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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.     )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

Kraft Foods Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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KRAFT FOODS INC.

Dear Fellow Shareholder:

You are cordially invited to attend the 2008 Annual Meeting of Shareholders of Kraft Foods Inc. We will hold the Annual Meeting at 3:00 p.m. CDT on Tuesday, May 13, 2008, at the North Shore Center for the Performing Arts in Skokie, Illinois. The meeting facilities will open for admittance at 1:30 p.m. CDT.

At the Annual Meeting, shareholders will elect directors, vote on the ratification of the selection of independent auditors, and consider any other business properly presented at the meeting. We will also report on our business and provide time for your questions and comments.

You may vote via the Internet, by telephone, by mailing your properly executed proxy card or voting instruction form, or in person at the Annual Meeting. Instructions about each option are provided in the attached Proxy Statement and on the enclosed proxy card or voting instruction form.

Only shareholders of record at the close of business on March 10, 2008 are entitled to vote at the 2008 Annual Meeting or any postponements or adjournments thereof.

Please register in advance if you would like to attend the Annual Meeting. The pre-registration directions are provided in the attached Proxy Statement.

Your vote is important to us. Whether or not you plan to attend the Annual Meeting, I encourage you to vote promptly.

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

Sincerely,

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KRAFT FOODS INC.

Three Lakes Drive

Northfield, Illinois 60093

NOTICE OF 2008 ANNUAL MEETING OF SHAREHOLDERS

OF KRAFT FOODS INC.

Carol J. Ward

Vice President and Corporate Secretary

March 25, 2008

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KRAFT FOODS INC.

Three Lakes Drive

Northfield, Illinois 60093

March 25, 2008

PROXY STATEMENT

FOR 2008 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 13, 2008

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Kraft Foods Inc. (“Kraft”) will hold its 2008 Annual Meeting of Shareholders on May 13, 2008 at 3:00 p.m. CDT at the North Shore Center for the Performing Arts in Skokie, 9501 Skokie Boulevard, Skokie, Illinois 60077. The meeting facilities will open for admittance at 1:30 p.m. CDT.

The Board of Directors of Kraft (the “Board”) is providing you these materials in connection with the Board’s solicitation of proxies to be voted at our 2008 Annual Meeting of Shareholders or at any adjournments or postponements thereof (the “Annual Meeting”). These materials provide information regarding the voting procedures and the matters to be voted on at the Annual Meeting. We began distributing these materials on or around April 2, 2008 to all shareholders entitled to vote at the Annual Meeting.

Copies of the Annual Report to Shareholders and/or this Proxy Statement will be sent free of charge to any shareholder who sends a written request to Wells Fargo Shareowner Services, For Kraft Foods, P.O. Box 64874, St. Paul, Minnesota 55164-0874, or calls 1-866-655-7238 (toll-free from within the U.S.) or 1-651-450-4064 (from outside the U.S.). These materials also are available on the Internet at www.kraft.com/investor.

The Board established March 10, 2008 as the record date (the “Record Date”) for the Annual Meeting. Shareholders owning our common stock at the close of business on the Record Date are entitled to (a) receive notice of the Annual Meeting, (b) attend the Annual Meeting and (c) vote on all matters that properly come before the Annual Meeting.

At the close of business on the Record Date, 1,522,456,026 shares of our common stock were outstanding and entitled to vote. Each share is entitled to one vote on each matter to be voted upon at the meeting.

Two proposals are scheduled for vote at the Annual Meeting:

ITEM 1. Election of Directors: THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES TO THE BOARD, EACH FOR A TERM EXPIRING AT THE 2009 ANNUAL MEETING OF SHAREHOLDERS OR UNTIL HIS OR HER SUCCESSOR HAS BEEN DULY CHOSEN AND QUALIFIED:

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You can find information about the Board’s nominees, including each of their business backgrounds, under the heading “Item 1: Election of Directors” in this Proxy Statement.

ITEM 2. Ratification of the Selection of Independent Auditors: THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS KRAFT’S INDEPENDENT AUDITORS FOR THE YEAR 2008.

You can find information about our relationship with PricewaterhouseCoopers LLP under the headings “Audit Committee Matters” and “Item 2: Ratification of the Selection of Independent Auditors” in this Proxy Statement.

Management does not know of any business, other than that described in this Proxy Statement, that may be presented for action at the Annual Meeting. If any other matters properly come before the meeting, the persons named as proxies will vote on them in accordance with their best judgment.

A quorum of shareholders is necessary to validly hold the Annual Meeting. A quorum will be present if at least a majority of Kraft’s outstanding shares on the Record Date are represented at the Annual Meeting, either in person or by proxy. Your shares will be counted for purposes of determining a quorum if you vote via the Internet, by telephone or by submitting a properly executed proxy card or voting instruction form by mail, or if you vote in person at the Annual Meeting. Abstentions and broker non-votes will be counted for determining whether a quorum is present for the Annual Meeting.

You may vote FOR all nominees, WITHHOLD your vote from all nominees, vote FOR specific nominees, or WITHHOLD your vote from specific nominees.

Directors will be elected by a plurality of the votes cast FOR, which means that the 12 director nominees with the most FOR votes will be elected. WITHHOLD votes will not affect the outcome of the election, but will be counted as present for the purpose of determining a quorum for the Annual Meeting. Broker non-votes are not considered as FOR votes or WITHHOLD votes for the nominees and will not have an effect on the outcome of the voting for directors.

Under our majority voting policy in our Corporate Governance Guidelines, in an uncontested election, any nominee for director who receives a greater number of WITHHOLD votes than FOR votes must tender his or her resignation for consideration by the Nominating and Governance Committee of the Board. For more information about this policy, see our Corporate Governance Guidelines provided under the heading “Corporate Governance” in this Proxy Statement.

You may vote FOR, AGAINST or ABSTAIN on the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditors.

The selection of independent auditors will be ratified if the votes cast FOR exceed the total of the votes cast AGAINST. Abstentions and broker non-votes are not considered as voting FOR or AGAINST this proposal and will have no effect on the outcome of the proposal to ratify the selection of PricewaterhouseCoopers LLP.

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Other than the proposals described in this Proxy Statement, we do not expect any other matters to be presented for a vote at the Annual Meeting. The Chairman of the Annual Meeting may refuse to allow the presentation of a proposal or a nomination for the Board at the Annual Meeting if it is not properly submitted. The requirements for properly submitting proposals and nominations at the 2008 Annual Meeting were described in our 2007 Proxy Statement. They are similar to those described under the heading “2009 Annual Meeting of Shareholders” in this Proxy Statement.

If your shares are owned directly in your name with our transfer agent, Wells Fargo Bank, N.A., you are considered a registered shareholder with respect to those shares.

If your shares are held in a brokerage account or by a bank, you hold the shares in street name.

If you are a registered shareholder, you may vote:

If you hold your shares in street name, you may vote:

Yes, you are entitled to vote. For voting purposes, your proxy card includes all shares allocated to your Kraft Stock Fund account(s), shares you may hold at our transfer agent as a registered shareholder as well as shares of restricted stock you may hold. When you submit your proxy, you are directing the plan(s) trustee(s) how to vote the shares allocated to your Kraft Stock Fund account(s) in addition to directing the voting of the other shares included on your proxy card.

In order to direct the plan(s) trustee(s) how to vote the shares held in your Kraft Stock Fund account(s), you must vote the shares by 11:59 p.m. CDT on May 11, 2008. If your voting instructions are not received by that time, the trustee(s) will vote the shares allocated to your account(s) in the same proportion as the respective plan shares for which voting instructions have been received, unless contrary to the Employee Retirement Income Security Act of 1974 (ERISA). Please follow the instructions for registered shareholders under Question 12 to cast your vote. Although you may attend the Annual Meeting, you may not vote shares held in your Kraft Stock Fund account(s) at the meeting.

Yes. If you hold shares of restricted stock, you should follow the instructions for registered shareholders under Question 12 to cast your vote. If you do not vote these shares, they will not be voted. For voting purposes, your proxy card includes these shares of restricted stock, the shares you may hold in a Kraft Stock Fund account(s), as well as shares you may hold at our transfer agent as a registered shareholder.

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If you hold shares in the Direct Purchase Plan, you should follow the instructions for registered shareholders under Question 12 to cast your vote. When you vote those shares, you will be voting all the shares you hold at our transfer agent. If you do not vote your shares, they will not be voted.

If you are a registered shareholder and would like to change your vote after submitting your proxy and prior to the Annual Meeting, you may do so by (a) signing and submitting another proxy with a later date, (b) voting again by telephone or the Internet, or (c) voting at the Annual Meeting. Alternatively, if you would like to revoke your proxy, you may provide a written statement of your intention to revoke your proxy to our Corporate Secretary at Kraft Foods Inc., Three Lakes Drive, Northfield, Illinois 60093.

If your shares are held in street name, contact your bank or broker for specific instructions on how to change or revoke your vote. Please refer to Question 12 for additional details about voting.

The persons named on the proxy card must vote your shares as you have instructed. If you do not give a specific instruction on either of the proposals scheduled for vote at the Annual Meeting but you have authorized our proxies generally to vote, they will vote in accordance with the Board’s recommendation on that matter. This authorization would exist, for example, if you merely sign and return your proxy card.

Yes. The Internet and telephone voting procedures were designed to authenticate shareholders’ identities and to confirm that their instructions have been properly recorded.

If you are a registered shareholder or if you hold restricted stock, your shares will not be voted unless you vote in accordance with the instructions in Question 12.

If you hold your shares in street name, under New York Stock Exchange (“NYSE”) rules, your brokerage firm may vote on your behalf on routine matters if you do not furnish voting instructions. For the Annual Meeting, the election of directors and the ratification of the selection of independent auditors are considered routine matters.

