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                                                                    EXHIBIT 10.2


                            KMART HOLDING CORPORATION
                           ANNUAL INCENTIVE BONUS PLAN



1. PURPOSES; CONSTRUCTION.

    The purposes of the Kmart Holding Corporation Annual Incentive Bonus Plan
(the "Plan") are to attract and retain highly-qualified management associates by
providing appropriate performance-based short-term incentive awards, to align
management and stockholder interests by creating a direct link between
management compensation and stockholder return, and to provide incentives to
managers to contribute to the success of the Company. An additional purpose of
the Plan is to serve as a qualified performance-based compensation program under
Section 162(m) of the Internal Revenue Code of 1986, as amended, in order to
preserve the Company's tax deduction for compensation paid under the Plan to
Covered Employees.

2. DEFINITIONS.

    As used in this Plan, the following words and phrases shall have the
following meanings:

         (a) "Board" shall mean the Board of Directors of the Company.

         (b) "Bonus" shall mean any annual incentive bonus award granted
pursuant to this Plan; the payment of any such award shall be contingent upon
the attainment of Performance Goals with respect to a Plan Year.

         (c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

         (d) "Committee" shall mean the Compensation and Incentives Committee of
the Board.

         (e) "Company" shall mean Kmart Holding Corporation, a corporation
organized under the laws of the State of Delaware, or any successor corporation.

         (f) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code (or any successor provision).

         (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.

         (h) "Participant" shall mean an employee of the Company or one of its
Subsidiaries who is eligible to participate herein pursuant to Article 3 hereof
and for whom a target Bonus is established with respect to the relevant Plan
Year.


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         (i) "Performance Goal(s)" shall mean the criteria and objectives which
must be met during a Plan Year as a condition of the Participant's receipt of
payment with respect to a Bonus, as described in Article 5 hereof.

         (j) "Plan" shall mean this Kmart Holding Corporation Annual Incentive
Bonus Plan, as amended from time to time.

         (k) "Plan Year" shall mean the Company's fiscal year.

         (l) "Subsidiary" shall mean any subsidiary of the Company which is
designated by the Board or the Committee to have any one or more of its officers
or employees participate in the Plan.

3. ELIGIBILITY.

    To be eligible to participate in the Plan for any particular Plan Year, an
individual must: (1) be employed by Company or a Subsidiary during the Plan
Year; and (2) receive a letter signed by a Vice President, Divisional Vice
President or Director of the Company or employing Subsidiary (or an authorized
designee of any such person) notifying the individual of his or her eligibility
to participate in the Plan for the Plan Year and the amount of the target Bonus
established for that individual with respect to the Plan Year. The Committee
shall have the authority in its sole discretion, subject to and not inconsistent
with the express provisions of the Plan, to determine eligibility for
participation in the Plan. In determining the persons to whom Bonuses will be
granted, the Committee shall take into account such factors as the Committee
shall deem relevant in connection with accomplishing the purposes of the Plan.

4. NO STOCK SUBJECT TO PLAN.

    No shares of any Stock shall be reserved for, or issued under, the Plan.

5. PERFORMANCE GOALS.

    Performance Goals may be expressed in terms of (i) the Company's return on
equity, assets, capital or investment; (ii) pre-tax or after-tax profit levels
of the Company, the Subsidiaries, subdivisions thereof, or any combination of
the foregoing; (iii) expense reduction levels; (iv) implementation of critical
projects or processes; and/or (v) changes in market price of the stock of the
Company. To the extent applicable, any such Performance Goal shall be determined
in accordance with generally accepted accounting principles and reported upon by
the Company's independent accountants. Performance Goals shall include a
threshold level of performance below which no Bonus payment shall be made,
levels of performance at which specified percentages of the target Bonus shall
be paid, and a maximum level of performance above which no additional Bonus
shall be paid. The Performance Goals established by the Committee may be (but
need not be) different each Plan Year and different goals may be applicable to
different Participants.



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6. BONUSES.

    (a) In General. For each Plan Year, the Committee shall specify the
Performance Goal(s) applicable to each Participant for such Plan Year and the
amount of, or the formula for determining, the target Bonus for each Participant
with respect to such Plan Year. A Participant's target Bonus for each Plan Year
shall be expressed as either a dollar amount or as a percentage of the salary
midpoint for the Participant's salary grade. Unless otherwise provided by the
Committee in its discretion in connection with terminations of employment, or
except as set forth in Section 6(e) hereof, payment of a Bonus for a particular
Plan Year shall be made only if and to the extent the Performance Goal(s) with
respect to such Plan Year are attained and only if the Participant is employed
by the Company or a Subsidiary on the last day of the Plan Year. The actual
amount of Bonus payable under the Plan shall be determined as a percentage of
the Participant's target Bonus, which percentage shall vary depending upon the
extent to which the Performance Goal(s) have been attained. The Committee may,
in its discretion, reduce or eliminate the amount payable to any Participant
(including a Covered Employee), in each case based upon such factors as the
Committee may deem relevant, but shall not increase the amount payable to any
Covered Employee.

