined compensation elements with flexible distribution options to meet future financial goals.   

•    Retention and attraction

•    Provide opportunity for future financial security

•    Provide U.S. executive officers an additional opportunity to meet stock ownership requirements

Executive Perquisites    Market-consistent program that is generally limited to a car allowance, financial counseling, and, for the CEO only, personal use of Kraft Foods’ aircraft.   

•    Retention and attraction

•    Supports personal financial planning needs

•    Security of CEO

Post-Termination Benefits

 

Defined Benefit Program    Generally provides for the continuation of a portion of total annual cash compensation (defined as base salary plus annual cash incentive award) at the conclusion of an executive officer’s career. This program is not offered to any U.S. employees hired on or after January 1, 2009.   

•    Retention

•    Attraction

•    Provide financial security to long-term service executive officers in retirement

Defined Contribution Program

(401(k))

   Program under which Kraft Foods matches U.S. executive officers’ contributions. Account balances are typically payable at the conclusion of an executive officer’s career. This program was enhanced for U.S. employees hired on or after January 1, 2009 who are not eligible for the defined benefit program.   

•    Retention

•    Attraction

•    Provide opportunity for financial security in retirement

•    Provide U.S. executive officers an additional opportunity to meet stock ownership requirements

Change in

Control Plan

   Executive separation program that provides for enhanced benefits in the event of an executive officer’s termination following a defined Kraft Foods change in control.   

•    Retention

•    Focus on delivering top-tier shareholder value in periods of uncertainty

•    Supports effective transition

Other Benefits

 

Other Benefits    Health, welfare and other benefits.   

•    Retention

•    Attraction

Elements of Executive Compensation

A description of each of the compensation program elements follows, and individual compensation decisions are discussed under “ — Compensation Paid to Named Executive Officers in 2011.”

Base Salary

Base salary is the principal “fixed” element of executive compensation. Base salary levels for Named Executive Officers are targeted to be at or near the size-adjusted median of the Compensation Survey Group. However, the Committee also considers a number of other factors when reviewing and setting

 

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base salaries for Named Executive Officers, including: Kraft Foods’ performance and the Named Executive Officer’s individual performance, level of responsibility, potential to assume roles with greater responsibility, tenure and experience. The Committee reviews salaries on an annual basis and considers merit increases, which are generally effective April 1, for all executive officers.

Annual Cash Incentive Program

Overview

The Annual Cash Incentive Program is a cash bonus plan designed to motivate and reward participants, including our Named Executive Officers, for their contribution to Kraft Foods, or a business unit of Kraft Foods, for achieving our annual financial and strategic goals. The range of amounts that an executive officer may earn is determined at the beginning of the year, and the amount actually paid is based on the financial results achieved during the year and the individual’s contribution towards achieving those results.

Award Formula

The formula shown below is used to determine actual awards for participants, including our Named Executive Officers. Other than base salary, which is discussed above, each element of this formula is discussed below.

 

Base Salary
as of

December 31, 2011

  x  

Target Annual

Incentive

Opportunity

(% of Base Salary)

  x  

Business Unit Rating

(0% – 180%)

  x  

Individual Performance

Assessment
(0% – 180%)

  =  

Actual Cash Award

(Maximum capped at 250% of target)

 

Award Formula
Element

  

Explanation of Key Provisions

Target Annual Incentive Opportunity   

•    Target percentage of base salary reflects the Named Executive Officer’s role and responsibilities.

 

•    Individual targets, as a percentage of base salary, for our Named Executive Officers were, as of December 31, 2011, as follows:

 

Ms. Rosenfeld

 

Mr. Brearton

  Mr. McLevish   Mr. Khosla   Mr. Vernon   Ms. West
150%   90%   90%   80%   90%   80%

 

2011

Business Unit Ratings

 

•    Rating can range from 0% to 180%.

 

•    The Committee approved the following financial metrics to measure business performance:

 

        

Measure

    

    Weighting    

    
    

Organic Net Revenue Growth

     45%   
    

Adjusted Operating Income

     35%   
    

Free Cash Flow

     20%   
 

•    The Committee chose these metrics because of their high correlation to Total Shareholder Return. We will continue using these or similar metrics in our 2012 Annual Cash Incentive Program design. These measures reinforce the importance of driving both top-line and bottom-line performance while generating positive cash flow.

 

•    The Committee aligns performance targets to a business unit rating of 100%. When performance is above the targets, the business unit rating would be above 100%, and for performance below the targets, the business unit rating would be below 100%.

 

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Award Formula
Element

  

Explanation of Key Provisions

  

 

•    Messrs. Khosla and Vernon are linked 30% to the performance ratings of their respective business unit and 70% to the Kraft Foods Inc. rating. This alignment is meant to promote both “line-of-sight” accountability, as well as reinforce the importance of collaboration across the enterprise. Business unit ratings for our other Named Executive Officers are aligned 100% to the Kraft Foods Inc. rating.

Individual Performance Assessment   

•    Can range from 0% to 180%.

 

•    Ms. Rosenfeld provides the Committee with an individual performance assessment for each of her direct reports, including our other Named Executive Officers. The Committee reviews and discusses her recommendations, taking into account the various factors within the criteria, and may revise her recommendations based on those factors.

 

•    Specifically, in assessing individual performance in the context of making executive compensation decisions, Ms. Rosenfeld and the Committee consider the executive officer’s contributions to our overall performance and individual performance relative to individual objectives established at the beginning of the performance cycle.

 

•    Individual ratings and range of payouts are:

 

Individual Performance Rating

  

Incentive Payout Range

as a Percent of Target

Outstanding

   140% – 180%

Exceeded Expectations

   115% – 135%

Achieved Expectations

   90% – 110%

Partially Met Expectations

   40% – 80%

Below Expectations

   0%

 

  

•    In 2011, the Committee took into account the following factors in determining the individual performance assessments for our Named Executive Officers: contributions to the organization such as operational efficiency, leadership, quality of financial results, talent management and diversity of employees. These factors are discussed in more detail below under “– Compensation Paid to Named Executive Officers in 2011.”

 

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2011 Business Unit Ratings

The following are the financial targets and actual results that the Committee considered at year end for our Named Executive Officers:

 

       Weighting      Kraft Foods Inc. – Financial Targets and Results
        Threshold      Target      Maximum      2011 Actual      Performance
Rating
       ($ in millions)

Organic Net Revenue Growth

       45%         2.5%         4.0%         6.0%         6.6%       180%

Adjusted Operating Income

       35%         $6,938         $7,381         $7,824         $7,133         85%

Free Cash Flow

       20%         $2,465         $2,900         $3,625         $2,749         95%

Actual Rating

                    130%

The following are the financial targets, actual results and overall business unit ratings that the Committee considered at year end for our Named Executive Officers in business unit positions:

 

Key Financial Metrics

   Kraft Foods North
America(1)
  Kraft Foods Developing
Markets(2)
     Target    2011
Actual
   Perf.
Rating
  Target    2011
Actual
   Perf.
Rating

Organic Net Revenue Growth

       2.7%        4.8%    180%     10.3%    11.4%    111%

Adjusted Segment Operating Income

   $4,336    $4,202      89%   $2,157    $2,186    103%

Free Cash Flow

   $2,707    $2,751    102%     $530      $671    171%

Actual Business Unit Rating

         132%         120%

 

  (1) For Kraft Foods North America, financial threshold and maximum performance goals are: Organic Net Revenue Growth – 1.2% and 4.7%, Adjusted Segment Operating Income – $4,076 million and $4,596 million, and Free Cash Flow – $2,301 million and $3,384 million.

 

  (2) For Kraft Foods Developing Markets, financial threshold and maximum performance goals are: Combined Organic Net Revenue Growth – 6.2% and 13.9%, Adjusted Segment Operating Income – $1,941 million and $2,373 million, Free Cash Flow—$371 million and $689 million.

Although the business unit rating is a formulaic method for assessing performance against these three key internal measures, the Committee retains discretionary authority to adjust the business rating (up or down) by as much as 25 percentage points to recognize innovation, portfolio management, talent management and the quality of our results. For 2011, the Committee did not exercise discretion to modify the business ratings.

 

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While we report our financial results in accordance with U.S. GAAP, our financial targets under our incentive plans are based on non-GAAP financial measures. For supplemental financial data and corresponding reconciliations to certain GAAP financial measures for the year ended December 31, 2011, see Exhibit A to this Proxy Statement. The adjustments to the related GAAP measure and our reasons for using these measures are described in the chart below.