In addition, if you are a current or former employee and had investments in the Kraft Stock Fund(s) of the Kraft Foods Inc. Thrift/TIP 401(k) Plan(s) and/or the Kraft Foods Canada OPP/ESP on the Record Date, you can direct the plan(s) trustee(s) how to vote the shares allocated to your account(s). If your instructions are not received by 11:59 p.m. CDT on May 11, 2008, the trustee(s) will vote the shares allocated to your account(s) in the same proportion as the respective plan shares for which instructions have been received. Please refer to Question 13 for additional details about voting shares held in the Kraft Stock Fund(s).

Kraft bears the cost of soliciting your vote. In addition to mailing these proxy materials, Kraft’s directors, officers or employees may solicit proxies or votes in person, by telephone or by electronic communication. They will not receive any additional compensation for these solicitation activities.

Kraft will enlist the help of banks and brokerage firms in soliciting proxies from their customers and reimburse the banks and brokerage firms for related out-of-pocket expenses.

Kraft retained D.F. King & Co., Inc. to aid in soliciting votes for a total fee of $20,000 plus reasonable expenses.

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Unless you have advised otherwise, if you and other residents at your mailing address share the same last name and own shares of our stock in an account at the same brokerage firm or bank, your proxy materials have been combined for mailing purposes. This method of delivery is known as householding. Householding reduces the number of mailings you receive, as well as our printing and postage costs. Shareholders who participate in householding will continue to receive separate voting instruction forms. If you would like to opt out of this practice or if you would like to participate in householding, please contact your broker or bank. If you are a registered shareholder, your proxy materials have not been combined for mailing purposes. In addition, copies of the Annual Report to Shareholders and/or this Proxy Statement will be sent free of charge to any shareholder who sends a written request to Wells Fargo Shareowner Services, For Kraft Foods, P.O. Box 64874, St. Paul, Minnesota 55164-0874, or calls 1-866-655-7238 (toll-free from within the U.S.) and 1-651-450-4064 (from outside the U.S.).

It means that you have multiple accounts holding our common stock that have not been combined for voting purposes. Please vote all of your shares. We recommend that you consolidate as many accounts as possible under one name and address by contacting our transfer agent, Wells Fargo Bank, N.A., or your broker or bank, as appropriate.

Your votes will not be disclosed to our directors, officers or employees, except (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against us, (b) in the case of a contested proxy solicitation, (c) if you provide a comment with your proxy or otherwise communicate your vote to us, or (d) as necessary to allow the independent inspector of election to certify the results.

As the appointed independent tabulator, Wells Fargo Bank, N.A., will receive and tabulate the proxies. IVS Associates will act as the independent inspector of election and will certify the results.

Kraft will announce preliminary voting results at the Annual Meeting. Final voting results will be included in our second quarter Form 10-Q to be filed with the Securities and Exchange Commission (“SEC”). The Form 10-Q will be available at www.kraft.com/investor on or before August 11, 2008.

If you would like to attend the Annual Meeting, please pre-register by 11:59 p.m. CDT on May 9, 2008. Due to space limitations, you may bring only one guest. If you wish to bring a guest, you must indicate that when you pre-register. You and your guest, if any, must present valid government-issued photographic identification, such as a driver’s license, to be admitted into the Annual Meeting.

If you are a registered shareholder, please indicate that you intend to attend the Annual Meeting by:

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If you hold your shares in street name, please notify us in writing that you will attend and whether you intend to bring a guest. In this written notification, please include a proof of ownership of our common stock (such as a letter from your bank or broker, a photocopy of your current account statement, or a copy of your voting instruction form); please also provide a way for us to reach you if there is a problem with your notification. Send your notification by mail, fax or e-mail to:

For your comfort, security and safety, we will not allow any large bags, briefcases, packages or backpacks into the Annual Meeting site. All bags will be subject to search. We also will not allow electronic devices into the Annual Meeting. These include, but are not limited to, cellular and digital phones, cameras, audio and video recorders, laptops and pagers. We will not allow pets, other than assistance animals for the disabled.

A map and directions to the North Shore Center for the Performing Arts in Skokie are provided at the end of this Proxy Statement.

Yes. Shareholders may ask questions and make remarks related to the matters being voted on as they are presented. The Chairman will entertain shareholders’ questions and comments of a more general nature following the voting.

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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING TO BE HELD ON MAY 13, 2008

The Kraft Foods Inc. 2008 Notice of Annual Meeting and Proxy Statement and 2007 Annual Report to Shareholders are available at www.kraft.com/investor.

Future Materials Election

New rules adopted by the SEC allow companies to send shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”), rather than mail them full sets of proxy materials. This year, we chose to mail full packages of materials to shareholders, except those who have already elected electronic delivery. However, in the future we may take advantage of this new distribution option. It is environmentally friendly and saves printing and postage costs. If, in the future, we choose to send such Notices, they would contain instructions on how shareholders can access our Notice of Annual Meeting and Proxy Statement, Annual Report to Shareholders, and voting Web site via the Internet. It would also contain instructions on how shareholders could request to receive their materials electronically or in printed form on a one-time or ongoing basis. Accordingly, we encourage you to consider how you would prefer to receive your Kraft proxy materials in future years and to make your election at this time. Most shareholders can elect their preferred delivery method, although the means of making that election vary depending on how you hold your stock.

To elect electronic delivery of proxy materials in the future:

If you have not already elected to receive your proxy materials electronically and would like to do so:

If you choose to receive future proxy materials electronically, as a Kraft shareholder, you will be sent an e-mail message next year with instructions and a link to those materials and the Internet voting site. Your election will remain in effect until you terminate it.

To elect to have printed proxy materials mailed to you in the future:

If you prefer to receive printed materials, we will send them to you if you:

If you choose to receive future proxy materials via mail, as a Kraft shareholder, you will be sent a full set of materials. Your election will remain in effect until you terminate it.

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CORPORATE GOVERNANCE

The Board operates under a set of written Corporate Governance Guidelines (the “Guidelines”) that address our corporate governance philosophy, practices and policies. The Guidelines are included here:

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Code of Business Conduct and Ethics for Directors and Code of Conduct for Compliance and Integrity

Kraft has a Code of Business Conduct and Ethics for Directors (the “Ethics Code”) and a Code of Conduct for Compliance and Integrity that applies to all Kraft employees. The Ethics Code focuses on areas of ethical risk, provides guidance to help directors recognize and handle ethical issues, provides mechanisms to report unethical conduct, and fosters a culture of honesty and integrity. On our Web site, we file certain amendments to our codes of conduct and disclose any waiver granted to our principal executive officer, principal financial officer, principal accounting officer or controller under our codes of conduct.

Corporate Governance Materials Available at www.kraft.com/investor and from our Corporate Secretary

Shareholders and others can access our corporate governance materials, including the Articles of Incorporation, Amended and Restated By-Laws (our “By-Laws”), Board committee charters, the Ethics Code and employee code of conduct and other related corporate governance related materials at our Web site at www.kraft.com/investor. Copies of these materials are also available free of charge to any shareholder who sends a written request to our Corporate Secretary at Kraft Foods Inc., Three Lakes Drive, Northfield, Illinois 60093.

The information on our Web site is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other Kraft filings with the SEC.

Director Independence

The Guidelines require that at least 75% of the Board meet the NYSE’s listing standards’ “independence” requirements. A director is considered independent if the Board makes an affirmative determination after reviewing all relevant information that a director has no material relationship with Kraft. To assist in this determination, the Board has adopted categorical standards of director independence, which conform to the independence criteria specified by the NYSE. These standards are listed on Annex A of the Guidelines, attached to this Proxy Statement as Exhibit A.

After considering these categorical standards and the NYSE’s listing standards, the Board determined that the following directors are independent: Ajay Banga, Jan Bennink, Myra M. Hart, Lois D. Juliber, Mark D. Ketchum, Richard A. Lerner, M.D., John C. Pope, Fredric G. Reynolds, Mary L. Schapiro, Deborah C. Wright and Frank G. Zarb. Irene B. Rosenfeld, due to her employment with Kraft, is not considered an independent director.

In making its determination, the Board considered that Mr. Banga is Citigroup Inc.’s Chairman and Chief Executive Officer, Global Consumer Group–International. We purchase banking services from Citigroup in the ordinary course of business. The Board also considered Mr. Reynolds’ position as Executive Vice President and Chief Financial Officer of CBS Corporation, a television broadcast company from which we purchase advertising.

Executive Sessions of the Board

The Lead Director, Mary L. Schapiro, presides over executive sessions of the independent directors. These sessions are held at each regular Board meeting. Ms. Schapiro also presides over any Board meeting at which the Chairman is not present.

Meeting Attendance

We expect directors to attend all Board meetings, the Annual Meeting and meetings of the committees on which they serve, but we understand that occasionally a director may be unable to attend a meeting. The Board held 18 meetings in 2007 and acted by unanimous consent once. All nominees who were serving as directors at the time of the 2007 Annual Meeting of Shareholders attended that meeting, except for Jan Bennink, who could not attend because of a previous business commitment. All nominees who served as directors in 2007 attended at least 88% of the aggregate number of meetings of the Board and all committees on which they served.

Communications with the Board

Shareholders and other interested parties can communicate with the Lead Director, the Board or independent directors, individually or as a group, by writing to them in care of our Corporate Secretary at Kraft Foods Inc., Three Lakes Drive, Northfield, Illinois 60093 or by sending an e-mail to Kraft-Board@kraft.com. The 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

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ordinary business matters, such as suggestions, inquiries and consumer complaints, to the appropriate Kraft executive. The 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.

Committee Membership

Our Board designates the members and chairs of committees based on the Nominating and Governance Committee’s recommendation. During 2007, the Board had three standing committees: Audit, Compensation, and Nominating and Governance. Committee membership was:

2007 Committee Membership

In 2007, the Board reassessed its committee structure and decided to establish the Public Affairs Committee. Effective February 2008, the Board has four standing committees: Audit, Compensation, Nominating and Governance, and Public Affairs. Committee membership effective February 2008 is:

Committee Membership Effective February 2008

The Board has adopted a written charter for each committee. The charters define each committee’s roles and responsibilities. The charters are attached to this Proxy Statement as Exhibits B, C, D and E and are also available at www.kraft.com/investor. We will provide copies of these charters free of charge to any shareholder who sends a written request to the Corporate Secretary at Kraft Foods Inc., Three Lakes Drive, Northfield, Illinois 60093.

