KELLANOVA — Regulatory Filings 2007

Nov 6, 2007

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[Kellogg Company Letterhead]

November 6, 2007

VIA EDGAR AND COURIER

Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Mail Stop 3720 Washington, D.C. 20549

Attention:	Melissa Campbell Duru
Re:	Kellogg Company
	Definitive Proxy Statement on Schedule 14A
	Filed on March 19, 2007
	File No. 001-04171

Ladies and Gentlemen:

As Senior Vice President, General Counsel, Corporate Development and Secretary of Kellogg Company (the “ Company ”), I am responding to the letter from the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “ Staff ”) dated August 21, 2007, containing comments on the above-referenced filing. The responses below correspond to the captions and numbers of those comments (which are reproduced below in bold). As noted in the Company’s responses below, all proposed revisions refer to the Company’s intended method for complying with the Staff’s comments in the Company’s future filings with the Commission, if appropriate given the then current facts and circumstances.

2006 Non-Employee Director Compensation and Benefits, page 14

| 1. |
| --- |
| Response: To address the Staff’s comment, the Company will provide in future filings the
following revised and supplemental disclosure: |
| “Prior to 2004, we granted “original” options with an accelerated ownership feature (“AOF”). Under
the terms of the original option grant, a new option, or “AOF
option,” |

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Securities and Exchange Commission November 6, 2007 Page 2

is generally received when Kellogg stock is used to pay the exercise price of a stock option and related taxes. The holder of the option receives an AOF option for the number of shares used. For AOF options, the expiration date is the same as the original option and the option exercise price is the fair market value of Kellogg’s stock on the date the AOF option is granted.

The Compensation Committee began using the AOF options over fifteen years ago in order to create greater executive stock ownership by encouraging early exercise of valuable stock options and retention of shares received as a result of the option exercise. To better align with peer group compensation practices and in anticipation of new accounting policies for the expensing of stock options, the Compensation Committee discontinued the use of the AOF feature in all new “original” option grants after 2003. Although we discontinued the AOF feature in new option grants, a number of the outstanding options disclosed in the various tables in this proxy statement were granted prior to 2004. Consequently, those AOF options could continue until their natural expiration date (generally, ten years after the date of the original grant).

The Compensation Committee further changed the AOF options so that they may only be exercised once each fiscal year. Prior to this change, AOF options were generally exercised twice during each fiscal year. Kellogg’s overall stock option expense is reduced by limiting the number of times an AOF option can be exercised during any given fiscal year.

Compensation Discussion and Analysis, page 18

Our Compensation Philosophy and Principles, page 18

| 2. |
| --- |
| Response: The Company’s post-termination payments (whether prior to or following a change in
control) are consistent with the Company’s philosophy of providing competitive compensation,
which is discussed on page 18 of the 2007 proxy statement. These payments are designed to
provide market-based benefits to terminated employees |

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Securities and Exchange Commission November 6, 2007 Page 3

| upon the occurrence of certain events. These plans have been established primarily to
attract and retain talented and experienced executives and further motivate them to
contribute to the Company’s short- and long-term success for the benefit of the Company’s
shareowners. To address the Staff’s comments, the Company will, in future filings, clarify
that the meaning of “performance” on page 44 of the 2007 proxy statement includes both
individual and company corporate performance and provide the following supplemental
disclosure with respect to the Kellogg Severance Benefit Plan and Change in Control Policy: |
| --- |
| “The Kellogg Severance Benefit Plan and the Change in Control Policy have been established
primarily to attract and retain talented and experienced executives and further motivate
them to contribute to the Company’s short- and long-term success for the benefit of the
Company’s shareowners, particularly during uncertain times. |
| The Kellogg Severance Benefit Plan provides market-based severance benefits to employees who
are terminated by the Company under certain circumstances. Kellogg benefits from this
program in a variety of ways, including the fact that the Company has the right to receive a
general release, non-compete, non-solicitation and non-disparagement provisions from
separated employees. |
| The Change in Control Policy provides similar market-based benefits in the event of a
discharge of covered executives after a change in control of Kellogg. The Change in Control
Policy provides benefits to executives in the event an executive is terminated without cause
or the executive terminates employment for “good reason” in connection with a change in
control. |
| The Change in Control Policy protects shareowner interests by enhancing employee focus
during rumored or actual change in control activity by providing incentives to remain with
the company despite uncertainties while a transaction is under consideration or pending.” |