 

Measure

  

Definition/Adjustment to GAAP measure

  

Rationale

Organic Net Revenue Growth(1)   

Net revenues, excluding the impact of acquisitions, divestitures, accounting calendar changes, Integration Program costs and currency rate fluctuations (Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition)

 

   Reflects the growth rates for Kraft Foods’ base business by eliminating the impact of certain disclosed one-time factors, facilitating comparisons to prior year(s)

 

Adjusted Operating

Income

   Operating income, excluding the impact of divestitures, currency rate fluctuations, Integration Program costs, acquisition-related costs and costs associated with the Spin-off    Indicator of overall business trends and performance, based on what business leaders can control

 

Adjusted Segment

Operating

Income

 

  

 

Segment operating income,(2) excluding the impact of divestitures, currency rate fluctuations, Integration Program costs, acquisition-related costs and costs associated with the Spin-off

  

 

Indicator of trends and performance for business segments, based on what business units can control

 

Free

Cash Flow

 

   Cash flow from operations less capital expenditures    Reflects Kraft Foods’ financial liquidity, working capital efficiency and financial health

 

  (1) For Kraft Foods Developing Markets, we measure Combined Organic Net Revenue Growth, which differs from Organic Net Revenue Growth in that it includes the impact of significant acquisitions.

 

  (2) Segment operating income is a measure of Operating Income by Segment and excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of our U.S. pension plan cost (which are a component of cost of sales and selling, general and administrative expenses), general corporate expenses (which are a component of selling, general and administrative expenses) and amortization of intangibles for all periods presented.

 

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Long-Term Incentives

Long-term incentive equity award grants are awarded to align the interests of our executive officers with those of our shareholders. For 2011, the Committee determined that the appropriate mix of grants in our long-term incentive program for senior management, including our Named Executive Officers, was 50% performance shares, 25% stock options and 25% restricted stock. This mix places greater emphasis on performance-based compensation – performance shares and stock options – and less emphasis on restricted stock than in prior years.

 

LOGO

Equity Awards – Stock Options and Restricted Stock

We grant non-qualified stock options and restricted stock on an annual basis. In 2011, we intended that the value delivered in the form of restricted stock be equal to the value delivered as stock options. To maintain this balance, we continued to use a ratio of restricted stock to stock options of one to six in 2011. The Committee maintained this equity mix because it balances the retention value of restricted stock with the performance aspect of stock options. We are committed to growing shareholder value, and our incentive plans support this objective. To support the retention aspects of the program, restricted stock awards do not vest until three years after the grant date. The stock options vest one-third each year over three years. For non-U.S. employees, we grant deferred stock units instead of restricted stock, which have the same vesting schedule as restricted stock. Dividends are paid on unvested restricted stock and dividend equivalents are paid on deferred stock units at the same time and rate as dividends are paid on Kraft Foods common stock.

Award ranges are based on an analysis of competitive market practice, with the midpoint of the equity award ranges, plus the value of the target performance shares, approximately equal to the size-adjusted total long-term incentive median of the Compensation Survey Group. An equity award above or below the midpoint of the range is based on a qualitative review of an executive officer’s sustained individual performance and an evaluation of each executive officer’s potential to assume roles with greater responsibility. In all cases, awards are between 50% and 150% of the midpoint.

 

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The range of award opportunities, expressed in terms of grant value, for our Named Executive Officers as of February 23, 2011, the date of Kraft Foods’ 2011 annual equity award grant, are shown in the table below.

 

Name

   Grant Value
Award Range(1)
   Threshold
($)
     Midpoint
($)
     Maximum
($)

Ms. Rosenfeld

   2,428,500      4,857,000      7,285,500

Mr. Brearton(2)

      175,000         350,000         525,000

Mr. McLevish

      550,000      1,100,000      1,650,000

Mr. Khosla

      350,000         700,000      1,050,000

Mr. Vernon

      550,000      1,100,000      1,650,000

Ms. West

      350,000         700,000      1,050,000

 

 

  (1) The ranges above include threshold to maximum grant values for these positions. The Committee may also choose to grant an award below the threshold.

 

  (2) Mr. Brearton’s grant value award range reflected his prior role as Executive Vice President, Operations and Business Services before becoming Executive Vice President and Chief Financial Officer in May 2011.

All equity awards approved by the Committee and granted to our Named Executive Officers in 2011 were within the respective ranges presented above. Actual equity award amounts in 2011 are presented in this Proxy Statement in the 2011 Grants of Plan-Based Awards Table under “Executive Compensation Tables.”

The date for annual restricted stock and stock option awards is pre-set on the scheduled date of the Committee meeting immediately following the release of our annual financial results. The exercise price for stock options is determined on the date the Committee approves the awards and is set as the average of the high and low trading prices on that date.

LTIP – Performance Shares (2011 – 2013 Performance Cycle)

We designed the LTIP to motivate executive officers to achieve long-term financial goals and top-tier shareholder returns. The plan measures performance over a three-year period (2011 – 2013), and shares of Kraft Foods’ common stock are earned based on the actual performance against goals set at the beginning of the cycle. The number of shares earned by an executive officer depends on the achievement of key internal financial metrics and Total Shareholder Return results relative to the companies in our Performance Peer Group. No individual performance factor is used in the calculation. No dividends or dividend equivalents are paid or earned on unvested performance shares.

The formula shown below is used to determine actual awards for participants, including our Named Executive Officers. Other than base salary, each element of this formula is discussed below.

 

       

Base Salary at

Beginning of

Performance Cycle

  x  

Target Incentive

Opportunity

(% of Base Salary)

(Target number of

shares established)

  x   

Business Performance

Rating

(0% – 200% of

target shares)

  =  

Actual LTIP Award

(in shares)

 

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Award Formula
Element

  

Explanation of Key Provisions

Target Incentive Opportunity   

•    Each participant in the plan is assigned a target award as a percentage of his or her base salary at the beginning of the performance cycle. Target award levels for the Named Executive Officers as of January 1, 2011 were:

 

Ms. Rosenfeld

 

Mr. Brearton

  Mr. McLevish   Mr. Khosla   Mr. Vernon   Ms. West
325%   85%   170%   130%   170%   130%

 

 

 

•    Target amounts are converted to a target number of shares at the beginning of the cycle.

 

•     Actual shares earned can range from 0% to 200% of target shares at the end of the performance cycle based on the business performance rating.

 

 

Business Performance Rating     

•    Rating can range from 0% to 200%.

 

•    Performance metrics are:

 

 

        

Measure

  

Weighting

    
    

Organic Net Revenue Growth(1)

   25%   
    

Operating EPS Growth(2)

   25%   
    

Annualized Relative Total Shareholder Return(3)

   50%   

 

 

  (1) Organic Net Revenue Growth is a non-GAAP financial measure and is equal to net revenue, excluding the impact of currency, acquisitions and divestitures.

 

  (2) Operating EPS Growth is a non-GAAP financial measure and is equal to EPS from continuing operations, excluding certain impacts related to acquisitions and other one-time impacts.

 

  (3) Annualized Relative Total Shareholder Return is a comparison relative to the Performance Peer Group during the performance cycle. Information on the Performance Peer Group is discussed below.

 

   

Financial metrics apply only to Kraft Foods Inc. organizational levels. There is no individual assessment.

 

   

The target objective set for Annualized Relative Total Shareholder Return is the median of the Performance Peer Group from 2011 to 2013. The Organic Net Revenue Growth and Operating EPS Growth targets were set relative to historical and projected future results of the Performance Peer Group.

 

   

To address unforeseen or unintended consequences, the Committee retains discretion to adjust the final business performance rating (up or down) by as much as 25 percentage points, allowing the Committee to factor in a subjective review of quality of financial results, portfolio management, innovation and talent development. We will disclose any discretion applied by the Committee at the conclusion of the performance cycle.

 

   

We do not publicly disclose specific long-term incentive plan targets on a prospective basis due to potential competitive harm. Revealing specific objectives prospectively would provide competitors and other third parties with insights into our confidential planning process and strategies, thereby causing competitive harm. The performance goals are designed to be challenging, and there is a risk that payments will not be made at all or will be made at less than 100% of the target amount. The performance goals for Organic Net Revenue Growth and Operating EPS Growth are in line with median historical results for our Performance Peer Group. The degree of difficulty in achieving the internal measures is challenging.