PUBLIC AFFAIRS COMMITTEE MATTERS

The Public Affairs Committee was established effective February 2008. The Board has determined that all of the committee members are independent within the meaning of the NYSE’s listing standards. The committee is responsible for discharging the Board’s responsibilities relating to public policy issues. Its specific responsibilities are set forth in its charter, which is attached to this Proxy Statement as Exhibit B.

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NOMINATING AND GOVERNANCE COMMITTEE MATTERS

The Board has determined that all of the Nominating and Governance Committee members are independent within the meaning of the NYSE’s listing standards. The committee’s responsibilities are set forth in its charter, which is attached to this Proxy Statement as Exhibit C.

Process for Nominating Directors

The Nominating and Governance Committee is responsible for identifying and evaluating nominees for director and recommending to the Board nominees for election at the Annual Meeting of Shareholders. 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 consulting firms to assist in identifying and evaluating potential nominees. During 2007, the committee retained London-based MWM Consulting and New York-based Heidrick & Struggles for this purpose.

In evaluating potential nominees for Board membership, the committee may consider many factors, including whether the individual meets the Board’s requirements for independence, the individual’s understanding of our global businesses and markets, the individual’s professional expertise and educational background, and other factors that promote diversity of views and experience. The committee evaluates each individual in the context of the Board as a whole, with the objective of recommending for nomination a group of directors that can best perpetuate our success and represent shareholder interests. In determining whether to recommend a director for re-election, the committee also considers the director’s past attendance at meetings and participation in and contributions to Board and committee activities. In evaluating potential nominees, the committee may identify certain skills or attributes (e.g., financial experience, global business experience) as being particularly desirable to help meet specific Board needs.

The committee will consider any candidate suggested for election to the Board who is properly presented by a shareholder. The committee evaluates candidates suggested by shareholders and then will make a recommendation to the Board using the same criteria described above. After the Board’s full consideration of a shareholder’s suggestion for election to the Board, the Corporate Secretary will notify the shareholder of the Board’s conclusion.

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ITEM 1. ELECTION OF DIRECTORS

The Board currently consists of 12 directors, each subject to annual election. Shareholders elected all of the current directors at the 2007 Annual Meeting, except for Myra M. Hart, Lois D. Juliber, Fredric G. Reynolds and Frank G. Zarb, whom the Board appointed in November and December of 2007.

The Nominating and Governance Committee recommended to the Board, and the Board approved, the nomination of these 12 director nominees, each for a term ending at the 2009 Annual Meeting of Shareholders or until his or her successor has been duly chosen and qualified:

If any of the nominees should be unavailable to serve due to an unanticipated event, the Board may designate another person as a substitute nominee or amend our By-Laws to reduce the number of directors. If the Board substitutes another nominee, your proxy will be voted for the substitute nominee.

On November 7, 2007, we entered into an agreement with one of our shareholders, Trian Fund Management, L.P., certain funds managed by it and certain of its affiliates (collectively, “Trian”). In the agreement, we confirmed the Board’s intention to appoint Ms. Juliber and Mr. Zarb as directors, and to include each of them as nominees at our 2008 and 2009 Annual Meetings. Trian confirmed, among other matters, that they would support the Board’s full list of nominees at our 2008 and 2009 Annual Meetings, and agreed to a standstill agreement with us. A copy of the agreement with Trian was included in our Current Report on Form 8-K that we filed with the SEC on November 7, 2007.

Heidrick & Struggles, a third-party executive search firm, suggested Ms. Juliber and Mr. Reynolds, Trian suggested Mr. Zarb, and Ms. Rosenfeld suggested Dr. Hart as potential nominees to the Board. Ms. Schapiro recommended the appointment of each of these four individuals to the Board.

None of the nominees is related to another or to any executive officer of Kraft or its subsidiaries by blood, marriage or adoption.

The following is information regarding each nominee as of March 25, 2008:

		Ajay Banga   Chairman and Chief Executive Officer, Global Consumer Group– International, Citigroup Inc.   Director since January 2007   Age: 48		Since August 2005, Mr. Banga has been the Chairman and Chief Executive Officer of Citigroup’s Global Consumer Group–International, a global financial services company. Mr. Banga previously served as an Executive Vice President of Citigroup’s Global Consumer Group and President of Citigroup’s Retail Banking North America. Since joining Citigroup in 1996, Mr. Banga has worked as business head for CitiFinancial and the U.S. Consumer Assets Division and as division executive for the consumer bank in Central/Eastern Europe, Middle East, Africa and India. Mr. Banga is a member of the Financial Services Roundtable, Vice Chairman of the Board of Trustees of the New York Hall of Science, and a Trustee of the National Urban League and of the Asia Society.

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		Jan Bennink   Former Chief Executive Officer and President of the Executive Board, Royal Numico N.V.   Director since December 2004   Age: 51		Mr. Bennink was Chief Executive Officer and President of the Executive Board of Royal Numico N.V., a market leader in infant and clinical nutrition, from 2002 until October 2007. Prior to that time, he served as Senior Vice President of Dairy for Group Danone from 1997 until 2002.
		Myra M. Hart   Professor, Harvard Business School (Retired)   Director since December 2007   Age: 67		Since 1995, Dr. Hart has served as Professor at the Harvard Business School though she has recently retired from teaching in the Master of Business Administration program. From 1985 until 1990, Dr. Hart was a member of the Staples, Inc. founding management team, leading operations, strategic planning and growth implementation in new and existing markets. She is a director of Office Depot Inc., Nina McLemore Inc., Summer Infant, Inc. and IntelliVid Corporation. Dr. Hart is a director of the Center for Women’s Business Research and a Trustee Emeritus of Cornell University. Dr. Hart is a Trustee of Babson College.
		Lois D. Juliber   Former Vice Chairman and Chief Operating Officer, Colgate- Palmolive Company   Director since November 2007   Age: 59		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, as its Executive Vice President–North America and Europe from 1997 until March 2000 and as President of Colgate North America from 1994 to 1997. Ms Juliber serves on the boards of Goldman Sachs Group Inc. and E.I. du Pont De Nemours and Company. She is Chairman of the MasterCard Foundation. Ms. Juliber is a Trustee of Wellesley College and a director of Girls Inc. and Women’s World Banking.
		Mark D. Ketchum   President and Chief Executive Officer, Newell Rubbermaid, Inc.   Director since April 2007   Age: 58		Mr. Ketchum has been President and Chief Executive Officer of Newell Rubbermaid Inc., a global marketer of consumer and commercial products, since February 2006. Previously, he served as interim President and Chief Executive Officer of Newell Rubbermaid Inc. from October 2005 to February 2006. From 1999 to 2004, Mr. Ketchum was President, Global Baby and Family Care of The Procter & Gamble Company. Mr. Ketchum joined Procter & Gamble in 1971, and thereafter 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.
		Richard A. Lerner, M.D.   President, The Scripps Research Institute   Director since January 2005   Age: 69		Dr. Lerner has been President of The Scripps Research Institute, a private, non-profit biomedical research organization, since 1986. He serves on the boards of Opko Health, Inc.; Sequenom, Inc.; Xencor, Inc.; and Intra-Cellular Therapies, Inc. Dr. Lerner is a member of numerous scientific associations, including the National Academy of Science and the Royal Swedish Academy of Sciences.

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		John C. Pope   Chairman, PFI Group, LLC   Director since July 2001   Age: 58		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 NYSE-listed 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 a Director, Vice Chairman, President, Chief Operating Officer, Chief Financial Officer, and Executive Vice President, Marketing and Finance. He serves on the boards of Con-way, Inc.; Dollar Thrifty Automotive Group, Inc.; R.R. Donnelley and Sons Co.; and Waste Management, Inc. where he is also non-executive Chairman of the Board. He also serves on the board of the John G. Shedd Aquarium in Chicago, Illinois.
		Fredric G. Reynolds   Executive Vice President and Chief Financial Officer, CBS Corporation   Director since December 2007   Age: 57		Mr. Reynolds has served as Executive Vice President and Chief Financial Officer of CBS Corporation, a mass media company, since January 2006. From 2001 until assuming his current position, 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. Mr. Reynolds is a certified public accountant and a Trustee of the University of Miami.
		Irene B. Rosenfeld   Chairman and Chief Executive Officer, Kraft Foods Inc.   Director since June 2006   Age: 54		Ms. Rosenfeld was appointed Chief Executive Officer of Kraft in June 2006 and to the additional office of Chairman in March 2007. Prior to that, she had been Chairman and Chief Executive Officer of Frito-Lay, a division of PepsiCo, Inc., from September 2004 to June 2006. Previously, Ms. Rosenfeld had been employed continuously by Kraft and its subsidiaries and predecessor, General Foods Corporation, in various capacities since 1981, including President of Kraft Foods North America and, before that, President of Operations, Technology, Information Systems and Kraft Foods Canada, Mexico and Puerto Rico. Ms. Rosenfeld is a Trustee of Cornell University.