Our Compensation Methodology, page 18

3.
Response: To address the Staff’s comment, the Company will, in future filings, clarify that
the Compensation Committee benchmarks target base salary, annual incentives,

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Securities and Exchange Commission November 6, 2007 Page 4

| | long-term incentives and total compensation for the Company’s executive officers against the
“compensation peer group” identified and discussed on page 19 of the 2007 proxy statement.
As mentioned in the proxy statement, a fundamental tenet of our compensation philosophy is
to target the 50 th percentile of our “compensation peer group”. We will also
provide the following revised and supplemental disclosure in the first paragraph under
“Retirement Plans” in Compensation Discussion and Analysis: |
| --- | --- |
| | “The NEOs participate in the same plans as all U.S. salaried employees. NEOs are eligible
to receive market-based benefits when they retire from Kellogg. The Committee utilizes an
industry survey prepared by Hewitt & Associates to help determine the appropriate level of
benefits. The industry survey contains detailed retirement income benefit practices for a
broad-based group of consumer products companies extending beyond Kellogg’s compensation
peer group. Rather than commissioning a customized survey, the Committee uses the same
survey used by Kellogg to set these benefits for all U.S. salaried employees. Since our
NEOs participate in the same plans (with exceptions noted) as all of our U.S. salaried
employees, the industry survey is a cost-effective way to set these benefits. Based on the
industry survey, the Committee targets the median retirement income replacement among
similarly situated executives. The targeted amount of the total retirement benefits is
provided through a combination of qualified and non-qualified defined contribution plans and
qualified and non-qualified defined benefit plans.” |
| 4. | We note that the company generally targets its compensation package at the 50th percentile of
its peer group. Please revise to disclose where you target each element of compensation
against peer companies and the percentiles represented by actual compensation paid for 2006.
To the extent actual compensation paid to a named executive officer differs from the targeted
percentile, please discuss the reasons for the deviation. See Item 402(b)(2)(xiv) of
Regulation S-K. |
| | Response: The Company provided in the 2007 proxy statement the targeted percentile for total
compensation (see page 20), base salary (see page 20), annual incentives (see page 21) and
long-term incentives (see page 22), and the Company will attempt to make this disclosure
more clear in future filings. The Company will clarify in future filings the fact that the
Company does not benchmark retirement compensation and post-termination compensation using
the same benchmark principles as total compensation, base salary, annual incentives and
long-term incentives. In addition, as noted in the response to Comments 2, 3 and 11, the
Company plans to add in future filings additional disclosure about its retirement
compensation and post-termination compensation. |
| | The Company did not disclose the percentiles represented by “actual” compensation paid for
2006 in its 2007 proxy statement because the requisite information was not available |

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Securities and Exchange Commission November 6, 2007 Page 5