 

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Award Formula
Element

  

Explanation of Key Provisions

  

•    Both our annual and long-term incentive plans use Organic Net Revenue Growth, but the benchmarks used to set targets for these plans are different. We believe the use of these measures focuses our employees on critical internal drivers, both in the short- and long-term. We set the short-term targets against our annual operating plan, whereas we set the long-term targets against the performance benchmarks of our peers. These metrics, when used together, have a high correlation with shareholder value.

 

LTIP – Performance Shares (2009 – 2011 Performance Cycle)

All of our Named Executive Officers participated in the 2009 – 2011 LTIP. The plan measured Kraft Foods’ performance over a three-year period (2009 – 2011), and the Committee awarded shares based on actual performance against goals set at the beginning of the cycle.

Business Performance Rating and Payments. The Committee established the following weightings and target goals for the 2009 – 2011 LTIP and approved the resulting performance rating for determining the ultimate payout:

 

        Kraft Foods Inc.

Key Financial Metrics

  Weighting   Threshold   Target   Maximum   2009 – 2011
Actual
  Perf.
Rating

Organic Net Revenue Growth(1)

  30%   3.0%   4.0%   8.0%   3.9%   93%

Operating EPS Growth(2)

  20%   4.0%   7.5%   10.5%   10.7%   200%

Cumulative Adjusted Free Cash Flow(3)

  20%   $6.2 billion   $6.9 billion   $8.2 billion   $10.2 billion   200%

Annualized Relative Total Shareholder Return(4)

  30%   4.0 pp(5) below
median
  At median   8.0 pp above
median
  0.8 pp above
median
  110%

Actual Business Performance Rating

            141%

 

  (1) For 2009 and 2011, we used Organic Net Revenue Growth. For 2010, we used Combined Organic Net Revenue Growth (which captured the impact of the Cadbury acquisition).

 

  (2) For 2010 and 2011, we modified the EPS Growth measure from Ongoing to Operating to align with Kraft Foods’ EPS benchmark communicated externally.

 

  (3) For 2009, we excluded $400 million of voluntary pension contributions and for 2010, we excluded $1.2 billion in taxes paid related to the sale of our North American frozen pizza business.

 

  (4) The companies used in the Annualized Relative Total Shareholder Return are the Performance Peer Group companies established at the outset of the performance cycle.

 

  (5) “pp” represents percentage points.

There were no individual or business unit performance factors used in the calculation. Kraft Foods’ performance was significantly above target in Cumulative Adjusted Free Cash Flow and Operating EPS Growth. Organic Net Revenue Growth was slightly below target. Annualized Relative Total Shareholder Return was slightly above the median. The Committee believed the payout was appropriate given its overall evaluation of Kraft Foods’ performance and economic conditions, and therefore did not use its discretion to adjust the final business performance ratings.

 

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Based on target awards, as a percent of salary, and the business performance rating of 141% of target, the chart below shows the share payouts for each of our Named Executive Officers.

 

Name

   Target Award        Actual Award
(Shares)
     Award
Value At
Vest(1)

($)
 

Ms. Rosenfeld

     250% of salary         191,930          7,289,501   

Mr. Brearton

     75% of salary         19,205        729,406   

Mr. McLevish

     150% of salary         54,835        2,082,633   

Mr. Khosla

     125% of salary         47,010        1,785,440   

Mr. Vernon

     150% of salary         56,795        2,157,074   

Ms. West

     75% of salary         17,625        669,398   

 

  (1) Award value is based on the closing stock price on February 23, 2012, the vesting date.

Voluntary Non-Qualified Deferred Compensation

U.S. Deferred Compensation Plan

In 2011, certain U.S. senior management (approximately 125 employees), including our Named Executive Officers, were eligible for a voluntary non-qualified deferred compensation plan. The program is similar to those provided to executive officers at many of the companies within the Compensation Survey Group and is provided for retention and recruitment purposes. The deferred compensation plan provides an opportunity for executives to defer, on a pre-tax basis, up to 50% of their salary and up to 100% of their annual cash incentives. The investment choices mirror those in the Kraft Foods Inc. Thrift/TIP 401(k) Plan.

U.S. Supplemental Benefits Plan

We also provide a non-qualified program, the Kraft Foods Supplemental Benefits Plan, for U.S. employees whose compensation exceeds the compensation limit established by the Internal Revenue Code of 1986, as amended (the “Code”), for tax-qualified plan contributions. Under this program, and consistent with all other U.S. employees, a company match is provided on contributions of base salary and annual cash incentives.

Perquisites

Our Named Executive Officers receive limited perquisites, including a car allowance, a financial counseling allowance and, for the CEO only, personal use of the corporate aircraft. For security and personal safety reasons, we require Ms. Rosenfeld to use the corporate aircraft for both business and personal travel. This allows Ms. Rosenfeld to be more productive and efficient when she travels. Taxes on all perquisites are the sole responsibility of the Named Executive Officer. The types and total costs of perquisites we offer are similar to the types and costs offered within the Compensation Survey Group. The Committee believes that these perquisites are important for retention and recruitment purposes. Specific executive officer perquisites are listed in the footnotes to the 2011 Summary Compensation Table under “Executive Compensation Tables.” Other than these perquisites, executive officers receive the same benefits as other Kraft Foods employees.

Post-Termination Compensation

Post-termination compensation consists of both separation pay and retirement benefits. We do not have employment agreements with any of our Named Executive Officers as these individuals, including Ms. Rosenfeld, are “at will” employees.

Change in Control Plan

We have a Change in Control Plan (the “CIC Plan”) for senior executive officers. The provisions in the CIC Plan are consistent with similar plans maintained by companies in the Compensation Survey

 

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Group, including eligibility, severance benefit levels and treatment of cash and equity incentive compensation. The separation payments are structured to help assure that key personnel, including our Named Executive Officers, would be available to assist in the successful transition following a change in control and provide a competitive level of severance protection if the executive officer is involuntarily terminated without cause following a change in control. Under the CIC Plan, restricted stock and stock options only vest upon a change in control if the participant is terminated without cause or resigns for good reason within two years following the change in control or if the acquiring entity does not assume the awards (“double trigger”). In 2009, we eliminated the excise tax gross up for all executives who first become eligible to participate in the CIC Plan after December 31, 2009. For executives who participated in the CIC Plan prior to this change, Kraft Foods will cover excise taxes as follows: (a) all excise taxes that may be triggered by separation payments paid to the CEO; and (b) excise taxes for all other participants will only be paid if change in control separation payments exceed 110% of the IRS-imposed threshold at which the excise tax becomes payable. To the extent that separation payments do not exceed 110% of the threshold but do trigger excise tax payments, separation payments will be limited to the maximum amount that does not trigger the excise tax amounts. This is done to minimize our expense for separation payments that do not significantly exceed the IRS-imposed threshold.

The severance arrangements and other benefits provided under the CIC Plan (as well as the equity treatment upon certain separations in the event of a change in control) are described under “Executive Compensation Tables – Potential Payments upon Termination or Change in Control.”

Non-Change in Control Severance Agreements

We do not have individual severance or employment agreements with any of our Named Executive Officers. We do maintain a broad-based severance plan in the United States that provides for certain severance payments in the event of job elimination or a workforce reduction. Similar plans are generally available in other countries where we have employees. The plans facilitate recruitment and retention, as most of the companies in the Compensation Survey Group offer similar benefits to their executives. The severance arrangements and other benefits provided for under these severance plans are described under “Executive Compensation Tables – Potential Payments upon Termination or Change in Control.”

Retirement Benefits

We offer both tax-qualified and supplemental defined benefit retirement plans to executive officers, including our Named Executive Officers, with the exception of Mr. Vernon, and these plans vary by country. In the United States, employees, including Mr. Vernon, hired on or after January 1, 2009 are not eligible to participate in either a tax-qualified or supplemental defined benefit retirement plan. U.S. employees hired on or after January 1, 2009, including Mr. Vernon, are eligible to participate in an enhanced defined contribution program. The Committee believes that these retirement benefits have helped in retention and recruitment, as many of the companies in the Compensation Survey Group offer similar programs. However, in recent years, the Committee has weighed the volatile cost environment that exists for defined benefit plans, especially in the United States. Based on the significant cost volatility associated with continuing a defined benefit pension plan in the United States, the defined benefit plan was closed to new participants after December 31, 2008. In addition, accruals under the defined benefit pension plan will cease after 2019. Accrued amounts and additional details of these retirement programs are presented in the 2011 Pension Benefits Table and the accompanying narrative to the table under “Executive Compensation Tables.”