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		Mary L. Schapiro   Chief Executive Officer, Financial Industry Regulatory Authority (FINRA)   Director since July 2001   Lead Director since March 2007   Age: 52		Ms. Schapiro assumed her current position as Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA) in July 2007. FINRA was created through the merger of the National Association of Securities Dealers, Inc. (NASD) and the member regulation functions of NYSE Regulation. FINRA is the world’s largest private sector regulator of securities markets. Prior to the creation of FINRA, Ms. Schapiro was the Chairman and Chief Executive Officer of NASD, having previously held the position of Vice Chairman of NASD and President of the Regulatory Policy and Oversight Division since 2001, and President of NASD Regulation, Inc. since 1996. Prior to joining NASD, she was chair of the Commodity Futures Trading Commission and a Commissioner of the SEC. Ms. Schapiro serves on the board of Duke Energy Corporation. She is a Trustee of Franklin and Marshall College.
		Deborah C. Wright   Chairman, President and Chief Executive Officer, Carver Bancorp, Inc.   Director since July 2001   Age: 50		Ms. Wright has been President and Chief Executive Officer of Carver Bancorp, Inc., the holding company for Carver Federal Savings Bank, a federally chartered savings bank, since 1999. She was elected Chairman in 2005. Previously, she served as President and Chief Executive Officer of the Upper Manhattan Empowerment Zone Development Corporation from 1996 to 1999. She serves on the board of Time Warner Inc. Ms. Wright also is a member of the Board of Managers of Memorial Sloan-Kettering Cancer Center, and she serves on the boards of the Partnership for New York City and the Children’s Defense Fund.
		Frank G. Zarb   Managing Director, Hellman & Friedman LLC   Director since November 2007   Age: 73		Mr. Zarb has been a Managing Director of Hellman & Friedman LLC, a private equity firm, since 2002. He is non-executive Chairman of Promontory Financial Group, LLC. Previously, he served as Chairman and Chief Executive Officer of NASD and The Nasdaq Stock Market, Inc. from 1997 to 2001. He serves on the board of American International Group, Inc. Mr. Zarb is a Trustee of Hofstra University.

The Board recommends a vote FOR the election of each of the nominees.

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AUDIT COMMITTEE MATTERS

The Board established the separately standing Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that all members of the Audit Committee are independent within the meaning of the NYSE’s listing standards and Rule 10A-3 of the Exchange Act. The Board has also determined that all committee members are financially literate within the meaning of the NYSE’s listing standards and that John C. Pope and Fredric G. Reynolds are “audit committee financial experts” within the meaning of SEC regulations. Because Mr. Pope serves on the audit committees of more than three public companies, the Board reviewed his meeting attendance record and other relevant information and determined that Mr. Pope’s simultaneous service on these audit committees does not impair his ability to serve effectively on our Audit Committee. No committee member received any payments in 2007 from us other than compensation received as a director.

Under its charter, which is attached to this Proxy Statement as Exhibit D, the Audit Committee is responsible for overseeing our accounting and financial reporting processes and audits of our financial statements. Among other duties, the committee is directly responsible for the appointment and oversight of our principal independent auditors.

The committee has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by Kraft. We encourage employees and those outside Kraft to report concerns about our accounting controls, auditing matters or anything else that appears to involve financial or other wrongdoing. To report such matters, you should e-mail us at Kraft-FinancialIntegrity@Kraft.com.

Audit Committee Report for the Year Ended December 31, 2007

Management has primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting. The Audit Committee monitors our financial reporting processes and systems of internal control over financial reporting, the independence and performance of the independent auditors, and the performance of the internal auditors.

Management represented to the Audit Committee that Kraft’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee reviewed and discussed the consolidated financial statements with management and the independent auditors. Management also represented that they assessed the effectiveness of Kraft’s internal control over financial reporting as of December 31, 2007 and determined that, as of that date, Kraft maintained effective internal control over financial reporting. The Audit Committee reviewed and discussed with management and the independent auditors this assessment of internal control over financial reporting.

The Audit Committee also discussed with the independent auditors both their evaluation of the accounting principles, practices and judgments applied by management, and any items required to be communicated to it by the independent auditors in accordance with regulations promulgated by the SEC and the Public Company Accounting Oversight Board and standards established by the American Institute of Certified Public Accountants and the Independence Standards Board.

The Audit Committee received from the independent auditors a letter describing any relationships with Kraft that may bear on their independence and discussed with the independent auditors the auditors’ independence from Kraft and its management. The Audit Committee reviewed and approved the audit fees of the independent auditors. The Audit Committee also reviewed non-audit services and fees to assure compliance with regulations prohibiting the independent auditors from performing specified services that might impair their independence, as well as compliance with Kraft’s and the Audit Committee’s policies.

The Audit Committee discussed with the internal auditors and independent auditors the overall scope and plans for their respective audits for the year 2008. The Audit Committee met and will meet with the internal auditors and with the independent auditors, separately, with and without management present, to discuss the financial reporting processes and internal accounting controls. The Audit Committee reviewed significant audit findings prepared by the independent auditors and those prepared by the internal auditors, together with management’s responses.

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Based upon the reports and discussions described in this report and without other independent verification, the Audit Committee recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in Kraft’s Annual Report on Form 10-K/A for the year ended December 31, 2007, which was filed with the SEC on February 26, 2008.

Audit Committee:

John C. Pope, Chair

Jan Bennink

Fredric G. Reynolds

Mary L. Schapiro

Frank G. Zarb

The information contained in the report above shall not be deemed to be “soliciting material” or “filed” with the SEC, nor shall such 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 specifically incorporates it by reference in such filing.

Pre-Approval Policies

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other permissible services. Pre-approval is detailed as to the particular service or category of service and is subject to a specific engagement authorization by management within the pre-approved category spending limits. The Audit Committee requires the independent auditors and management to report on the actual fees charged for each category of service at committee meetings throughout the year.

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

The Audit Committee pre-approved all audit and non-audit services provided by the independent auditors during 2007.

Independent Auditors’ Fees

Aggregate fees for professional services rendered by our independent auditors, PricewaterhouseCoopers LLP, for 2006 and 2007 were:

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ITEM 2. RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS

The Audit Committee is responsible for the selection, retention, termination and oversight of our independent auditors. The Audit Committee selected PricewaterhouseCoopers LLP, a registered public accounting firm, as our independent auditors for 2008. PricewaterhouseCoopers LLP has been our independent auditor since 2001. The Audit Committee and the Board are requesting, as a matter of policy, that shareholders ratify the selection of PricewaterhouseCoopers LLP as our independent auditors.

The Board and the Audit Committee are not required to take any action as a result of the outcome of the vote on this proposal. However, if the shareholders do not ratify the selection, the Audit Committee may investigate the reasons for the shareholders’ rejection and may consider whether to retain PricewaterhouseCoopers LLP or appoint another auditor. Furthermore, even if the selection is ratified, the Audit Committee may direct the appointment of a different independent auditor at any time during 2008 if, in its discretion, it determines that such a change would be in Kraft’s and its shareholders’ best interests.

We expect that representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting and that they will have an opportunity to respond to appropriate questions from shareholders.

The Board recommends a vote FOR the ratification of the selection of PricewaterhouseCoopers LLP as Kraft’s independent auditors.

OTHER MATTERS THAT MAY BE PRESENTED AT THE ANNUAL MEETING

Management does not know of any business, other than that described in this Proxy Statement, which may be presented for action at the Annual Meeting. If any other matters properly come before the meeting, the persons named as proxies will vote on them in accordance with their best judgment.

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COMPENSATION COMMITTEE MATTERS

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists entirely of independent directors who the Board has determined to be independent within the meaning of the NYSE’s listing standards. None of the Compensation Committee’s members:

Responsibilities

The Compensation Committee’s responsibilities are set forth in its charter, which is attached to this Proxy Statement as

Exhibit E. They include, among other duties, the responsibility to:

Processes and Procedures

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

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Independence of Compensation Consultant to the Compensation Committee

Hewitt has served as the Compensation Committee’s independent executive compensation consultant since 2006. During 2007, Hewitt provided the committee advice and services which included, for example, providing competitive market compensation data for executive positions, providing “best practices” in developing our change-in-control plan, designing our annual and long-term incentive plans, and participating in meetings of the committee at which compensation was an agenda item. For the year ended December 31, 2007, Hewitt billed Kraft $0.5 million for advice and services to the committee.

The committee believes that its consultant should be able to render advice to the committee independent of management’s influence. Therefore, the committee has taken numerous steps to satisfy this objective. At the outset, the committee retained Hewitt independent of management. At least annually, the committee reviews the types of advice and services provided by Hewitt and the fees charged for those services. The Hewitt consultants report directly to the committee on all executive compensation matters; meet separately with the committee outside the presence of management at each meeting; and speak separately with the committee chair and other committee members between meetings, as necessary or desired. Interactions between the Hewitt consultants and management are limited to those which Hewitt needs to provide the committee with relevant information and appropriate recommendations. Hewitt has taken its own steps to separate the executive compensation consulting services provided to the committee from other services provided to Kraft. The team of Hewitt executive compensation professionals working with the lead Hewitt consultant does not work on other consulting assignments for Kraft or any of its divisions.

With the committee’s knowledge and subject to annual or more frequent reviews, Hewitt also provides a range of consulting services to Kraft and its divisions. Those services include consulting and outsourcing services for Kraft retirement plans, consulting services on Kraft talent and organizational design, and employee communications. For these services, Hewitt billed Kraft $4.1 million for the year ended December 31, 2007.

In 2008, the Compensation Committee agreed to adopt an approach for Kraft’s use of Hewitt for all non-executive compensation related services in the future. The approach will be generally consistent with the Audit Committee’s management of Kraft’s relationship with PricewaterhouseCoopers LLP, Kraft’s independent auditors. The approach will generally include pre-notification to the Compensation Committee of management’s use of Hewitt’s services.

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Compensation of Directors

Directors who are full-time Kraft employees receive no compensation for their services as a director. Directors who were full- time employees of Altria Group, Inc. (“Altria”) prior to the March 30, 2007 spin-off of Kraft Foods Inc. received no compensation for their service as a director. Therefore, Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, all of whom were Kraft employee directors before the spin-off, received no additional compensation for their service as directors. In connection with the spin-off, Messrs. Devitre and Wall resigned from the Board effective March 30, 2007. After the spin-off, at the request of the Board, Mr. Camilleri continued to serve as a director until December 7, 2007, but declined all compensation.

The table below summarizes the cash and equity compensation elements in place during 2007 for our non-employee directors. We modified our director compensation program effective April 1, 2007.

The program changes were based on the results from the annual review of compensation levels of Kraft’s non-employee directors compared to that of non-employee directors at companies in Kraft’s Compensation Survey Group (discussed in more detail under the heading “Compensation Discussion and Analysis - Our Compensation Program Design - Benchmarking”). The review was conducted by Kraft’s independent compensation advisor, Hewitt. The annual stock grant is still subject to a one-year restriction period.