| | to the Company or Towers Perrin at the time the 2007 proxy statement was mailed to
shareowners. As discussed on page 19 of the 2007 proxy statement, the compensation peer
group is comprised of 16 public companies. Because these companies publicly file their
proxy statements at different times during the year, all the Company can disclose in its
proxy statement is the targeted percentile based on available information at the time
compensation is awarded. Even if such information were publicly available, the Company
believes that such information would not provide shareowners with a fair understanding of
the Company’s executive compensation program because actual compensation can be impacted by
a variety of factors, including changes in stock prices, company performance, and vesting of
retirement benefits. The Company will provide supplemental disclosure in future filings to
include the foregoing information. |
| --- | --- |
| 5. | Your discussion on page [19] makes reference to the committee’s review of tally sheets.
Please revise to explain the weight assigned to the review of the tally sheets in the overall
decision-making process. |
| | Response: To address the Staff’s comment, the Company will in future filings add the
following revised and supplemental disclosure: |
| | “The Compensation Committee annually reviews executive pay tallies for NEOs (detailing the
executives’ annual pay — target and actual — and total accumulated wealth under various
scenarios) to help ensure that the design of our program is consistent with our compensation
philosophy and that the amount of compensation is within appropriate competitive parameters.
The Compensation Committee finds tools like pay tallies helpful in its analysis of our
program, but focuses more on the benchmarking results of the compensation peer group in
determining specific compensation levels for the NEOs. Based on the Compensation Committee’s
review of pay tallies, the Compensation Committee has concluded that the total compensation
of each NEO (and, in the case of the severance and change-in-control scenarios, potential
payouts) is appropriate and reasonable and, therefore, did not make any adjustments based on
this review.” |
| 6. | We direct you to Release 8732A, Section II.B.1. Please revise your [proxy statement] to
identify material differences in compensation policies with respect to individual executive
officers. For example, even taking into consideration the additional expense associated with
retirement-eligible executives, Messrs. Jenness and Mackay, their overall compensation is
still significantly higher than that of the other named executives. Please address the reasons
for these discrepancies. |
| | Response: As discussed in the proxy statement, the Compensation Committee focuses on the
benchmarking results from the compensation peer group in determining specific |

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Securities and Exchange Commission November 6, 2007 Page 6

| compensation levels, and targets the 50 th percentile. The benchmarking process
and market-based approach dictates much of the differences. |
| --- |
| In addition, the compensation package for each of the NEOs is intended to contain a mix of
compensation elements that the Compensation Committee believes best reflects his or her
responsibilities and that will best achieve the Company’s overall objectives. To that end,
an executive’s compensation is generally designed so that performance based (or “at-risk”)
compensation increases as a percentage of total targeted compensation as job
responsibilities increase. One result of this structure is that actual total compensation of
an executive as compared to his or her reports is designed to increase in periods of
above-target performance and decrease in times of below-target performance. The differences
among the NEOs reflected in tables in the 2007 proxy statement are a result of this program
design and reflect a period of strong performance by the Company. In addition, the
differences in reported compensation among the NEOs are directly impacted by (1) the amount
of AOF options exercised, and (2) whether an NEO becomes retirement eligible (see, e.g.,
footnote 1 on page 28 of the 2007 proxy statement). |

Annual Incentives, page 21

| 7. |
| --- |
| Response: |
| In General |
| Awards granted to NEOs under the terms of the Kellogg Senior Executive Annual Incentive Plan
(the “AIP”) and the Executive Performance Plan (the “EPP”) are designed to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code and, as
such, preserve tax deductibility for the Company. |

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Securities and Exchange Commission November 6, 2007 Page 7

| Accordingly, objective measures such as internal operating profit, internal net sales and
cash flow are established within the first 90 days of the fiscal year for both the AIP and
EPP. We use these measures to determine the maximum possible payouts under the AIP
and EPP. In each of the last three fiscal years, the targets under the AIP and the EPP have
been reached. Pursuant to the terms of the Company’s shareowner-approved incentive plans,
maximum possible payouts with respect to the targets under the AIP and the EPP are set at $3
million and 1,000,000 shares of common stock (or the then equivalent fair market value
thereof), respectively, for each NEO for Section 162(m) purposes. |
| --- |
| At the end of the year, the Committee would then confirm that the targets established for
purposes of Section 162(m) are achieved. If so, the plan would provide that the executives
would be eligible to receive up to the maximum payouts under the respective incentive
programs. |
| At this point, the Committee would use a judgment-based methodology in exercising
downward, negative discretion to determine the actual payout for each NEO. This process
would allow the Committee to take into account the interplay of factors affecting company
performance and to evaluate individual performance under the AIP. Within this framework,
the Committee establishes targeted incentive levels for each NEO using the market-based
approach described on pages 21 and 22 of the 2007 proxy statement. The targeted incentive
levels for each NEO is fifty percent of the maximum payouts established for purposes of
Section 162(m) discussed above. The payouts under the AIP and the EPP may be substantially
reduced by the Committee in exercising its negative discretion and, therefore, the NEOs are
motivated to drive Company performance and excel on an individual basis. |
| AIP |
| With regard to the AIP, the Committee considers both company and individual performance when
determining actual payouts, with greater emphasis on company performance. As disclosed in
the 2007 proxy statement, the Committee focused on attaining sustainable growth in setting
performance-related expectations under the AIP. |
| If the performance level for maximum funding is confirmed by the Committee, the AIP payout
is adjusted downward from the maximum funding level based on a combination of company and
individual performance. The Committee considers an NEO’s individual achievements during the
performance period relative to pre-established individual goals, including behaving
consistently with our “K Values,” each NEO’s absolute performance, performance relative to
internal peers, and the extent to which each NEO has |

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Securities and Exchange Commission November 6, 2007 Page 8

| strengthened and helped create the future for the Company. With respect to NEOs other than
the CEO, the Committee considers the CEO’s assessment of individual performance. |
| --- |
| A suggested final payout value under AIP (ranging from 0%-200% of the targeted incentive
level) is the product of company performance and the NEO’s individual performance. The
Committee, however, may modify the final payouts to account for the unbudgeted impact of
unusual or nonrecurring gains and losses, or other extraordinary events. |
| EPP |
| The Committee weighs only company performance when determining actual payouts under the EPP.
As disclosed in the 2007 proxy statement, the Committee focused on increasing shareowner
value in setting performance-related expectations under this plan. If the performance level
for maximum funding is confirmed by the Committee, the EPP payout is adjusted downward from
the maximum funding level based on company performance. The Committee may modify the final
payouts to account for the unbudgeted impact of unusual or nonrecurring gains and losses or
other extraordinary events. |
| The Company expects to provide supplemental disclosure in future filings to include some of
the foregoing information. |
| Confidentiality |
| The targets under AIP and EPP set for purposes of Section 162(m) , for fiscal 2006 were not
disclosed in the proxy statement because, to the best of the Company’s knowledge, (1) the
targets under the 2006 AIP and the 2006-2008 EPP are not available publicly, nor is it
possible to determine the targets from publicly available sources, (2) the Company has made
every effort not to publicly disclose the targets under the 2006 AIP and the 2006-2008 EPP
and (3) access to the targets under the 2006 AIP and the 2006-2008 EPP has been restricted
to those persons that either have been instructed to keep such information confidential or
are under a duty to keep such information confidential. It is highly unlikely, therefore,
that the targets under the 2006 AIP and the 2006-2008 EPP will become public knowledge
unless the Commission requires the disclosure of the targets under the 2006 AIP and the
2006-2008 EPP. The Company believes that disclosure of the targets under the 2006 AIP and
the 2006-2008 EPP (which are “commercial or financial information” as defined by the
applicable court decisions) would be detrimental and likely cause substantial injury to the
Company. If disclosed, such information could be utilized by the Company’s competitors for
their strategic planning and business decision-making. |

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Securities and Exchange Commission November 6, 2007 Page 9

	Limitation on Total AIP
	As disclosed in the 2007 proxy statement, the limitation on the percentage of total AIP is
set forth in the plan, which was approved by the Company’s shareowners on April 21, 2006.
The Company has not historically adjusted this percentage because it is an express term in a
shareowner-approved plan and the Company does not plan on adjusting such percentage in the
future without first obtaining shareowner approval. The Company does not expect to make any
changes to its disclosure in future filings in response to the Staff’s comment.
8.	Although you provide a general discussion of the manner in which targets are set and the
purpose of the annual incentive awards provided, you have not disclosed actual quantitative
and qualitative targets established in the aggregate for the named executives as a group and
individually. You disclose for example, that actual AIP payments range from 0% to 200% of the
target opportunity based on “corporate, business unit and individual performance factors given
the functions of the particular executive.” Similarly, you have not disclosed the incentive
targets established for 2006 or 2007 under the Executive Performance Plan. Disclose all
targets established for 2006 and 2007 under the incentive plans. See Items 402(b)(2)(v) -(vi)
and Instruction 2 to Item 402(b) of Regulation S-K. To the extent you believe that disclosure
of the targets is not required because it would result in competitive harm such that it could
be excluded under Instruction 4 to Item 402(b) of Regulation S-K, please provide on a
supplemental basis a detailed explanation supporting your conclusion. Please also note that to
the extent disclosure of the quantitative or qualitative performance-related factors would
cause competitive harm, you are required to discuss how difficult it will be for you to
achieve the target levels or other factors. Please disclose the factors considered by the
compensation committee in setting performance-related objectives. Please see Instruction 4 to
Item 402(b) of Regulation S-K.
	Response: With respect to a discussion of the 2006 targets, please refer to the response to
Comment 7. With respect to the Company’s determination of targets for 2007, the Company
respectfully acknowledges the Staff’s comment, but advises the Staff that, consistent with
Instruction 2 of Item 402(b) of Regulation S-K, the Company did not disclose performance
goals for the 2007 fiscal year because the Company did not believe that such
information was meaningful to a fair understanding of the compensation awarded to or earned
by the Company’s NEOs for the 2006 fiscal year. The Committee did not make any
material changes in its policy or decision-making in early fiscal 2007 that would be
meaningful to a shareowner’s fair understanding of 2006 compensation.

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Securities and Exchange Commission November 6, 2007 Page 10

9.
Response: Please refer to the response to Comment 7.

Grants of Based Awards Table, page 31

| 10. |
| --- |
| Response: To address the Staff’s comment, the Company will provide in future filings a
reference to the narrative section of the Summary Compensation Table (see page 27 of the
2007 proxy statement) that describes the AOF feature, as such narrative may be modified in
the future in response to Comment 1. The compensation expense associated with an AOF option
is roughly equivalent to the compensation expense associated with a new stock option grant.
However, given the compensation expense associated with all stock options, the Compensation
Committee took actions in 2003 and in 2007 to reduce the impact such options have on the
Company’s overall compensation expense. Even though the options were generally granted
pursuant to the Company’s 2003 Long Term Incentive Plan, the Company separated out Regular
Options from AOF Options in the various compensation tables in the 2007 proxy statement
(even though not required by the rules), to allow the Company’s shareowners to be able to
clearly distinguish between the two types of stock options. |

Potential Post-Employment Payments, page 42

1. Please describe and explain how the appropriate payment and benefit levels are determined under the various circumstances that trigger payments or provision of benefits under the severance and change of control plans. See Item 402(b)(1)(v) and 402(j)(3) of Regulation S-K.

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Securities and Exchange Commission November 6, 2007 Page 11

Response: The benefit levels under the severance plan and Change in Control Policy are market-based and are designed to be competitive with similar plans and agreements available to executives within the Company’s compensation peer group. Payment and benefits levels under the various circumstances that trigger payments under the plan and agreements are as reported in the supplemental tables beginning on page 45 of the 2007 proxy statement. The Company does not expect to add any additional disclosure in response to the Staff’s comment.

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Securities and Exchange Commission November 6, 2007 Page 12

I hope that the foregoing has been responsive to the Staff’s comments. All inquiries, questions, comments, notices and orders with respect to this letter, should be directed to the undersigned at (269) 961-2190 or via facsimile at (269) 565-1266. In addition, as you requested in your letter, the Company hereby acknowledges that:

| • | the Company is responsible for the adequacy and accuracy of the disclosure in the
filing; |
| --- | --- |
| • | Staff comments or changes to disclosure in response to comments do not foreclose the
Commission from taking any action with respect to the filing; and |
| • | the Company may not assert Staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United States. |

Sincerely,
/s/ Gary H. Pilnick
Gary H. Pilnick
Senior Vice President, General Counsel, Corporate Development and Secretary

cc:
A. D. David Mackay President and Chief Executive Officer, Kellogg Company
Kathleen Wilson—Thompson Senior Vice President — Global Human Resources, Kellogg Company
Miles Meyer Vice President — International and HR Operations, Kellogg Company
Keith S. Crow, P.C. and Robert M. Hayward Kirkland & Ellis LLP

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