We provide Ms. Rosenfeld with an enhanced pension benefit that credits her pension service for the period of time that she was not employed by Kraft Foods between 2004 and 2006. We provided this enhanced pension benefit to Ms. Rosenfeld because she forfeited her right to a pension benefit at her previous employer when she rejoined Kraft Foods. This benefit was part of a broader incentive program to help encourage her to return to Kraft Foods. Additional details of this benefit are presented in the 2011 Pension Benefits Table and the accompanying narrative to the table under “Executive Compensation Tables.”

 

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The Committee believes that both the U.S. tax-qualified and supplemental defined contribution plans are integral parts of our overall executive compensation program. The supplemental defined contribution program is important because it encourages executive officers, including our Named Executive Officers, to save for retirement. The Committee believes that our Named Executive Officers should be able to defer the same percentage of their compensation, and receive the corresponding Kraft Foods matching contributions, as all other employees, without regard to the compensation limit established by the Code, for tax-qualified plan contributions. As stated previously, employees hired on or after January 1, 2009, including Mr. Vernon, are eligible to participate in an enhanced defined contribution program. This enhanced program is offered to U.S. employees not eligible to participate in the tax-qualified or supplemental defined benefit plans. Accrued amounts and additional details of each of the non-qualified deferred compensation programs offered to Named Executive Officers are presented in the 2011 Non-Qualified Deferred Compensation Benefits Table and the accompanying narrative to the table under “Executive Compensation Tables.”

Compensation Paid to Named Executive Officers in 2011

Overview

There are no material differences in compensation policies with respect to each Named Executive Officer. We designed each of our Named Executive Officer’s target compensation levels to be at or near the Compensation Survey Group’s size-adjusted median. Actual compensation will be dependent on both business and individual performance in any given year.

Below are the specific compensation actions for each of our Named Executive Officers in 2011.

Ms. Rosenfeld

Base Salary Increase. Ms. Rosenfeld received a 2.3% salary increase from $1.515 million to $1.550 million. Ms. Rosenfeld’s salary increase was commensurate with company guidelines for increases, taking into account her individual performance assessment. Her salary is below the size-adjusted median of the Compensation Survey Group.

Actual Annual Cash Incentive. The Committee determined Ms. Rosenfeld’s annual cash incentive for 2011 in accordance with the 2011 Annual Cash Incentive Program. Based on our performance relative to target (business unit rating of 130%) and Ms. Rosenfeld’s individual performance, Ms. Rosenfeld’s actual annual incentive is 182% of her target in 2011. For 2011, the Committee considered the following performance in determining Ms. Rosenfeld’s individual performance assessment:

 

   

Delivered strong financial performance relative to peers and in aggregate above targets in the Annual Cash Incentive Program. Financial performance was 130% relative to target as discussed under “ – Elements of Executive Compensation – Annual Cash Incentive Program – 2011 Business Unit Ratings” above.

 

   

Delivered above plan performance on key strategic initiatives as evidenced by the following:

 

   

Relative Total Shareholder Return in 2011 of 22.7% exceeded the 75th percentile of our Performance Peer Group. This was the second consecutive year of results at or above the 75th percentile.

 

   

Global market share improved in key categories.

 

   

New product revenue results were strong in 2011.

 

   

Retention of Cadbury leaders and significant changes in the senior executive team improved the talent pipeline, key sales leadership roles were strengthened and diversity improved.

 

   

Delivery of Cadbury integration savings is ahead of plan. Savings are expected to exceed the original $750 million target by the end of 2012.

 

   

Implementing the Spin-off strategy, while delivering top-tier results during the separation process.

 

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Equity Award (Stock Options and Restricted Stock). As part of our annual equity program in 2011, the Committee granted Ms. Rosenfeld an award of 83,930 restricted stock shares and 503,570 stock options (combined value on grant date of $4,604,781). This equity grant along with the 2011 – 2013 LTIP opportunity is at the size-adjusted median of the Compensation Survey Group.

2009 – 2011 LTIP. Based on the formulaic determination of this incentive, Ms. Rosenfeld earned 191,930 shares of Kraft Foods common stock, which represented 141% of her target award opportunity.

Defined Benefit Accrual. The present value of Ms. Rosenfeld’s retirement benefit increased as measured at the end of 2011. A decrease in the applicable discount rate was the primary factor contributing to $3.2 million of the increase, along with an increase in the final average pay calculation, which accounted for $2.3 million of the increase. In addition, there were normal increases in pension values due to length of service, which totaled approximately $0.7 million. There were no changes to the terms of the plan for Ms. Rosenfeld in 2011.

Other Named Executive Officers

The chart below shows specific compensation actions for each of the other Named Executive Officers in 2011 followed by a description of these decisions:

 

     Salary
Increase
   New
Salary

($)
   2011
Annual
Cash
Incentive
Payment

($)
  

        2011 Equity Award
                    (Shares)                     

  2009 –2011 LTIP(1)
(Shares)

Mr. Brearton

   28.7%    650,000    742,900    February 23, 2011 award   19,205
            7,860 restricted stock  
            47,140 stock options  
            May 9, 2011 award  
            5,900 restricted stock  
            35,350 stock options  

Mr. McLevish

   1.5%    761,000    980,000    23,570 restricted stock   54,835
            141,400 stock options  

Mr. Khosla

   2.0%    755,000    1,036,000    15,720 restricted stock   47,010
            94,720 stock options  

Mr. Vernon

   1.5%    761,000    1,167,000    22,000 restricted stock   56,795
            131,980 stock options  

Ms. West

   1.5%    660,000    1,050,000    13,360 restricted stock   17,625
            80,130 stock options  

 

(1) Consistent with plan design, the Committee made no individual adjustments in determining share payout.

Mr. Brearton

Base Salary Increase. Mr. Brearton received both a merit salary increase in April 2011 and a promotional increase at the time he assumed the role of Chief Financial Officer. His salary is below the size-adjusted median of the Compensation Survey Group for top financial executives.

Actual Annual Cash Incentive. In 2011, Mr. Brearton’s individual performance guidelines were primarily related to delivering solid financial results and his leadership on the efforts leading up to the announcement of, and preparing for, the Spin-off.

 

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Equity Award (Stock Options and Restricted Stock). Mr. Brearton received an annual equity grant on February 23, 2011. He was granted an additional equity grant when he assumed the role of Chief Financial Officer. These equity grants, along with the 2011 – 2013 LTIP opportunity, are below the size-adjusted median of the Compensation Survey Group.

Mr. McLevish

Base Salary Increase. Mr. McLevish’s salary increase was commensurate with company guidelines for increases, taking into account his individual performance assessment. His salary is below the size-adjusted median of the Compensation Survey Group.

Actual Annual Cash Incentive. In 2011, Mr. McLevish’s individual performance guidelines were primarily related to his role in successfully transitioning the Chief Financial Officer duties to Mr. Brearton and his role in leading the Spin-off transaction.

Equity Award (Stock Options and Restricted Stock). This equity grant along with the 2011 – 2013 LTIP opportunity is above the size-adjusted median of the Compensation Survey Group.

Mr. Khosla

Base Salary Increase. Mr. Khosla’s salary increase was commensurate with company guidelines for increases, taking into account his individual performance assessment. His salary approximates the size-adjusted median of the Compensation Survey Group.

Actual Annual Cash Incentive. In 2011, Mr. Khosla’s individual performance guidelines were primarily related to his leadership in delivering strong business results across all of the regions within our Developing Markets segment despite significant operating challenges in several countries.

Equity Award (Stock Options and Restricted Stock). This equity grant along with the 2011 – 2013 LTIP opportunity is below the size-adjusted median of the Compensation Survey Group.

Mr. Vernon

Base Salary Increase. Mr. Vernon’s salary increase was commensurate with company guidelines for increases, taking into account his individual performance assessment. His salary approximates the size-adjusted median of the Compensation Survey Group.

Actual Annual Cash Incentive. In 2011, Mr. Vernon’s individual performance guidelines were primarily related to leading the strong business turnaround in Kraft Foods North America and implementing strong cost management programs while delivering robust innovation in a very challenging business environment.