Directors can defer 25%, 50%, 75% or 100% of their cash retainer and meeting fees into accounts that mirror the funds in the Kraft Thrift 401(k) Plan, pursuant to the 2001 Compensation Plan for Non-Employee Directors. Directors can also defer receipt of their annual stock grant until a future distribution date, pursuant to the 2006 Stock Compensation Plan for Non-Employee Directors. Dividends on deferred stock grants are reinvested in deferred shares until the previously elected distribution date.

In addition to cash payments and stock awards, members of the Board receive $100,000 in term life insurance coverage under the Kraft Foods Global, Inc. Life Insurance Plan.

Non-employee directors may also participate in the Kraft Foods Matching Gift Program upon becoming members of the Board. Generally, Kraft employees must wait a year before they can participate in the program. Other than the waiver of the one-year waiting period, non-employee directors participate in the program on the same terms as our employees. Under the program, Kraft matches up to $15,000 per director per year in contributions to 501(c)(3) non-profit organizations. In 2007, the following directors participated in this program: Myra M. Hart, Mark D. Ketchum, Richard A. Lerner, M.D., John C. Pope, Mary L. Schapiro and Deborah C. Wright.

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2007 Director Compensation Table

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2007 Non-Employee Director Stock Awards Table

As of December 31, 2007, our fiscal year-end, the number of outstanding shares of restricted or deferred stock held by directors is the same as the number of shares shown in the table above. On December 31, 2007, directors held outstanding Kraft options as follows: Mr. Pope–3,995; Ms. Schapiro–3,995; and Ms. Wright–3,995. None of our other current non-employee directors hold outstanding Kraft stock options.

Compensation Committee Report for the Year Ended December 31, 2007

The 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 the review and discussion referred to above, 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 Kraft’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2007, which was filed with the SEC on February 26, 2008.

Compensation Committee:

Ajay Banga, Chair

Myra M. Hart

Lois D. Juliber

Mark D. Ketchum

John C. Pope

Deborah C. Wright

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COMPENSATION DISCUSSION AND ANALYSIS

Our Compensation Discussion and Analysis provides our shareholders with:

Our “named executive officers” are those individuals who served as Kraft’s Chief Executive Officer and Chief Financial Officer during 2007, as well as those individuals included in the 2007 Summary Compensation Table under the heading “Executive Compensation Tables,” as determined under applicable SEC rules. While the named executive officers include James P. Dollive, he concluded his tenure as Executive Vice President and Chief Financial Officer effective October 1, 2007. Mr. Dollive remained with Kraft until his retirement effective March 1, 2008. Timothy R. McLevish has served as our Executive Vice President and Chief Financial Officer since October 1, 2007. In addition, while Franz-Josef Vogelsang is included as a named executive officer, he served as our Executive Vice President, Global Supply Chain until January 1, 2008.

The four primary goals of our compensation program are to:

Our Compensation Program Design

A summary of our executive compensation program appears in this Proxy Statement under “Summary of Compensation Program.” All named executive officers are eligible to participate in each element of our executive compensation program or an equivalent one, if the executive officer is referenced to a country other than the United States. A more detailed discussion of each element of our executive compensation program can be found under “Elements of Executive Compensation.” We use each element of compensation to satisfy one or more of our stated compensation goals. Our Compensation Committee (referred to in this Compensation Discussion and Analysis as the “Committee”) regularly reviews the various elements of compensation to assure that they are aligned with Kraft’s and the individual executive officer’s goals. The executive compensation program is designed to achieve Kraft’s objectives by:

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Summary of Compensation Program

This table summarizes the elements and program objectives of our 2007 compensation program for executive officers, including named executive officers.

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Benchmarking

Composition 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: (a) assure that our compensation program and target compensation levels are in line with market practice; and (b) maintain our ability to attract and retain the level of talent we need to drive sustainable superior shareholder returns.

To assure that the Compensation Survey Group includes the most appropriate companies, the Committee considers companies meeting the following criteria:

Based on this, and in consultation with management and with the assistance of Hewitt, the Committee selected these companies for the 2007 Compensation Survey Group:

In determining appropriate compensation levels for the named executive officers, the Committee reviews compensation levels for similarly situated executives at companies in the Compensation Survey Group.

We use data obtained from the Compensation Survey Group through custom surveys administered by Hewitt and through the companies’ public filings.

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Composition and Purpose of the Performance Peer Group

The Committee also reviews financial performance relative to the Performance Peer Group when assessing financial and total shareholder return under our Long-Term Incentive Plan, which is described under “Elements of Executive Compensation.” For 2007, the Performance Peer Group consists of companies considered by the Committee to be our market competitors, or that have been selected primarily on the basis of industry. There is substantial overlap (11 of the 18 companies) between the Performance Peer Group and the Compensation Survey Group. The major difference between the Performance Peer Group and the Compensation Survey Group is that the Performance Peer Group companies are more heavily focused on the food and beverage industry than the companies in the Compensation Survey Group and are included regardless of revenue size or market capitalization.

With respect to performance measures for our Long-Term Incentive Plan, we believe that it is relevant to compare our financial performance to a group of food and 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 Kraft’s size and complexity relative to several companies included in this group. The Performance Peer Group companies are:

2007 Competitive Positioning

Our compensation philosophy targets total compensation (defined as base salary, annual incentives and long-term cash and stock incentives) at the median, reflecting size-adjusted data, of the Compensation Survey Group. The Committee believes that targeting the size-adjusted median of the Compensation Survey Group will provide an opportunity to attract and retain talented employees. This positioning will also provide the appropriate opportunities for compensation at or above the median when business or shareholder return performance is above our peers, and below the median when business performance or shareholder return performance is below our peers.

Based on our annual revenue relative to the Compensation Survey Group (which is between the 50^th and 75^th percentile), the Committee believes that using size-adjusted data appropriately accounts for the complexity of Kraft relative to the Compensation Survey Group. Accordingly, the Committee has determined that the size-adjusted median, based on a regression analysis which correlates compensation elements and revenue size, is the appropriate benchmark by which to compare positions across the Compensation Survey Group.

2007 Pay-Mix

In determining the appropriate mix of cash and equity compensation for our executive officers, the Committee considered the practices of our peers in the Compensation Survey Group. A significant portion of our compensation is variable, meaning it is based either on business and/or individual performance or on the value of the award at the time of vesting or income recognition. Grants of annual and long-term cash incentives, restricted stock and stock options are variable.

Since a significant portion of compensation is variable, we are able to pay above the median of the Compensation Survey Group when superior business and/or individual performance is achieved. Conversely, executive officers may receive total compensation below the median when business and/or individual performance is below that of our peers.

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There are no specific pre-established policies or targets for the allocation between either cash and equity or short-term and long-term compensation. However, by design, and as shown in the chart below, a significant portion of compensation is variable or “performance based,” of which a majority is provided in the form of long-term compensation. This assures that compensation delivered to the named executive officers and other executive officers is aligned with shareholder interests of delivering sustained superior shareholder returns. The Committee reviews competitive information provided by Hewitt. This competitive information is used to compare Kraft’s pay-mix with the Compensation Survey Group to assure the competitiveness of Kraft’s compensation package in order to preserve our ability to attract and retain talented executive officers.

This chart shows the total compensation mix, on average, for our named executive officers, based on target awards in 2007, compared against the median of the Compensation Survey Group.

Design Mix of Compensation and Elements

Assessing Individual Performance

Each year, our Chairman and Chief Executive Officer, Ms. Rosenfeld, provides the Committee with an individual performance assessment for each of her executive direct reports, including the named executive officers. She also provides the Committee, for its consideration, her compensation recommendations, including recommendations for annual incentive awards, stock awards and base salary increases for each of her executive direct reports. The Committee reviews and discusses her recommendations, taking into account the various factors noted below, but retains full discretion over all recommended compensation actions. Specifically, in assessing individual performance in the context of making executive compensation decisions, the Committee considers the following:

Stock Ownership Guidelines

Kraft introduced stock ownership guidelines in 2003 to further align the interests of approximately 180 executives, including the named executive officers, with those of our shareholders. Under the guidelines, executives are expected to acquire and hold Kraft common stock in an amount equal to a multiple of their base salaries. Executives are expected to attain their ownership levels within five years of becoming eligible for this program or within three years of being promoted to a higher level within the executive ranks. We monitor stock ownership levels to assure that executives are on track to meet or exceed their stock ownership levels within the specified timeframe. Stock ownership is defined as direct ownership of Kraft common stock, including sole ownership, direct purchase plan shares, restricted shares, and accounts over which the executive has direct or indirect ownership or control. This definition does not include unexercised Kraft stock options. If an executive does not meet the guideline level in the required timeline, the Chairman and Chief Executive Officer has the flexibility to take any further action as deemed appropriate depending on the particular circumstances of the executive officer’s situation.

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For the named executive officers, the guidelines, as a multiple of base salary, are as follows:

These stock ownership guidelines are generally greater than those required by companies within the Compensation Survey Group. The Committee believes that Kraft’s stock ownership levels will help increase the focus of our executives on improving total shareholder returns over time. As of December 31, 2007, Ms. Rosenfeld and Messrs. Dollive, Searer and Vogelsang had stock ownership levels at or above their respective ownership guidelines. Messrs. McLevish and Khosla joined Kraft in 2007 and are currently below their respective stock ownership level. Consistent with our policy, they each will have five years from their respective employment dates to attain their expected stock ownership levels.

Elements of Executive Compensation

Our executive compensation program consists of:

A description of each of the compensation program elements follows, and individual compensation decisions are discussed under “Compensation Paid to Named Executive Officers in 2007.”

Base Salary

Base salary is the principal “fixed” element of executive compensation. Kraft uses base salary to attract, retain and motivate talented executive officers and to fairly compensate them for services rendered during the fiscal year. The Committee considers a number of factors when reviewing and setting base salaries for named executive officers including: Kraft’s performance; the executive officer’s individual performance, level of responsibility, tenure and prior experience; and a comparison of base salaries paid for comparable positions at companies in the Compensation Survey Group. The Committee does not assign a particular weight to any factor.