    (b) Special Limitation on Certain Bonuses. Notwithstanding anything to the
contrary contained in this Article 6, the actual Bonus paid to the Company's
Chief Executive Officer under the Plan for any Plan Year may not exceed three
times the salary midpoint for the salary grade of the Chief Executive Officer,
as determined by the Committee prior to the beginning of such Plan Year based on
competitive data, including a survey of comparable companies; and the Bonus for
each other Covered Employee under the Plan may not exceed two times the salary
midpoint (as of the beginning of such Plan Year) for such Covered Employee's
salary grade, as so determined by the Committee prior to the beginning of such
Plan Year.

    (c) Time of Payment. Unless otherwise determined by the Committee, or except
as provided in Section 6(e) hereof, all payments in respect of Bonuses granted
under this Article 6 shall be made within a reasonable period after the end of
the Plan Year. In the case of Participants who are Covered Employees, unless
otherwise determined by the Committee in connection with terminations of
employment and except as provided in Section 6(e) hereof, such payments shall be
made only after achievement of the Performance Goal(s) has been certified by the
Committee.

7. ADMINISTRATION.

    The Plan shall be administered by the Committee. The Committee shall have
the authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority: to determine eligibility for participation in the
Plan; to grant Bonuses; to determine the persons to whom and the time or times
at which Bonuses shall be granted; to determine the terms, conditions,
restrictions and performance criteria relating to any Bonus; to make adjustments
in Performance Goals in response to changes in applicable laws, regulations or
accounting principles except as otherwise provided in Section 6(a) hereof; to
adjust compensation payable upon attainment of Performance Goals; to construe
and interpret the Plan


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and any Bonus; to prescribe, amend and rescind rules and regulations relating to
the Plan; and to make all other determinations deemed necessary or advisable for
the administration of the Plan.

    The Committee shall consist of two or more persons each of whom is an
"outside director" within the meaning of Section 162(m) of the Code. The Board
shall fill all vacancies, however caused, in the Committee. The Board may from
time to time appoint additional members to the Committee, and may remove one or
more Committee members at such times and places as it shall deem advisable. The
Committee shall hold its meetings at such times and places as it shall deem
advisable. The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by unanimous written
consent. The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan. All decisions, determinations
and interpretations of the Committee shall be final and binding on all persons,
including the Company, a Subsidiary, a Participant (or any person claiming any
rights under the Plan from or through any Participant) and any stockholder.

    No member of the Board or the Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any Bonus
granted hereunder.

8. GENERAL PROVISIONS.

    (a) Compliance with Legal Requirements. The Plan and the granting of
Bonuses, and the other obligations of the Company under the Plan shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required.

    (b) No Right To Continued Employment. Nothing in the Plan or in any Bonus
granted pursuant hereto shall confer upon any Participant the right to continue
in the employ of the Company or any of its Subsidiaries or to be entitled to any
remuneration or benefits not set forth in the Plan or to interfere with or limit
in any way the right of the Company or any of its Subsidiaries to terminate such
Participant's employment.

    (c) Withholding Taxes. The Company or Subsidiary employing any Participant
shall deduct from all payments and distributions under the Plan any taxes
required to be withheld by federal, state or local governments.

    (d) Amendment and Discontinuance of the Plan. The Board may at any time and
from time to time alter, amend, suspend or discontinue the Plan in whole or in
part; provided, however, that no amendment which requires stockholder approval
in order for the Plan to continue to comply with Code Section 162(m) shall be
effective unless the same shall be approved by the requisite vote of the
stockholders of the Company. The Committee may also make such amendments as it
deems necessary to comply with other applicable laws, rules and regulations.
Notwithstanding the foregoing, no amendment, suspension or discontinuance of the
Plan shall affect adversely any



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of the rights of any Participant under any Bonus theretofore granted hereunder
without the consent of such Participant.

    (e) Participant Rights. No Participant shall have any claim to be granted
any Bonus under the Plan, and there is no obligation for uniformity of treatment
of Participants.

    (f) Unfunded Status of Bonuses. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments which
at any time are not yet made to a Participant pursuant to a Bonus, nothing
contained in the Plan or any Bonus shall give any such Participant any rights
that are greater than those of a general creditor of the Company.

    (g) Governing Law. The Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
Michigan without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by federal law.

    (h) Effective Date; Approval of Stockholders. The Plan shall take effect
upon its adoption by the Board, but the Plan (and any grants of Bonuses made
prior to the stockholder approval described in this Section 8(h)) shall be
subject to the requisite approval of the stockholders of the Company. In the
absence of such approval, any such Bonuses shall be null and void.

    (i) Interpretation. The Plan is designed and intended to comply with Section
162(m) of the Code, to the extent applicable, and all provisions hereof shall be
construed in a manner to so comply.





Adopted August 28, 2003








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