Equity Award (Stock Options and Restricted Stock). This equity grant along with the 2011 – 2013 LTIP opportunity is at the size-adjusted median of the Compensation Survey Group.

Ms. West

Base Salary Increase. Ms. West’s salary increase was commensurate with company guidelines for increases, taking into account her individual performance assessment. Her salary approximates the size-adjusted median of the Compensation Survey Group.

Actual Annual Cash Incentive. In 2011, Ms. West’s individual performance guidelines were primarily related to her role in building stronger marketing capabilities which have been recognized externally, improving the effectiveness of our global categories and being a key leader in forming the two new companies in connection with the Spin-off.

Equity Award (Stock Options and Restricted Stock). This equity grant along with the 2011 – 2013 LTIP opportunity is above the size-adjusted median of the Compensation Survey Group.

 

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Additional Information on Compensation Principles

Providing Competitive Pay

Composition and Purpose of the Compensation Survey Group

We annually compare our compensation program with those companies in the Compensation Survey Group. This annual review is designed to assure that our compensation program and target compensation levels are consistent with market practice and maintain our ability to attract and retain the level of talent we need to drive sustainable superior Total Shareholder Returns.

To assure that the Compensation Survey Group includes the most appropriate companies, the Committee considers companies that: have similar revenue size and market capitalization, emphasize the food and beverage industry, have a global focus, are recognized for their industry leadership and brand recognition, have executive positions similar in breadth, complexity and scope of responsibility and compete with us for executive talent. In its evaluation of companies, the Committee starts with companies with revenue over $10 billion and up to 2.5 times our revenue. The median revenue of the peers is $29.6 billion. Our revenue approximates the 75th percentile of the peer companies.

Based on this, and in consultation with management and with the assistance of the Committee’s compensation consultant, the Committee maintained the following companies for the 2011 Compensation Survey Group:

 

3M Company

   Kimberly-Clark Corporation

Abbott Laboratories

   McDonald’s Corporation

Bristol-Myers Squibb Company

   Merck & Co., Inc.

The Coca-Cola Company

   Nestlé S.A.

Colgate-Palmolive Company

   PepsiCo, Inc.

ConAgra Foods, Inc.

   Pfizer Inc.

Eli Lilly and Company

   The Procter & Gamble Company

General Mills, Inc.

   Sara Lee Corporation

H.J. Heinz Company

   Unilever N.V.

Johnson & Johnson

   The Walt Disney Company

Kellogg Company

  

In determining appropriate compensation levels for our Named Executive Officers, the Committee reviews compensation levels for similarly situated executives at companies in the Compensation Survey Group. Compensation data is provided by Aon Hewitt. The Committee’s compensation consultant reviews and evaluates the data provided by Aon Hewitt on behalf of the Committee.

2011 Competitive Positioning

Our compensation philosophy is to set target total compensation, including base salary and annual and long-term incentives, at or near the median of the Compensation Survey Group, based on size-adjusted data. The Committee believes that targeting the size-adjusted median of the Compensation Survey Group provides the opportunity to attract and retain talented employees. Due to our revenue size relative to our peer group ($54 billion in revenue for the year ended December 31, 2011 vs. a median of $29.6 billion), the Committee uses a size-adjusted median when comparing executive compensation levels. For positions with corporate-wide responsibilities, the Committee uses the average of the regressed median (based on $54 billion in revenues relative to the $29.6 billion median of the Compensation Survey Group) and the raw median to obtain a size-adjusted median. We use this same approach for senior business unit level positions. In effect, the Committee is using a value greater than the raw median but less than a revenue-correlated median. This results in a more conservative approach to benchmarking the compensation data than simply using the revenue-correlated median.

 

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The magnitude of the size-adjusted median (in terms of percentile ranking) typically places total compensation, as well as the individual elements of total compensation, between the raw median and the 75th percentile of the Compensation Survey Group. For perspective, our revenue approximates the 75th percentile of the Compensation Survey Group.

Based on compensation actions taken for each of our Named Executive Officers in 2011, target total compensation for each of them is at or below the size-adjusted median of the Compensation Survey Group, based on the latest available data reported by Aon Hewitt.

Composition and Purpose of the Performance Peer Group

The Committee uses the Performance Peer Group to understand the linkage of pay and performance and for determining the Relative Total Shareholder Return measure in the LTIP. For 2011, the Performance Peer Group was comprised of companies the Committee considered to be our market competitors or that had been selected primarily on the basis of industry. In 2010, the Committee reviewed the composition of the Performance Peer Group and decided to include only food and non-alcoholic beverage companies. The companies in the Performance Peer Group remain unchanged since 2010.

There is substantial overlap (9 of the 12 companies) between the Performance Peer Group and the Compensation Survey Group. The primary difference between the Performance Peer Group and the Compensation Survey Group is that the Performance Peer Group companies are only food and non-alcoholic beverage companies and are included regardless of revenue size or market capitalization.

With respect to performance measures for our LTIP, we believe that it is relevant to compare our financial performance to a group of food and non-alcoholic beverage companies as it is likely that our shareholders are comparing our financial performance to a similar group of companies when making investment decisions. We believe that this group is less relevant when comparing compensation levels at various positions within the organization due to our size and complexity relative to several companies included in this group. The Performance Peer Group companies are:

 

Campbell Soup Company

   H.J. Heinz Company

The Coca-Cola Company

   Kellogg Company

ConAgra Foods, Inc.

   Nestlé S.A.

General Mills, Inc.

   PepsiCo, Inc.

Groupe Danone

   Sara Lee Corporation

The Hershey Company

   Unilever N.V.

 

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Requiring Stock Ownership

To further align the interests of our senior management (approximately 190 executives), including our Named Executive Officers, with those of our shareholders, each executive is required to acquire and hold a significant amount of Kraft Foods common stock. The following chart summarizes our stock ownership and holding requirements. The Committee believes that our stock ownership levels will help increase the focus of our executives on improving Total Shareholder Return over time. Our stock ownership guideline levels are greater than the median of our peers in the Compensation Survey Group, and we monitor compliance with these levels regularly.

 

Stock Ownership /
Holding Requirement

  

Explanation of Key Provisions

Ownership
Requirement
  

•     Eight times salary for Ms. Rosenfeld; four times salary for each other Named Executive Officer.

•     All Named Executive Officers have met the guidelines as of March 1, 2012.

Time to Meet
Requirements
  

•     Five years from employment date or three years from promotion to executive level subject to requirements.

•     CEO may take further action as she deems appropriate if an executive does not meet the required ownership.

Shares Included As
Ownership
  

•     Kraft Foods common stock, including sole ownership, direct purchase plan shares, restricted shares and accounts over which the executive has direct or indirect ownership or control.

•     Excludes unexercised Kraft Foods stock options or unearned performance shares.

Holding Requirements   

•     Starting in 2011, our Named Executive Officers are required to hold 100% of all shares acquired from stock option exercises and restricted stock and performance share vestings, net of shares withheld for taxes or payment of exercise price, until they meet stock ownership guidelines.

•     Once stock ownership guidelines are attained, a Named Executive Officer is required to hold 100% of the shares, net of shares withheld for taxes or payment of exercise price, for at least one year after stock option exercise or restricted stock or LTIP performance share vesting.

Policy on Recoupment of Executive Incentive Compensation in the Event of Certain Restatements

The Board or an appropriate committee of the Board may determine that, as a result of a restatement of Kraft Foods’ financial statements, an executive officer received more compensation than the executive officer would have received absent the incorrect financial statements. The Board or Committee, in its discretion, may then take such actions as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such actions may include, to the extent permitted by applicable law:

 

   

requiring the executive officer to repay some or all of any bonus or other incentive compensation paid;

 

   

requiring the executive officer to repay any gains realized on the exercise of stock options or on the open-market sale of vested shares;

 

   

canceling some or all of the executive officer’s restricted stock or deferred stock awards and outstanding stock options;

 

   

adjusting the executive officer’s future compensation; or

 

   

terminating or initiating legal action against the executive officer.

 

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Anti-Hedging Policy and Trading Restrictions

Our current insider trading policy limits the timing and types of transactions in Kraft Foods securities by Section 16 officers, including our Named Executive Officers. Among other restrictions, the policy:

 

   

allows Section 16 officers to trade company securities only during window periods (following earnings releases) and only after they have pre-cleared transactions;

 

   

prohibits Section 16 officers from short-selling company securities or “selling against the box” (failing to deliver sold securities); and

 

   

prohibits Section 16 officers (and any member of the Section 16 officer’s family sharing the same household) from transactions in puts, calls or other derivatives on Kraft Foods securities on an exchange or in any other organized market, as well as any other derivative or hedging transactions on Kraft Foods securities.

Policy with Respect to Qualifying Compensation for Tax Deductibility

Section 162(m) of the Code limits our ability to deduct compensation paid to certain of our Named Executive Officers (the covered employees) for tax purposes to $1.0 million annually. Covered employees include our principal executive officer and our next three highest paid executive officers, other than our principal financial officer. This limitation does not apply to performance-based compensation, provided certain conditions are satisfied. For 2011, annual cash incentive awards, stock options, restricted stock and performance shares awarded to covered employees were subject to, and made in accordance with, performance-based compensation arrangements previously implemented that were intended to qualify as tax-deductible.

We intend to qualify time-vested restricted stock awards granted to our covered employees using the performance-based compensation exemption. In February 2010, the Committee approved a formula to determine the maximum number of restricted shares that could be awarded to the covered employees contingent upon the achievement of adjusted net earnings during a one-year performance period prior to the stock grant. Under the formula, the maximum number of restricted shares that could be awarded under our 2011 annual restricted stock awards program was equal to 1.50% of our adjusted net earnings in 2010. We defined adjusted net earnings as net earnings before extraordinary items, discontinued operations and the cumulative effect of accounting changes and excluding certain other items designated by the Committee. In addition, our Amended and Restated 2005 Performance Incentive Plan limits individual annual restricted stock awards to 1.0 million shares. In February 2011, using the adjusted net earnings formula, the Committee determined the grant value pool for the 2011 restricted stock grant awards. The maximum award available for grant to our CEO was equal to one-third of the pool. The remaining two-thirds of the pool was available for allocation among the remaining covered employees, subject in each instance to the maximum individual award amount under our Amended and Restated 2005 Performance Incentive Plan.

The Committee has retained the discretion to authorize payments that may not be tax-deductible, if it believes that such payments are in the best interest of shareholders. For example, the Committee decided, based on benchmarking salaries of other chief executive officers in the Compensation Survey Group, to pay Ms. Rosenfeld an annual base salary in excess of $1.0 million. Therefore, a portion of her salary was not tax-deductible in 2011. In addition, a portion of certain of the other covered employees’ income exceeded the $1.0 million tax deductibility limit in 2011 because of other elements of their annual compensation. Specifically, to the extent that a covered employee’s compensation from a combination of base salary, restricted stock vesting proceeds not intended to be performance-based, restricted stock dividends and certain taxable perquisites exceeded $1.0 million, the excess amount was not deductible in 2011.

 

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EXECUTIVE COMPENSATION TABLES

2011 Summary Compensation Table

 

                            Non-Equity Incentive
Plan Compensation
                   

Name and Principal
Position

  Year     Salary
($)
    Stock
Awards(1)
($)
    Option
Awards(2)
($)
    Annual
Incentive
Awards(3)
($)
    Cumulative
Three-Year
(2007 – 2009)
Incentive
Plan
Awards
($)
    Total Non-
Equity
Incentive
Plan
Compen-
sation
($)
    Change
in
Pension
Value(4)
($)
    All
Other
Compen-
sation(5)
($)
    Total
Compen-
sation
($)
 

Rosenfeld, Irene

    2011        1,540,712        7,754,472        1,933,709        4,232,000        —          4,232,000        6,207,428        276,373        21,944,694   

Chairman and

Chief Executive

Officer

 

    2010        1,503,231        7,394,668        2,095,203        2,130,810        —          2,130,810        5,812,189        351,882        19,287,983   
    2009        1,470,000        7,829,371        1,857,776        3,956,000        6,628,125        10,584,125        4,240,935        362,994        26,345,201   
                     

Brearton, David(6)

    2011        619,327        893,762        325,953        742,900        —          742,900        940,758        62,553        3,585,253   

Executive Vice President and

Chief Financial

Officer

                   
                     

McLevish, Timothy(7)

    2011        758,081        2,066,667        542,976        980,000        —          980,000        292,451        90,244        4,730,419   

Executive Vice President and

former Chief

Financial Officer

   

 

 

2010

 

2009

  

 

  

   

 

 

736,923

 

700,000

  

 

  

   

 

 

1,956,975

 

1,941,578

  

 

  

   

 

 

566,795

 

396,854

  

 

  

   

 

 

665,000

 

1,287,000

  

 

  

   

 

 

—  

 

792,219

  

 

  

   

 

 

665,000

 

2,079,219

  

 

  

   

 

 

268,411

 

185,003

  

 

  

   

 

 

115,752

 

103,224

  

 

  

   

 

 

4,309,856

 

5,405,878

  

 

  

                     

Khosla, Sanjay

    2011        751,019        1,493,661        361,997        1,036,000        —          1,036,000        372,165        94,199        4,109,041   

Executive Vice President and

President,

Developing

Markets

   

 

 

2010

 

2009

  

 

  

   

 

 

734,769

 

720,000

  

 

  

   

 

 

1,374,580

 

2,389,562

  

 

  

   

 

 

321,272

 

215,472

  

 

  

   

 

 

847,200

 

1,050,000

  

 

  

   

 

 

—  

 

900,583

  

 

  

   

 

 

847,200

 

1,950,583

  

 

  

   

 

 

297,788

 

237,206

  

 

  

   

 

 

101,118

 

275,190

  

 

  

   

 

 

3,676,727

 

5,788,013

  

 

  

                   
                     

Vernon, W. Anthony

    2011        758,081        2,016,702        506,803        1,167,000        —          1,167,000        —          133,055        4,581,641   

Executive Vice President and

President, North America

    2010        743,462        1,900,236        491,266        409,450        —          409,450        —          113,413        3,657,827   
                     

West, Mary Beth

    2011        657,346        1,297,769        307,699        1,050,000        —          1,050,000        819,804        71,403        4,204,021   

Executive Vice President & Chief

Category &

Marketing Officer

                   

 

(1) The stock awards column includes restricted stock and performance shares. The amounts shown in this column represent the full grant date fair value of the stock awards granted in each year as computed in accordance with FASB ASC Topic 718. For performance shares, the amounts are based on the probable outcome of the performance conditions as of the grant date. Assumptions used in calculating these amounts are included in Note 10 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “Form 10-K”). Below is a breakout of the 2011 – 2013, 2010 – 2012 and 2009 – 2011 performance share grant date fair values assuming target performance and maximum performance (in the case of maximum, based on the maximum number of shares multiplied by the stock price on the grant date).

 

55


Table of Contents

Name

   Performance Cycle      Grant Date Fair Value
($)
     Payment at Maximum
Performance
($)
 

Ms. Rosenfeld

     2011 - 2013         5,083,400         9,847,733   
     2010 - 2012         4,621,521         9,114,527   
     2009 - 2011         3,732,819         7,350,480   

Mr. Brearton

     2011 - 2013         443,312         858,799   

Mr. McLevish

     2011 - 2013         1,316,552         2,550,469   
     2010 - 2012         1,206,783         2,380,008   
     2009 - 2011         1,066,480         2,100,060   

Mr. Khosla

     2011 - 2013         993,372         1,924,393   
     2010 - 2012         949,354         1,872,309   
     2009 - 2011         914,283         1,800,360   

Mr. Vernon

     2011 - 2013         1,316,552         2,550,469   
     2010 - 2012         1,250,011         2,465,262   

Ms. West

     2011 - 2013         872,587         1,690,405   

 

(2) The option awards column includes option awards granted in 2011, 2010 and 2009. The amounts shown in this column represent the full grant date fair value of the option awards granted in each year as computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 10 to the consolidated financial statements contained in our Form 10-K.

 

(3) The amounts shown in this column represent awards paid under our Annual Cash Incentive Program. Awards are paid in March of the following plan year.

 

(4) The amounts shown in this column for Mses. Rosenfeld and West and Messrs. Brearton, McLevish and Khosla represent the aggregate increase in the actuarial present value of each Named Executive Officer’s benefits under our U.S. Tax-Qualified Pension Plan and other U.S. supplemental defined benefit pension plans. U.S. employees hired on or after January 1, 2009, including Mr. Vernon, are not eligible to participate in the U.S. pension plans. However, Mr. Vernon is eligible to participate in an enhanced defined contribution plan similar to all other U.S. employees hired after December 31, 2008. For Mr. Brearton, the amount includes benefits earned under the Canadian Pension Plan and Canadian Non Registered Pension Plan.

 

(5) The amounts shown in the “All Other Compensation” column for 2011 include the following:

 

    I. Rosenfeld
($)
    D. Brearton
($)
    T. McLevish
($)
    S. Khosla
($)
    W. Vernon
($)
    M. West
($)
 

Personal use of company aircraft(a)

    86,881        —          —          —          —          —     

Car expenses

    24,274        15,000        18,705        14,779        15,000        15,652   

Financial counseling allowance

    —          7,500        7,500        7,500        5,075        7,500   

Employer match on defined contribution

    plans

    165,218        40,053        64,039        71,920        112,980        48,251   

Total All Other Compensation

    276,373        62,553        90,244        94,199        133,055        71,403   

 

  (a) For reasons of security and personal safety, we require Ms. Rosenfeld to use our aircraft for all travel. The incremental cost of personal use of our aircraft includes the costs of trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contract costs, hangar or aircraft parking costs, fuel costs based on the average annual cost of fuel per hour flown and other smaller variable costs. Fixed costs that would be incurred in any event to operate our aircraft (for example, aircraft purchase costs, maintenance not related to personal trips and flight crew salaries) are not included in the incremental cost of Ms. Rosenfeld’s use of our aircraft. Ms. Rosenfeld is responsible for taxes in connection with her personal use of our aircraft and is not reimbursed for these taxes.

 

(6) Mr. Brearton was appointed Chief Financial Officer effective May 9, 2011. Prior to that, he served as our Executive Vice President, Operations and Business Services.

 

(7) Mr. McLevish served as our Chief Financial Officer until May 9, 2011, when Mr. Brearton’s appointment as Chief Financial Officer became effective. Mr. McLevish continues to serve as our Executive Vice President.

 

56


Table of Contents

2011 Grants of Plan-Based Awards

 

              Estimated Future
Payouts Under
Non-Equity

Incentive Plan
Awards(1)
    Estimated Future
Payouts Under
Equity

Incentive
Plan Awards(2)
    All
Other
Stock
Awards:
Number

of
Shares
of Stock
or
Units(3)

(#)
    All Other
Option
Awards:
Number  of
Securities
Underlying
Options
(#)
    Exercise
Price of

Option
Awards(4)
($/Share)
    Grant
Date Fair
Value  of

Stock and
Option
Awards(5) 

($)
 

Name                  

  Grant Date     Grant
Type
  Target
($)
    Maximum
($)
    Target
(#)
    Maximum
(#)
         

Ms.Rosenfeld

    —        AIP     2,325,000        5,812,500        —          —          —          —          —          —     
    01/03/2011      Performance
Shares
    —          —          155,720        311,440        —          —          —          5,083,400   
    02/23/2011      Restricted
Shares
    —          —          —          —          83,930        —          —          2,671,072   
    02/23/2011      Stock
Options
    —          —          —          —          —          503,570        31.825        1,933,709   

Mr. Brearton

    —        AIP     546,534        1,366,335            —          —          —          —     
    01/03/2011      Performance
Shares
    —          —          13,580        27,160        —          —          —          443,312   
    02/23/2011      Restricted
Shares
    —          —          —          —          7,860        —          —          250,145   
    02/23/2011      Stock
Options
    —          —          —          —          —          47,140        31.825        181,018   
    05/09/2011      Restricted
Shares
    —          —          —          —          5,900        —            200,305   
    05/09/2011      Stock
Options
    —          —          —          —          —          35,350        33.950        144,935   

Mr. McLevish

    —        AIP     684,900        1,712,250        —          —          —          —          —          —     
    01/03/2011      Performance
Shares
    —          —          40,330        80,660        —          —          —          1,316,552   
    02/23/2011      Restricted
Shares
    —          —          —          —          23,570        —          —          750,115   
    02/23/2011      Stock
Options
    —          —          —          —          —          141,400        31.825        542,976   

Mr. Khosla

    —        AIP     604,000        1,510,000        —          —          —          —          —          —     
    01/03/2011      Performance
Shares
    —          —          30,430        60,860        —          —          —          993,372   
    02/23/2011      Restricted
Shares
    —          —          —          —          15,720        —          —          500,289   
    02/23/2011      Stock
Options
    —          —          —          —          —          94,270        31.825        361,997   

Mr. Vernon

    —        AIP     684,900        1,712,250        —          —          —          —          —          —     
    01/03/2011      Performance
Shares
    —          —          40,330        80,660        —          —          —          1,316,552   
    02/23/2011      Restricted
Shares
    —          —          —          —          22,000        —          —          700,150   
    02/23/2011      Stock
Options
    —          —          —          —          —          131,980        31.825        506,803   

Ms. West

    —        AIP     528,000        1,320,000        —          —          —          —          —          —     
    01/03/2011      Performance
Shares
    —          —          26,730        53,460        —          —          —          872,587   
    02/23/2011      Restricted
Shares
    —          —          —          —          13,360        —          —          425,182   
    02/23/2011      Stock
Options
    —          —          —          —          —          80,130        31.825        307,699   

 

(1) The target amounts represent the potential cash payout if both business and individual performance are at target levels under our 2011 Annual Cash Incentive Program (AIP). Actual amounts under our 2011 Annual Cash Incentive Program were paid in March 2012 and are disclosed in the 2011 Summary Compensation Table. The maximum amounts are equal to 250% of target.

 

(2) The performance shares are granted under our 2011 – 2013 LTIP. The target number of shares shown in the table reflects the number of shares of our common stock that will be earned if each of the performance metrics are at target levels. Actual shares awarded under the 2011 – 2013 LTIP are scheduled to be paid in March 2014. No dividends or dividend equivalents are paid or earned on unvested performance shares.

 

(3) Dividends are paid on the unvested restricted stock at the same rate as on Kraft Foods common stock.

 

(4) The exercise price of the stock option awards represents the fair market value (average of high and low stock prices) of our common stock on the grant date. For the stock options granted on February 23, 2011, the exercise price is greater than the closing stock price ($31.68) on that date. For the stock options granted on May 9, 2011, the exercise price is lower than the closing stock price ($34.04) on that date.

 

(5) The amounts represent the grant date fair value of the awards as computed in accordance with FASB ASC Topic 718.

 

57


Table of Contents

2011 Outstanding Equity Awards at Fiscal Year-End

 

        

Option Awards

    Stock Awards  

Name

 

Grant Date(1)

 

Number

of Securities
Underlying
Un-

exercised
Options
Exercisable
(#)

 

Number

of

Securities
Underlying
Un-

exercised
Options
Unexerci-
sable

(#)

  Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Un-

exercised
Unearned
Options

(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number
of
Shares
or

Units
of
Stock
That
Have

Not
Vested
(#)
    Market
Value

of
Shares
or
Units
of
Stock
That
Have
Not
Vested(2)
($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units

or
Other
Rights
That
Have

Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market

or
Payout
Value

of
Unearned
Shares,
Units

or Other
Rights

That
Have
Not
Vested(2)
($)
 

Ms. Rosenfeld

  05/03/2007   —     —       300,000        33.140        05/02/2017        —          —          —          —     
  02/04/2008   524,000   —       —          29.485        02/02/2018        —          —          —          —     
  02/20/2009   —     —       —          —          —          173,300        6,474,488        —          —     
  02/20/2009   457,512   235,688     —          23.639        02/20/2019        —          —          —          —     
  01/04/2010   —     —       —          —          —          —          —          166,780        6,230,901   
  02/23/2010   —     —       —          —          —          95,150        3,554,804        —          —     
  02/23/2010   188,397   382,503     —          29.145        02/21/2020        —          —          —          —     
  01/03/2011   —     —       —          —          —          —          —          155,720        5,817,699   
  02/23/2011   —     —       —          —          —          83,930        3,135,625        —          —     
  02/23/2011   —     503,570     —          31.825        02/23/2021        —          —          —          —     

Mr. Brearton

  02/04/2008   50,880   —       —          29.485        02/02/2018        —          —          —          —     
  02/20/2009   —     —       —          —          —          15,870        592,903        —          —     
  02/20/2009   41,896   21,584     —          23.639        02/20/2019        —          —          —          —     
  01/04/2010   —     —       —          —          —          —          —          15,250        569,740   
  02/23/2010   —     —       —          —          —          8,580        320,549        —          —     
  02/23/2010   16,988   34,492     —          29.145        02/21/2020        —          —          —          —     
  01/03/2011   —     —       —          —          —          —          —          13,580        507,349   
  02/23/2011   —     —       —          —          —          7,860        293,650        —          —     
  02/23/2011   —     47,140     —          31.825        02/23/2021        —          —          —          —     
  05/09/2011   —     —       —          —          —          5,900        220,424        —          —     
  05/09/2011   —     35,350     —          33.950        05/09/2021        —          —          —          —     

Mr. McLevish

  02/04/2008   95,000   —       —          29.485        02/02/2018        —          —          —          —     
  02/20/2009   —     —       —          —          —          37,020        1,383,067        —          —     
  02/20/2009   97,732   50,348     —          23.639        02/20/2019        —          —          —          —     
  01/04/2010   —     —       —          —          —          —          —          43,550        1,627,028   
  02/23/2010   —     —       —          —          —          25,740        961,646        —          —     
  02/23/2010   50,965   103,475     —          29.145        02/21/2020        —          —          —          —     
  01/03/2011   —     —       —          —          —          —          —          40,330        1,506,729   
  02/23/2011   —     —       —          —          —          23,570        880,575        —          —     
  02/23/2011   —     141,400     —          31.825        02/23/2021        —          —          —          —     

Mr. Khosla

  02/04/2008   62,760   —       —          29.485        02/02/2018        —          —          —          —     
  02/20/2009   —     —       —          —          —          62,410        2,331,638        —          —     
  02/20/2009   27,064   27,336     —          23.639        02/20/2019        —          —          —          —     
  01/04/2010   —     —       —          —          —          —          —          34,260        1,279,954   
  02/23/2010   —     —       —          —          —          14,590        545,082        —          —     
  02/23/2010   28,888   58,652     —          29.145        02/21/2020        —          —          —          —     
  01/03/2011   —     —       —          —          —          —          —          30,430        1,136,865   
  02/23/2011   —     —       —          —          —          15,720        587,299        —          —     
  02/23/2011   —     94,270     —          31.825        02/23/2021        —          —          —          —     

Mr. Vernon

  08/17/2009   —     —       —          —          —          11,970        447,199        —          —     
  01/04/2010   —     —       —          —          —          —          —          45,110        1,685,310   
  02/23/2010   —     —       —          —          —          22,310        833,502        —          —     
  02/23/2010   44,173   89,687     —          29.145        02/21/2020        —          —          —          —     
  01/03/2011   —     —       —          —          —          —          —          40,330        1,506,729   
  02/23/2011   —     —       —          —          —          22,000        821,920        —          —     
  02/23/2011   —     131,980     —          31.825        02/23/2021        —          —          —          —     

 

58


Table of Contents
        

Option Awards

    Stock Awards  

Name

 

Grant Date(1)

 

Number

of Securities
Underlying
Un-

exercised
Options
Exercisable
(#)

 

Number

of

Securities
Underlying
Un-

exercised
Options
Unexerci-
sable

(#)

  Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Un-

exercised
Unearned
Options

(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number
of
Shares
or

Units
of
Stock
That
Have

Not
Vested
(#)
    Market
Value

of
Shares
or
Units
of
Stock
That
Have
Not
Vested(2)
($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units

or
Other
Rights
That
Have

Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market

or
Payout
Value

of
Unearned
Shares,
Units

or Other
Rights

That
Have
Not
Vested(2)
($)
 

Ms.West

  02/04/2008   40,720   —       —          29.485        02/02/2018        —          —          —          —     
  02/20/2009   —     —       —          —          —          13,750        513,700        —          —     
  02/20/2009   18,150   18,700     —          23.639        02/20/2019        —          —          —          —     
  01/04/2010   —     —       —          —          —          —          —          14,000        523,040   
  02/23/2010   —     —       —          —          —          8,580        320,549        —          —     
  02/23/2010   16,988   34,492     —          29.145        02/21/2020        —          —          —          —     
  08/01/2010   —     —       —          —          —          5,940        221,918        —          —     
  08/01/2010   11,880   23,760     —          29.500        08/01/2020        —          —          —          —     
  01/03/2011   —     —       —          —          —          —          —          26,730        998,633   
  02/23/2011   —     —       —          —          —          13,360        499,130        —          —     
  02/23/2011   —     80,130     —          31.825        02/23/2021        —          —          —          —     

 

(1) The vesting schedule for all outstanding stock and stock options is as follows:

 

Grant
Date

 

Grant Type

 

Vesting Schedule

05/03/2007

  Stock options   One-half of the shares under this performance-contingent stock option vests if the price of our common stock maintains an average trading price of $38.11 over a consecutive ten-day period during the ten-year term of the stock option award. On January 20, 2012, 150,000 option shares vested under the terms of the award. The remaining 150,000 option shares will vest only if the price of our common stock maintains an average trading price of $41.43 for a consecutive ten-day period during the ten-year term of the stock option award.

02/04/2008

  Stock options   First tranche (33%) vests on 02/04/2009, the second tranche (33%) vests on 02/04/2010 and last tranche (34%) vests on 02/04/2011.

02/20/2009

  Restricted shares   100% of award vests on 02/17/2012.

02/20/2009

  Stock options   First tranche (33%) vests on 02/19/2010, the second tranche (33%) vests on 02/18/2011 and last tranche (34%) vests on 02/17/2012.

08/17/2009

  Restricted shares   First tranche (33%) vests on 08/17/2010, the second tranche (33%) vests on 08/17/2011 and last tranche (34%) vests on 08/17/2012.

01/04/2010

  Performance shares   100% of award vests on 12/31/2012, subject to the approval of the Human Resources and Compensation Committee and satisfaction of the performance criteria. Payment of the shares, if any, will be made in March 2013.

02/23/2010

  Restricted shares   100% of award vests on 02/22/2013.

02/23/2010

  Stock options   First tranche (33%) vests on 02/22/2011, the second tranche (33%) vests on 02/22/2012 and last tranche (34%) vests on 02/22/2013.

08/01/2010

  Restricted shares   100% of award vests on 08/01/2013.

08/01/2010

  Stock options   Options vest in three equal installments on 08/01/2011, 08/01/2012 and 08/01/2013.

01/03/2011

  Performance shares   100% of award vests on 12/31/2013, subject to the approval of the Human Resources and Compensation Committee and satisfaction of the performance criteria. Payment of the shares, if any, will be made in March 2014.

02/23/2011

  Restricted shares   100% of award vests on 02/24/2014.

02/23/2011

  Stock options   First tranche (33%) vests on 02/23/2012, the second tranche (33%) vests on 02/25/2013 and last tranche (34%) vests on 02/24/2014.

05/09/2011

  Restricted shares   100% of award vests on 05/09/2014.

05/09/2011

  Stock options   Options vest in three equal installments on 05/09/2012, 05/09/2013 and 05/09/2014.

 

(2) The market value of the shares that have not vested is based on the closing price of our common stock of $37.36 on December 30, 2011, as reported on the NYSE.

 

59


Table of Contents

2011 Option Exercises and Stock Vested

 

     Option Awards      Stock Awards  

Name

   Number of
Shares
Acquired on
Exercise
(#)
     Value
Realized on
Exercise (1)
($)
     Number of
Shares
Acquired on
Vesting(2)
(#)
     Value
Realized  on
Vesting(1)
($)
 

Ms. Rosenfeld

     —           —           548,814         19,318,067   

Mr. Brearton

     45,170         163,733         31,925         1,119,401   

Mr. McLevish

     —           —           78,585         2,810,808   

Mr. Khosla

     26,000         288,899         62,700         2,266,495   

Mr. Vernon

     —           —           68,765         2,570,398   

Ms. West

     35,500         116,620         27,805         981,516   

 

  (1) The amounts shown are calculated based on the closing market price of our common stock on the date of exercise or vesting.

 

  (2) The amounts shown include performance shares awarded under our 2009 – 2011 LTIP with a performance cycle which ended on December 31, 2011.

2011 Pension Benefits

 

        Number of
Years of
Credited
Service(1)
    Present Value
of
Accumulated
Benefits(2)
    Payments
During Last
Fiscal Year
 

Name

 

Plan Name

  (#)     ($)