Base salaries are the basis for establishing the target payouts of the annual and long-term incentive plan awards discussed below and for retirement programs, executive group life insurance and certain other benefits available to all employees. Salaries are reviewed on an annual basis, and merit increases are considered for all executive officers and are generally effective April 1.

Annual Cash Incentives

Overview

Kraft designs the annual cash incentive award program to motivate and reward participants, including the named executive officers, for their contribution to Kraft achieving its annual financial and strategic goals. Actual potential awards are based primarily 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 the named executive officers. Other than base salary, which is discussed above, each element of this formula is discussed below.

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The business unit rating and individual performance assessment help focus our named executive officers on achieving financial results (represented by the business unit rating) and reward individual contributions in achieving those financial results and developing leadership capabilities (represented by the individual performance assessment).

Individual Target Percentage

Each participant in the plan is assigned a target award. The target is a percentage of base salary reflecting his or her role and responsibilities. For participants, including the named executive officers, the Committee sets individual targets that position target annual incentive and target total cash compensation opportunities at approximately the size-adjusted median of the Compensation Survey Group. This assures, in general, that if business and individual goals are met, the participant would be paid an incentive at or near the size-adjusted median for their position relative to the Compensation Survey Group.

The individual targets, as a percentage of base salary, for the named executive officers were, as of December 31, 2007, as follows:

For named executive officers, the Committee may adjust the target award percentages during the year if an executive officer’s role or responsibilities change.

Business Unit Rating

At or near the beginning of each year, the Committee and management agree on financial and strategic objectives for Kraft and its major business segments. At the conclusion of each year, the Committee assesses actual performance based on these objectives. These objectives are not used in a formulaic or rigid fashion, but rather as guidelines in the Committee’s exercise of discretion regarding the named executive officers. That is, the annual cash incentive plan is not operated in a manner that if certain goals, whether specific to Kraft, the business unit, or the individual, are attained, the executive officer will automatically receive a specified level of compensation.

In determining 2007 annual cash incentive compensation for named executive officers, the Committee considered, in the manner described above, the key financial metrics and strategic goals discussed below. For Messrs. Searer and Khosla, the Committee also reviewed and considered the financial objectives established for their particular business segments for 2007. The following are the primary Kraft financial and strategic goals that were considered at year end for all of the named executive officers:

The Committee also reviewed additional Kraft financial objectives, such as volume, operating income growth and operating income margin as part of their deliberations.

The Committee also assessed, in the context of the annual incentive plan, progress against the following four strategic goals for 2007: (a) rewiring the organization for growth; (b) reframing our categories to make them more relevant to consumers; (c) exploiting our sales capabilities; and (d) driving down costs without compromising quality. We publicly communicated these

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strategies at the beginning of 2007. In addition, the Committee considered the well-executed transition of Kraft to a free-standing company following its spin-off from Altria.

Consistent with the discussion above, the Committee also assessed the financial and strategic objectives for our North America and International business units in determining annual incentive awards for Messrs. Searer and Khosla. Similar to the review of Kraft’s overall business, review of the business units included the assessment of financial performance in areas such as organic revenue growth, volume, operating income growth, operating income margin, discretionary cash flow and, in the case of Kraft North America, market share.

In 2007, Kraft North America exceeded its revenue growth objectives and essentially met volume growth objectives, however, fell short on operating income growth, operating income margin and market share performance. The shortfall on operating income growth and margin was primarily driven by the unprecedented record-high commodity costs, particularly dairy costs. The degree of difficulty in achieving each of these performance measures is challenging. For example, Kraft North America fell short of its operating income growth and operating income margin objectives in each of the last three years and also fell short of organic revenue expectations in two of the last three years.

Kraft International met or exceeded its revenue, volume, operating income and discretionary cash flow objectives in 2007. However, Kraft International fell short of its operating income margin objective in 2007. Again, the degree of difficulty in achieving these objectives is challenging. For example, Kraft International fell short of its operating income growth expectations in one of the past three years and its operating income margin expectations in each of the past three years.

Based on these assessments, the Committee assigned business unit ratings to the Kraft North America and Kraft International business segments and the entire Kraft organization. In 2007, the business unit ratings were as follows:

Business unit ratings for corporate employees are aligned 100% to the Kraft Foods Inc. rating. The presidents of the business units (Messrs. Searer and Khosla) have 50% of their ratings based on the Kraft Foods Inc. performance rating and 50% of their ratings based on their respective business unit ratings. This alignment is meant to promote both “line-of-sight” accountability as well as assure collaboration across the enterprise.

Individual Performance Assessment

Individual awards are also determined based on individual contributions. Individual performance can range from 0% to 200% of the target award.

Following our fiscal year-end, the Committee assessed progress against all strategic objectives and other individual performance criteria established for each of the named executive officers. The Committee then reviewed each named executive officer’s progress against the criteria and determined the level and quality of each named executive officer’s performance achievement. Based on that assessment, the Committee determined an appropriate incentive award for the Chairman and Chief Executive Officer, and then reviewed and approved the incentive awards that the Chairman and Chief Executive Officer recommended for each of the other named executive officers. Named executive officers that generally met all of the individual performance criteria received an annual incentive award at or near (+/- 10%) their individual target level, adjusted for the applicable business unit rating. Similarly, named executive officers that exceeded their individual performance criteria received an annual incentive award greater than their individual target. Conversely, if a named executive officer did not meet many of his or her individual performance criteria, then the named executive officer’s annual incentive would be below his or her individual target and would likely be zero.

Additional information regarding the manner in which individual performance was assessed for our Chairman and Chief Executive Officer and other named executive officers in 2007 is provided under “Compensation Paid to Named Executive Officers in 2007.”

Annual incentive awards paid under this plan satisfied the performance-based requirements for deductible compensation under Section 162(m) of the Internal Revenue Code. Details with respect to tax deductibility of compensation are presented under “Policy With Respect To Qualifying Compensation for Tax Deductibility.”

Long-Term Cash and Equity Incentives

Long-term incentives are designed to focus our executive officers on long-term operational performance that leads to superior sustainable shareholder returns. Long-term incentive awards have been delivered to executive officers through a combination of

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cash-based long-term performance incentive awards (approximately 40% of the total long-term value) and restricted stock (approximately 60% of the total long-term value). We will begin granting stock options as a regular part of our total pay-mix beginning in 2008. Changes to our long-term cash and equity programs are further discussed under “Program Changes in 2008.” The Committee’s 2007 grant of a special stock option award to the Chairman and Chief Executive Officer is discussed under “Compensation Paid to Named Executive Officers in 2007.”

Cash-Based Long-Term Incentive Plan Awards

Long-Term Incentive Plan (LTIP) awards reward executive officers for the achievement of long-term financial and strategic goals during the applicable performance cycle and are primarily designed to reward achievement of top-tier shareholder returns. Historically, Kraft’s three-year performance cycles ran end-to-end. This meant that a new performance cycle began only after the previous one concluded. Beginning with the 2007 – 2009 performance cycle, we will run continuous overlapping performance cycles with a new three-year performance cycle beginning each year. This significant change was adopted to allow us to adjust our targets more effectively cycle to cycle as business conditions fluctuate. This approach is most common among the companies in the Compensation Survey Group.

Transitioning from end-to-end, discrete cycles to overlapping cycles means that payout amounts will be appropriately adjusted downward so that payments over any three-year period would be essentially equivalent to the amount paid under the former design. Because the first payment under this program will be three years from the date of this change, a transition multiplier will be applied to this performance cycle. The transition multiplier is designed to assure that compensation levels remain competitive for executive officers who were eligible to participate under the previous end-to-end cycles. Newly eligible executive officers are not eligible for the transition multiplier. The transition multiplier for the 2007 – 2009 performance cycle is 183.3%.

The formula shown below is used to determine actual awards for participants, including the named executive officers. Other than average base salary, each element of this formula is discussed below.

Individual Target Percentage. Each participant in the plan is assigned a target award as a percentage of the average of year-end base salaries over the three-year performance cycle. Participants who are promoted into an eligible position, from a non-eligible position, are typically eligible to begin participating beginning with the next performance cycle. The target award percentage may be adjusted during the performance cycle if an existing participant’s role or responsibilities change. The Committee, after receiving recommendations from management, which are based primarily on competitive market information, approves position-specific target award levels based on the size-adjusted median of the Compensation Survey Group.

Target awards levels, as a percentage of average year-end base salaries, for the named executive officers as of December 31, 2007 were:

Actual award amounts can range from 0 – 200% of this target.

Business Performance Rating. The measures, with specific weightings, considered by the Committee for the 2007 – 2009 LTIP performance cycle incentive program are corporate-focused for all participants and are as follows:

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Target awards will be paid based upon achievement of the performance measures. The objective set for relative total shareholder return is for our total shareholder return between fiscal year 2007 through fiscal year 2009 to be at the median of the Performance Peer Group. The organic revenue growth, ongoing operating income growth and cumulative discretionary cash flow targets were set based on our three-year strategic plan. The degree of difficulty in achieving the internal measures is challenging. For context, we have met or exceeded our revenue growth objectives in only one of the past three years. Operating income growth and discretionary cash flow objectives have not been achieved in any of the past three years.

The Committee may exercise positive or negative discretion in determining a rating, including factoring in a qualitative review of the following unweighted metrics:

Equity Compensation

The Committee uses equity awards to align the interests of our executive officers with those of our shareholders.

Restricted Stock. Since 2003, the Committee has granted equity awards to the named executive officers in the form of restricted stock. The Committee determined that restricted stock is an appropriate form of equity compensation because it:

During 2007, the Committee awarded grants of restricted stock (or deferred stock units for participants in countries outside of the United States) to eligible employees, including our named executive officers. Restricted stock awards have been granted annually at the Committee’s first regularly scheduled meeting of the year, which typically takes place in late January or early February. Annual awards are granted on the date of the meeting and are based on the fair market value of Kraft’s common stock on that date. The fair market value is defined as the average of the high and low traded stock prices on the NYSE on the date of grant.

Award ranges are based on an analysis of competitive market practice, with the goal of providing awards with a value approximately equal to the size-adjusted median of the Compensation Survey Group. The range of award opportunities, expressed in terms of grant value (calculated by multiplying the number of shares at grant by the fair market value of Kraft’s common stock on the date of the grant), for the named executive officers as of January 29, 2007, the date of the 2007 annual grant, were as follows:

Actual stock awards in 2007 were based on a qualitative review of an executive officer’s performance during the previous year and an evaluation of each executive officer’s potential to advance within the organization. All stock awards granted to the named executive officers in 2007 were within the respective ranges presented above.

Actual stock award amounts in 2007 are presented in this Proxy Statement in the Grants of Plan-Based Awards Table.

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Stock Options. Prior to 2007, the Committee had not granted new stock options to named executive officers since our initial public offering (the “IPO”) in June 2001. Stock options granted to named executive officers at the time of the IPO were options to acquire Kraft common stock. Stock options granted prior to the IPO were options to acquire the common stock of our previous parent company, Altria. All outstanding stock options have 10-year expiration periods, and many executive officers continue to hold options to acquire Kraft common stock and Altria common stock.

The Committee granted Ms. Rosenfeld a special stock option award in 2007, which is discussed under “Compensation Paid to Named Executive Officers in 2007.”

As discussed below, other named executive officers received stock option awards to acquire Kraft common stock as a result of our spin-off from Altria in March 2007, consistent with how all other Kraft employees who held Altria stock options at the time of the spin-off were treated.

Treatment of Stock Option Programs upon Completion of the Kraft Spin-off. Upon the completion of our spin-off from Altria, Kraft and Altria each retained responsibility for our respective employees and compensation plans. At the time of the spin-off, certain named executive officers held outstanding Altria stock options.

The holder of each outstanding option to purchase Altria common stock received the following stock options with an aggregate intrinsic value (the difference between the exercise price of the options and the fair market value of the underlying stock) not greater than the intrinsic value of the original stock option:

The exercise prices for the new Kraft option and the adjusted Altria option were determined based on the closing market prices of Altria and Kraft common stock on March 30, 2007, the effective date of our spin-off.

Perquisites

Our named executive officers receive limited perquisites, including a car allowance, a financial counseling allowance and, for the Chairman and Chief Executive Officer only, personal use of the corporate aircraft. For reasons of security and personal safety, we require Ms. Rosenfeld to use our aircraft for both business and personal travel. Taxes on these perquisites are the sole responsibility of the executive officer.

These perquisites are similar to those provided to named executive officers at many of the companies within the Compensation Survey Group. Accordingly, the Committee believes that they are therefore necessary for retention and recruitment purposes.

The Committee periodically reviews perquisites to assure that they are appropriate in light of Kraft’s total compensation program and market practice.

Specific executive officer perquisites are listed in the footnotes to the Summary Compensation Table. Other than these perquisites, executive officers receive the same benefits as other Kraft employees.

Post-Termination Compensation

Post-termination compensation consists of both separation pay and retirement benefits.

Change-in-Control Agreements. We have no individual change-in-control agreements with any of our named executive officers, but we did implement a Change-In-Control Plan (the “CIC Plan”) for senior executive officers in 2007. Based on our status as an independent public company following our spin-off from Altria on March 30, 2007, the Committee believed that change-in-control arrangements were appropriate for retention of senior executive officers. In addition, we amended our 2005 Performance Incentive Plan to assure that stock awards, including restricted stock and stock options, would not automatically vest upon a change-in-control. Under the amended 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”). We adopted the “double-trigger” to help assure that key personnel would be available to assist in the successful transition following a change-in-control.

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The provisions in the CIC Plan are consistent with similar plans maintained by companies in the Compensation Survey 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. In addition, under the CIC Plan, Kraft will cover any excise taxes that may be triggered by separation payments paid to the Chairman and Chief Executive Officer. However, excise taxes for all other participants will only be paid by Kraft if change-in-control separation payments exceed 110% of the IRS-imposed cap of 2.99 times the base amount. To the extent that compensation does not exceed 110% of the IRS-imposed cap but does trigger excise tax payments, separation payments will be limited to the maximum amount that does not trigger such excise tax amounts. This is done to minimize our expense for separation payments that do not significantly exceed the IRS-imposed cap limit.

The severance arrangements and other benefits provided for 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 have no individual severance agreements with any of our actively employed named executive officers. For non-CIC Plan separations, we maintain a 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.

From time to time, with Committee approval for named executive officers, we make separation payments to an executive officer if his or her employment is terminated without cause for reasons that may or may not otherwise qualify for severance payments under one of our non-change-in-control severance plans. Typically, no payments or benefits are available or have accrued prior to an executive officer’s termination, nor do executive officers have rights to severance payments. These discretionary payments and benefits may be similar to or in excess of payments and benefits offered under a non-change-in-control severance plan. These payments benefit Kraft because they are made in consideration for a general release of future claims against Kraft and the signing of non-compete, non-solicitation, non-disparagement and confidentiality agreements by the executive officers.

In 2007, we entered into a retirement agreement with Mr. Dollive. That agreement limited his ability to directly compete or solicit employees prior to March 1, 2009, released all claims against Kraft and assures that Mr. Dollive will keep all material information confidential. As consideration for these restrictive covenants, we replaced his restricted stock awards that were forfeited upon his early retirement with deferred stock award units that vest in accordance with the original vesting schedule of his forfeited restricted stock awards. We provided this agreement to Mr. Dollive because of the significant value represented by his agreement to a contractual non-compete, non-solicit, non-disparagement and confidentiality commitment received in exchange for the benefits provided by Kraft. This agreement is discussed in further detail under “Executive Compensation Tables – Mr. Dollive’s Retirement Agreement.”

Additional information regarding payments typically made upon termination, including a definition of key terms and a quantification of benefits that would be received by our named executive officers had termination occurred on December 31, 2007, is presented under “Executive Compensation Tables – Potential Payments Upon Termination or Change-in-Control.”

Retirement Benefits. Both tax-qualified and supplemental defined benefit retirement plans are offered to executive officers, including the named executive officers, and vary by country. The Committee believes that these retirement benefits are important for retention and recruitment, as many of the companies in the Compensation Survey Group offer similar programs. Accrued amounts and additional details of each of our defined benefit retirement programs offered to the named executive officers are presented in the 2007 Pension Benefits Table and the accompanying narrative to the table under the heading “Executive Compensation Tables.”

Ms. Rosenfeld’s 2006 letter of employment provides her with an enhanced pension benefit that bridges her service for the period of time that she was not employed by Kraft between 2004 and 2006. This enhanced pension benefit was part of a broader incentive program to help encourage her to return to Kraft. Additional details of this enhanced pension benefit are presented in the 2007 Pension Benefits Table and the accompanying narrative to the table under the heading “Executive Compensation Tables.”

Mr. Vogelsang participates in the Kraft Foods Switzerland Pension Fund. This pension plan is a contributory plan providing benefits related to the participant’s years of accredited service and final covered compensation. Mr. Vogelsang participates in

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the Kraft Foods Switzerland Pension Fund as a Swiss-based employee on an international assignment in the United States. This is the same plan that is generally available to all eligible employees in Switzerland. Accrued amounts and additional details of Mr. Vogelsang’s retirement benefit programs are presented in the 2007 Pension Benefits Table and the accompanying narrative to the table under “Executive Compensation Tables.”

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 Plan is important because it encourages executive officers, including 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 match, as all other employees, without regard to the compensation limit established by the Internal Revenue Code for tax-qualified plan contributions. Accrued amounts and additional details of each of the non-qualified deferred compensation programs offered to named executive officers are presented in the 2007 Non-Qualified Deferred Compensation Table and the accompanying narrative to the table under “Executive Compensation Tables.”

Compensation Paid to Named Executive Officers in 2007

Overview

There are no material differences in compensation policies with respect to each named executive officer, with the exception of Mr. Khosla, whose compensation is higher due to benefits received in connection with his relocation and localization from New Zealand to the United States, and Mr. Vogelsang, whose compensation appears higher due to tax equalization payments associated with his international assignment in the United States. We designed each of the named executive officer’s target compensation levels to be at the Compensation Survey Group’s size-adjusted median. Compensation levels for the chief executive officer position at the companies in the Compensation Survey Group generally exceed pay levels for other named executive officers. Similarly, Ms. Rosenfeld’s compensation also exceeds that of our other named executive officers.

Many of the compensation actions taken in 2007 for the named executive officers were to position target total compensation closer to the size-adjusted median of the Compensation Survey Group. Due to the change in our corporate structure in early 2007, specifically transitioning from a subsidiary of Altria to a free-standing, independent company, the roles of several senior executive officers were expanded. As a result, target total compensation for those senior executive officers was increased.

Based on actual compensation actions taken for each of the named executive officers in 2007, target total compensation for each of them remained slightly below the size-adjusted median for their respective positions. This reflects a combination of these named executive officers being newer in their roles as well as mixed business results in recent years that have a direct impact on base salary increases and annual and long-term incentive awards during that period.

Below are the specific compensation actions for each of the named executive officers in 2007.

Ms. Rosenfeld

Base Salary Increase. In 2007, the Committee approved a base salary increase for Ms. Rosenfeld primarily to recognize her individual performance in 2006 and to better align her salary with the size-adjusted median of the Compensation Survey Group. In 2006, the Committee considered the progress Ms. Rosenfeld made in developing and implementing her long-term strategy to bring Kraft back to sustainable superior performance.

Actual Annual Incentive. In determining Ms. Rosenfeld’s annual incentive for 2007, the Committee considered her performance relative to her financial and strategic guidelines for the year. Similar to our approach with respect to business unit ratings, individual performance measures are used merely as guidelines in the Committee’s exercise of discretion regarding Ms. Rosenfeld’s annual incentive award.

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For 2007, the guidelines were as follows:

In addition, the Committee considered operating income margin and market share performance in their assessment. In 2007, Kraft’s results fell short of these two additional guidelines set by the Committee, which factored into the Committee’s overall assessment of Ms. Rosenfeld’s 2007 performance. The shortfall on operating income growth and margin was primarily driven by the unprecedented record-high commodity costs, particularly dairy costs.

In addition, in its assessment of Ms. Rosenfeld’s 2007 performance, the Committee considered the following key strategic objectives, which were consistent with the goals that she discussed with investors at the beginning of 2007.

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As a result of this assessment and the factors identified above, Ms. Rosenfeld was awarded an annual incentive award of $2,625,000, which reflects an amount above her target under the plan.

Stock Awards. Ms. Rosenfeld received two stock award grants in 2007.

As part of the annual stock award program, the Committee granted Ms. Rosenfeld a restricted stock award of 144,280 shares. The grant value of this award was in-line with the size-adjusted median of the Compensation Survey Group. On May 3, 2007, the Committee also granted her a non-qualified, performance-contingent stock option award concurrent with her appointment to the additional position of Chairman. She was granted an option to purchase 300,000 shares of our common stock. The number of shares granted was determined by the Committee based on market-competitive information. The combined grant value of these two awards was between the 50^th and 75^th percentile of the Compensation Survey Group. This type of award was granted to provide additional incentive for Ms. Rosenfeld to increase shareholder value as the vesting of the award will only occur if certain stock price hurdles are achieved. One-half of the shares under this performance-contingent stock option will vest only if the stock price maintains a trading price of $38.11 for at least 10 trading days. The remaining one-half of the award will vest only if the stock price maintains a trading price of $41.43 for at least 10 trading days.

Mr. Dollive

Actual Annual Incentive. In 2007, in determining Mr. Dollive’s actual annual incentive award and in connection with his retirement, the Committee completed an initial assessment of Mr. Dollive’s performance for the 2007 performance year in November and discussed his individual performance relative to goals set at the beginning of 2007. In determining a final award for Mr. Dollive, the Committee considered his exceptional work in managing the financial transition and transformation associated with our March 2007 spin-off from Altria.

Stock Awards. In 2007, Mr. Dollive was granted a restricted stock award. His award was based on individual performance in the prior year, which was primarily focused on preparing for the financial transition and transformation associated with our spin-off from Altria.

Mr. McLevish

Base Salary. In setting Mr. McLevish’s base salary as of his employment date, the Committee considered the size-adjusted median of the Compensation Survey Group for his position and internal equity with Ms. Rosenfeld’s other executive direct reports.

Sign-On Awards. Mr. McLevish’s employment began on October 1, 2007. On his employment date, the Committee granted him a sign-on restricted stock award of 43,350 shares, valued at $1,500,344, and a sign-on cash bonus of $500,000. These sign-on amounts were awarded primarily to offset compensation awards from his previous employer that were forfeited when he resigned to accept his position at Kraft.

Actual Annual Incentive. Based on his employment date, no specific performance guidelines were established at the beginning of the year. Mr. McLevish’s 2007 annual incentive award was paid on a pro-rata basis, based on his employment date, at target.

Mr. Khosla

Base Salary. In setting Mr. Khosla’s base salary as of his employment date, the Committee considered the size-adjusted median of the Compensation Survey Group for his position and internal equity with Ms. Rosenfeld’s other executive direct reports.

Sign-On Awards. Mr. Khosla’s employment began on January 22, 2007. On his employment date, the Committee granted him a sign-on restricted stock award of 20,970 shares, valued at $750,307, and a sign-on cash bonus of $750,000. These sign-on amounts were awarded primarily to offset compensation awards from his previous employer that were forfeited when he resigned to accept his position at Kraft.

Actual Annual Incentive. Mr. Khosla’s individual performance guidelines were primarily related to delivering on 2007 business performance at Kraft International and developing a long-term strategy for sustainable growth. Specifically, Kraft International exceeded its organic revenue and discretionary cash flow guidelines, but fell short of its operating income growth and operating income margin guidelines. In addition, the Committee considered other factors such as talent development both internally and externally and the successful acquisition of Groupe Danone’s global biscuit business. Mr. Khosla’s 2007 annual incentive award was paid on a pro-rata basis, based on his employment date.

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Stock Awards. In 2007, Mr. Khosla was granted a restricted stock award. His award was equal to the size-adjusted median for his position as he was newly hired as of the date of grant.

Relocation and Localization Benefits. In addition, Mr. Khosla’s compensation for 2007 includes one-time relocation expenses associated with moving his family from New Zealand to the United States. These additional benefits were paid in connection with his offer letter and were important in recruiting Mr. Khosla.

Mr. Searer

Base Salary Increase. In 2007, the Committee approved a base salary increase for Mr. Searer. The increase was primarily to position his salary closer to the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. Mr. Searer’s annual incentive target was increased from 80% to 90%, effective January 31, 2007 and reflects the increased scope of responsibilities he would be assuming following Kraft’s spin-off from Altria. This increase in his target award increased his target total compensation opportunity to a level near the size-adjusted median of the Compensation Survey Group. This change was also primarily to position his target annual incentive award closer to the size-adjusted median of the Compensation Survey Group. In determining his actual annual incentive award, the Committee considered his performance in delivering on the 2007 plan for Kraft North America and improving marketing capability. Although organic revenue grew faster than expected, operating margin and market share were below expectations. Operating income was affected by unprecedented commodity costs that could not be fully offset by pricing actions. Market share improved during the year as a result of the marketing investments made but still remained below expectations.

Stock Awards. In 2007, Mr. Searer was granted a restricted stock award. His actual award reflected the size-adjusted median of the Compensation Survey Group for his new position and his individual performance in 2006. With regard to his individual performance in 2006, the Committee considered financial results achieved within his scope of responsibility and considered the transition of responsibilities to his successor following his promotion to President Kraft North America in September 2006.

Mr. Vogelsang

Base Salary Increase. In 2007, the Committee approved a base salary increase for Mr. Vogelsang. Mr. Vogelsang’s salary increase was a reflection of his individual performance in 2006 and was consistent with salary increases provided to other similarly situated executives based in Switzerland, his home country.

Actual Annual Incentive. In determining his actual annual incentive award, the Committee considered his performance relative to delivering on productivity and restructuring savings. Specifically, Mr. Vogelsang led the restructuring of the Global Supply Chain function in our efforts to develop strategies that address both the challenges and opportunities of an ever-increasing global supplier base. He aggressively implemented strategies to optimize our total cost structure, while improving service to our customers.

Stock Awards. In 2007, Mr. Vogelsang was granted a restricted stock award. His actual award was based on his individual performance in 2006. Specifically, the Committee primarily considered achievements in supply chain efficiencies and other productivity initiatives led by Mr. Vogelsang in 2006.

Program Changes in 2008

2008 Annual Incentive Plan Changes

Beginning January 1, 2008, several key changes were made to the annual incentive plan. The changes are aimed at aligning the business strategies across the enterprise by implementing a more formulaic approach to determine the business unit ratings. The three quantitative measures that will be measured, on an equal basis, are:

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The Committee will still retain some discretion in awarding annual incentive awards; however, this design directly aligns annual incentive awards to the performance related to those measures that will lead to sustainable superior total shareholder returns.

2008 – 2010 Long-Term Incentive Plan Design Changes

We began a new performance cycle effective January 1, 2008, which is scheduled to conclude on December 31, 2010. The Committee approved several changes relative to the 2007 – 2009 performance cycle as follows:

These changes were implemented to further align the interests of our executive officers and shareholders by changing from a cash-based program to a performance share-based program and rewarding executive officers on earnings per share growth.

2008 Equity Program Changes

In 2008, the Committee decided to grant equity in the form of both restricted stock and stock options. Restricted stock will now represent one-half of the economic value delivered in equity, and the balance will be delivered in the form of stock options, based on a ratio of stock options to restricted stock of 4 to 1.

The rationale for reintroducing stock options into the long-term pay-mix is to further align executive compensation with shareholder returns. Stock option awards only deliver value to the executive officers if the stock price appreciates from the date of grant and accordingly, executive officers only realize value when shareholders realize value. The combination of restricted stock and stock options balances the retention value of restricted stock with the performance aspect of stock options.

To support the retention aspects of the program, the restricted stock will continue to vest 100% after three years, and the stock options will vest one-third each year over three years.

Employment Agreements

As a general matter, we do not utilize employment agreements. We did, however, agree to benefits, greater than those generally made available to other employees, for Mr. Dollive upon his retirement from Kraft as consideration for Mr. Dollive’s agreement to the restrictive covenants described above in “Elements of Executive Compensation - Post-Termination Compensation - Non-Change-in-Control Severance Agreements.” For further information about Mr. Dollive’s retirement agreement see “Executive Compensation Tables – Mr. Dollive’s Retirement Agreement.”

Policy With Respect To Qualifying Compensation for Tax Deductibility

Section 162(m) of the Internal Revenue Code limits our ability to deduct compensation paid to covered employees, including several named executive officers, for tax purposes to $1.0 million annually. Covered employees include the principal executive officer and Kraft’s next three highest paid executive officers, other than Kraft’s principal financial officer. This limitation does not apply to performance-based compensation, provided certain conditions are satisfied. For 2007, annual incentive awards and restricted stock grants awarded to covered employees were subject to, and made in accordance with, performance-based compensation arrangements previously implemented, and were tax deductible.

The Committee has taken appropriate actions to preserve the tax deductibility of annual cash incentive and long-term performance awards. 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 2007. In addition, a portion of each of the other covered employees income exceeded the $1.0 million tax deductibility limit in 2007 because of other elements of their annual compensation. Specifically, compensation in excess of $1.0 million from a combination of base salary, restricted stock vesting proceeds, restricted stock dividends, sign-on bonuses and perquisites were not deductible in 2007.

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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’s financial statements, an executive officer received more compensation than the executive officer would have received absent the incorrect financial statements. Then, the Board or committee, in its discretion, may 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:

Anti-Hedging Policy and Trading Restrictions

Our current policy limits the timing and types of transactions in Kraft securities by Section 16 officers. Among other restrictions, the policy: