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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    ¨

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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Dear Fellow Shareholder:

You are cordially invited to attend the Kraft Foods Inc. 2010 Annual Meeting of Shareholders. We will hold the Annual Meeting at 9:00 a.m. CDT on Tuesday, May 18, 2010, at the North Shore Center for the Performing Arts in Skokie, Illinois. The Center will open to shareholders at 8:00 a.m. CDT.

At the Annual Meeting, you will elect directors; vote on the ratification of the selection of independent auditors; if properly presented at the Annual Meeting, vote on a shareholder proposal; 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.

I am pleased to tell you that we are again taking advantage of the U.S. Securities and Exchange Commission rule allowing us to furnish proxy materials to shareholders via the Internet. This process, known as “e-proxy,” has several benefits: (1) it provides you with proxy materials more quickly, (2) it reduces the environmental impact of our Annual Meeting, and (3) it lowers our costs.

On March 30, 2010, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access and review our 2010 Proxy Statement and Annual Report on Form 10-K and to vote online. If you would like to receive a paper copy of our proxy materials, please follow the instructions for requesting these materials in the Notice.

You will find comprehensive information about our performance in our Annual Report on Form 10-K for the year ended December 31, 2009. We again decided against producing a glossy annual report to reduce costs and use less paper. Instead, we have included with the proxy materials a letter to shareholders highlighting our company’s 2009 financial and business performance.

Only shareholders of record at the close of business on March 11, 2010 are entitled to vote at the Annual Meeting or any adjournments or postponements of the Annual Meeting. You may vote your shares via the Internet or by calling a toll-free number. If you received a paper copy of the proxy card or voting instruction form by mail, you may also vote by signing, dating, and mailing your properly executed proxy card or voting instruction form. You may also vote in person at the Annual Meeting. The Proxy Statement and the proxy card or voting instruction form include detailed voting instructions.

Whether or not you plan to attend the Annual Meeting, I encourage you to vote promptly. Under new rules adopted by the New York Stock Exchange governing the voting process, if you hold shares through a broker, bank, or other nominee and you do not instruct your broker, bank, or other nominee how to vote, your shares will not be voted on the election of directors or the shareholder proposal. So please vote your shares. Your vote is important to us.

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

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 2010 ANNUAL MEETING OF SHAREHOLDERS

9501 Skokie Boulevard

Skokie, Illinois 60077

Carol J. Ward

Vice President and Corporate Secretary

March 30, 2010

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ITEM 1. ELECTION OF DIRECTORS

Please note that the New York Stock Exchange (“NYSE”) recently amended its rules regarding broker discretionary voting. Unlike prior years, the NYSE rules do not give brokers discretionary authority to vote on the election of directors. This means that your broker, bank, or other nominee cannot vote your shares unless you provide it with voting instructions. Therefore, if you hold shares of our common stock in street name and do not provide voting instructions to your broker, bank, or other nominee, your shares will not be voted on the election of directors. Please see “Frequently Asked Questions” in this Proxy Statement for additional information about holding shares in street name and broker discretionary voting.

Process for Nominating Directors

The Nominating and Governance Committee of our Board of Directors (the “Board”) is responsible for identifying, evaluating, and recommending to the Board nominees for election at the 2010 Annual Meeting of Shareholders (and any adjournments or postponements of the meeting) (the “Annual Meeting”). The Nominating and Governance Committee relies on nominee suggestions from the directors, shareholders, management, and others. From time to time, the Nominating and Governance Committee retains executive search and board advisory consulting firms to assist in identifying and evaluating potential nominees. In evaluating potential nominees, the Nominating and Governance Committee may identify certain backgrounds, qualifications, and professional experience (for example, financial or global business experience) as being particularly desirable to help meet specific Board needs. During 2009, the Nominating and Governance Committee retained Heidrick & Struggles to assist in the search and recruitment of directors, resulting in the addition of our two newest directors, Mackey J. McDonald and Jean-François M.L. van Boxmeer.

The Board believes all directors should possess certain necessary characteristics, including integrity, sound business judgment, and vision, to serve on our Board. The Board further believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant blend of experience, knowledge, and abilities that will allow the Board to fulfill its responsibilities. The Nominating and Governance Committee works with the Board to determine the appropriate mix of these backgrounds and qualifications that would establish and maintain a Board that is strong in its collective knowledge. While the Board does not have a written policy to consider diversity when identifying nominees for directors, it strives to assemble a Board composed of individuals that represent a diversity of views, backgrounds, and professional experience.

To create a Board that meets these criteria, the Board has determined that it is important to have individuals with the following skills and experiences, among others, on the Board:

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In addition, when evaluating the suitability of individuals for nomination, the Nominating and Governance Committee considers other factors, including the individual’s satisfaction of independence requirements.

To help the Nominating and Governance Committee determine whether nominees qualify to serve on our Board, based on the criteria discussed above, and would contribute to the Board’s current and future needs, director nominees complete questionnaires regarding their backgrounds, qualifications, and potential conflicts of interest. The Nominating and Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending for nomination a group of individuals that can best perpetuate our success and represent shareholder interests through the exercise of sound business judgment. Additionally, as part of this evaluation and to further our commitment to diversity, the Nominating and Governance Committee assesses whether this group of nominees is comprised of individuals with a diversity of views, backgrounds, and experiences that would enhance the Board’s success at achieving these goals.

In determining whether to recommend a director for re-election, the Nominating and Governance Committee also considers the director’s past attendance at meetings and participation in, and contributions to, Board and committee activities. In addition, under our Corporate Governance Guidelines (the “Guidelines”), the Nominating and Governance Committee will not recommend, and the Board will not approve, the nomination for re-election of an independent director who has reached the age of 75. The Nominating and Governance Committee, however, may recommend, and the Board may nominate, for re-election for an annual term an independent director who has reached this age if the Board determines that nominating the independent director is necessary and in our shareholders’ best interests due to his or her unique capabilities or special circumstances. The Board may nominate for re-election the independent director for up to two annual terms following the director’s 75^th birthday, only after making the above determination.

The Board believes that all the current nominees are highly qualified and have specific employment and leadership experiences, knowledge, and skills that qualify them for service on our Board and represent diverse views and backgrounds. The nominees’ individual biographies below contain information regarding each nominee’s experiences, qualifications, and skills.

Director Nominees

Our Board currently has 12 directors who are each subject to annual election. Shareholders elected all of the current directors at the 2009 Annual Meeting, except for Mackey J. McDonald and Jean-François M.L. van Boxmeer. The Board appointed Messrs. McDonald and van Boxmeer in December 2009, and they began their service on January 1, 2010. The executive search firm Heidrick & Struggles identified Messrs. McDonald and van Boxmeer to the Nominating and Governance Committee, who in turn recommended them to the Board. All current directors are standing for re-election and have consented to their nominations for re-election. On December 17, 2009, the Board amended our Amended and Restated By-Laws (“By-Laws”) to set the size of our Board at 12 directors (previously ten), effective January 1, 2010.

The Nominating and Governance Committee recommended to the Board, and the Board approved, the nomination of the 12 director nominees listed below, each for a term ending at the 2011 Annual Meeting of Shareholders or until his or her successor has been duly chosen and qualified. In considering whether to recommend for re-election Mr. Zarb, who is 75 years old, the retirement age for independent directors

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under the Guidelines, the Nominating and Governance Committee determined, and the Board agreed, that Mr. Zarb’s continued service on the Board would be in our shareholders’ best interests because of his significant financial experience and unique contributions to the Board and the Finance Committee.

If the proxy card is properly executed and timely received, the persons named in the proxy card intend to vote the shares represented FOR or AGAINST the director nominees or ABSTAIN from voting, as instructed. If a director nominee should become unavailable to serve as a director, an event that we do not anticipate occurring, the persons named in the proxy card intend to vote the shares for the person whom the Board may designate to replace that nominee. In lieu of naming a substitute, the Board may amend our By-Laws to reduce the number of directors.

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

The following table presents information regarding each director nominee as of March 30, 2010, including information about each nominee’s professional experience, educational background, and qualifications that led the Board to nominate each director nominee for re-election. The following also includes information about all public company directorships, as well as relevant private and non-profit board positions, currently held and those held during the past five years by each nominee.

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

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CORPORATE GOVERNANCE

Corporate Governance Guidelines

Our corporate governance practices are firmly grounded in our belief that governance best practices are critical to our goal of driving sustained shareholder value. The Board adopted the written Guidelines that articulate our corporate governance philosophy, practices, and policies.

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

We have a Code of Business Conduct and Ethics for Non-Employee Directors (the “Ethics Code”). It focuses on areas of ethical risk, guides non-employee directors in recognizing and handling ethical issues, provides mechanisms to report unethical conduct, and fosters a culture of honesty and integrity.

We also have a Code of Conduct that applies to all of our employees. The Code of Conduct reflects Kraft Foods’ values and contains important rules our employees must follow in conducting business to promote compliance and integrity. We strive to speak truthfully, to honor our commitments, and to treat people fairly. We believe we must earn and keep the trust of our consumers, business partners, employees, and shareholders, and those who live in the communities where we operate. By complying with the Code of Conduct, we believe we will enhance not only our compliance and integrity, but also our financial performance.

We will disclose on our Web site at www.kraftfoodscompany.com/investor/corporate-governance any amendments to our Ethics Code or Code of Conduct and any waiver granted to an executive officer or director under these codes.

Corporate Governance Materials Available on Our Web Site

Shareholders and others can access our corporate governance materials, including our:

on our Web site at www.kraftfoodscompany.com/investor/corporate-governance. Additionally, shareholders and others can access our Code of Conduct on our Web site at www.kraftfoodscompany.com/responsibility/compliance-integrity.

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

Board Leadership Structure

Our Board effectively performs its monitoring and oversight roles by acting as a unified whole. The Board believes that it is in the best interests of Kraft Foods for the Board to periodically evaluate the leadership structure of our company and make a determination regarding whether to separate or combine the roles of Chairman and Chief Executive Officer based on circumstances at the time of its

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decision. Ms. Rosenfeld has been the Chief Executive Officer of Kraft Foods since June 2006 and Chairman and Chief Executive Officer since March 2007. In 2007, the Board concluded that the Chief Executive Officer should also serve as Chairman because of Ms. Rosenfeld’s extensive knowledge of Kraft Foods and the food industry, leadership experience, and dedication to working closely with other members of the Board. Ms. Rosenfeld’s first-hand knowledge as Chief Executive Officer facilitates the Board decision-making process because she chairs the Board meetings where the Board discusses strategic and business issues.

Nevertheless, the Board believes that independent Board leadership is important. In 2007, the Board determined that the Chief Executive Officer would be the only member of management to serve on the Board and that Board committees should consist entirely of independent directors. Because one individual serves as Chairman and Chief Executive Officer, in 2007, the Board established the role of Lead Director, an independent director who serves as the principal liaison between the Chairman and the other independent directors. The Board created the Lead Director position to increase the Board’s effectiveness and promote open communication among independent directors. The Lead Director works with the Chairman and other members of the Board to provide independent leadership of the Board’s affairs on behalf of our shareholders. When the Board initially established the Lead Director position, the Board selected the chair of the Nominating and Governance Committee to serve as Lead Director. In 2009, the Nominating and Governance Committee recommended and the Board agreed to separate these two positions to allow the Nominating and Governance Committee chair to focus on the committee’s responsibilities and the Lead Director to focus on his duties related to Board meetings and shareholders. Our current Lead Director is Mark D. Ketchum, whom the Board appointed to that position in 2009.

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

Oversight of Risk Management

The Board is responsible for overseeing the overall risk assessment and management processes at Kraft Foods. NYSE listing standards require the Audit Committee to discuss guidelines and policies to govern the process by which Kraft Foods’ management assesses and manages risk. Pursuant to its charter, the Audit Committee reviews and discusses risk assessment and risk management guidelines, policies, and processes by utilizing Kraft Foods’ Enterprise Risk Management (“ERM”) approach. Kraft Foods designed the ERM approach in part to ensure that the Board and relevant committees receive advice about and understand Kraft Foods’ risk management process, the participants in the process, and the information gathered through the approach. Annually, management identifies key risks to Kraft Foods’ business and performance, including strategic, financial, operational, legal, and regulatory risks. Management reviews these risks with the Audit Committee. The Audit Committee allocates responsibility for reviewing the key risks to the Board or a specific committee depending on which is in the best position to review and assess both the risk exposures as well as the steps management has taken to monitor and control those exposures. In particular, the Finance Committee reviews and reports to the Board on financial risk management activities, such as foreign exchange, commodities, interest rate exposure, insurance programs, and

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terms of customer financing. The Human Resources and Compensation Committee reviews our compensation policies and practices for employees, including our non-executive and executive officers, as they relate to our risk management practices and risk-taking incentives. The entire Board reviews our food safety policies, procedures, and programs, including those related to our supply chain. In addition, the Board reviews our strategies related to competition, including from private label and customer concentration. Throughout the year, management updates the Board and the relevant committees about factors that affect the key risks. For a discussion about risk oversight relating to our compensation programs, see “Human Resources and Compensation Committee Matters – Analysis of Risk in the Compensation Architecture.”

Director Independence

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

The Board determined that, under the Kraft Foods categorical standards and the NYSE listing standards, Ajaypal S. Banga, Myra M. Hart, Lois D. Juliber, Mark D. Ketchum, Richard A. Lerner, M.D., Mackey J. McDonald, John C. Pope, Fredric G. Reynolds, Jean-François M.L. van Boxmeer, Deborah C. Wright, and Frank G. Zarb are independent. Irene B. Rosenfeld is not independent because she is an executive officer of Kraft Foods. The Board also had determined that Jan Bennink and Mary L. Schapiro, both former directors, were independent during the times that they served as directors during 2009.

Certain Relationships and Transactions with Related Persons

The Board has adopted a written policy regarding the review, approval, and ratification of transactions with related persons. In accordance with the policy, the Nominating and Governance Committee reviews Kraft Foods’ transactions in which the amount involved exceeds $120,000 and in which any “related person” had, has, or will have a direct or indirect material interest. In general, “related persons” are our directors and executive officers, shareholders beneficially owning more than 5% of our outstanding common stock, and their immediate family members. The Nominating and Governance Committee approves or ratifies only those transactions that are fair and reasonable to Kraft Foods and in the best interests of Kraft Foods and its shareholders. The chair of the Nominating and Governance Committee reviews and approves or ratifies transactions when it is not practicable or desirable to delay review of a transaction until a committee meeting. The chair reports to the committee any transactions so approved or ratified. The Nominating and Governance Committee, in the course of its review and approval or ratification of a disclosable related person transaction, considers, among other things:

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

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Pursuant to Kraft Foods’ policy, the Nominating and Governance Committee determined that no reported transaction qualified as a related person transaction during 2009 except for transactions with McLane Company, Inc. (“McLane”), a grocery supplier and wholly owned subsidiary of Berkshire Hathaway Inc., a beneficial owner of more than 5% of our common stock.

In 2009, McLane purchased food products from us in an amount totaling approximately $288 million. Our relationship with McLane predates Berkshire Hathaway’s disclosure of its acquisition of more than 5% of our common stock in 2008 and Berkshire Hathaway’s acquisition of McLane in 2003. During 2009, our transactions with McLane were in the ordinary course of business and on terms substantially similar to our transactions with comparable third parties. Berkshire Hathaway’s only interest in the transactions was as the owner of McLane. The Nominating and Governance Committee ratified the transactions with McLane after reviewing and discussing the materials related to these transactions.

Section 16(a) Beneficial Ownership Reporting Compliance

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

We reviewed copies of reports filed pursuant to Section 16(a) of the Exchange Act and written representations from reporting persons that all reportable transactions were reported. Based solely on that review, we believe that during the fiscal year ended December 31, 2009, all required filings were timely made in accordance with Exchange Act requirements, except one. In October 2009, a Form 4 was filed on Mr. Zarb’s behalf reporting two purchases of common stock (totaling 600 shares) in February 2008 held for the benefit of his wife and grandson. Due to an administrative error, the changes in Mr. Zarb’s ownership of common stock were not timely reported. Upon discovering the error, we filed, on Mr. Zarb’s behalf, a Form 4 to report the transactions.

Meeting Attendance

We expect directors to attend all Board meetings, the Annual Meeting, and all meetings of the committees on which they serve. We understand, however, that occasionally a director may be unable to attend a meeting. The Board held 16 meetings in 2009. All incumbent directors who served as directors in 2009 attended more than 75% of the aggregate number of meetings of the Board and all committees on which they served. All nominees who were serving as directors at the time of the 2009 Annual Meeting of Shareholders attended that meeting.

Communications with the Board

Information for shareholders and other parties interested in communicating with the Lead Director, the Board, or our independent directors, individually or as a group, is available on our Web site at www.kraftfoodscompany.com/investor/corporate-governance/contact_bod. 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 ordinary business matters, such as suggestions, inquiries, and consumer complaints, to the appropriate Kraft Foods executive or employee. 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.

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Committees and Membership

Our Board designates the members and chairs of committees based on the Nominating and Governance Committee’s recommendations. In 2009, the Board had five standing committees: Audit, Finance, Human Resources and Compensation, Nominating and Governance, and Public Affairs. The Board has adopted a written charter for each committee. The charters define each committee’s roles and responsibilities. All committee charters are available on our Web site at www.kraftfoodscompany.com/investor/corporate-governance.

During 2009, committee membership was:

2009 Committee Membership

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AUDIT COMMITTEE MATTERS

The Board established the Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The Board determined that all members of the Audit Committee are independent within the meaning of the NYSE listing standards and Rule 10A-3 of the Exchange Act. The Board also determined that all Audit Committee members are financially literate within the meaning of the NYSE 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 Audit Committee member received any payments in 2009 from us other than compensation for service as a director.

Under its charter, the Audit Committee is responsible for overseeing our accounting and financial reporting processes and audits of our financial statements. Among other duties, the Audit Committee is directly responsible for the appointment and oversight of our independent auditors.

The Audit Committee has established procedures for the receipt, retention, and treatment, on a confidential basis, of any complaints Kraft Foods receives. We encourage employees, and individuals and organizations outside of Kraft Foods, 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, 2009

To our Shareholders:

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

Management represented to the Audit Committee that Kraft Foods’ 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 Foods’ internal control over financial reporting as of December 31, 2009 and determined that, as of that date, Kraft Foods 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 other items the independent auditors are required to communicate to the Audit Committee in accordance with applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence.

The independent auditors delivered to the Audit Committee the written disclosures and the letter describing any relationships with Kraft Foods that may bear on their independence. The Audit Committee discussed with the independent auditors the auditors’ independence from Kraft Foods and its management. The Audit Committee reviewed and approved the independent auditors’ audit fees. 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, and with Kraft Foods’ and the Audit Committee’s policies.

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The Audit Committee discussed with our internal auditor and independent auditors the overall scope and plans for their respective 2010 audits. The Audit Committee met and will meet with our internal auditor and 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 each of the independent auditors and our internal audit function, together with management’s responses.

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 Foods’ Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on February 25, 2010.

Audit Committee:

John C. Pope, Chair

Myra M. Hart

Mackey J. McDonald

Fredric G. Reynolds

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

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. The Audit Committee’s pre-approval authority, which is agreed to annually, details 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 management to report at committee meetings throughout the year on the actual fees charged by the independent auditors for each category of service.

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

The Audit Committee pre-approved all audit and non-audit services provided by the independent auditors during 2009.

Independent Auditors’ Fees

Aggregate fees for professional services rendered by our independent auditors, PricewaterhouseCoopers LLP, for 2008 and 2009 were:

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NOMINATING AND GOVERNANCE COMMITTEE MATTERS

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

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

For a description of how shareholders may nominate a candidate for election to the Board at an annual meeting of shareholders and have that nomination included in the proxy statement for that meeting, see “2011 Annual Meeting of Shareholders” in this Proxy Statement.

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FINANCE COMMITTEE MATTERS

The Finance Committee was established effective December 2008. The Finance Committee is responsible for considering and making recommendations to the Board on the management of our financial resources and transactions. The Finance Committee reviews and makes recommendations to the Board on financial matters, including:

PUBLIC AFFAIRS COMMITTEE MATTERS

The Public Affairs Committee was established effective February 2008. The committee is responsible for discharging the Board’s responsibilities relating to public policy issues as set forth in its charter, which was amended in March 2010. In carrying out its duties, the Public Affairs Committee, among other things:

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HUMAN RESOURCES AND COMPENSATION

COMMITTEE MATTERS

Compensation Committee Interlocks and Insider Participation

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

Responsibilities

The Human Resources and Compensation Committee’s responsibilities are set forth in its charter, which was amended in March 2010. The Human Resources and Compensation Committee’s responsibilities include, among other duties:

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Processes and Procedures

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

Independence of Compensation Consultant to the Human Resources and Compensation Committee

In September 2009, after an extensive selection and interview process, the Human Resources and Compensation Committee retained Compensation Advisory Partners as its independent compensation consultant. Prior to that time, Hewitt Associates LLC (“Hewitt”) had served as the committee’s independent compensation consultant since 2006.

During 2009, the compensation consultants provided the Human Resources and Compensation Committee advice and services, which included providing competitive market compensation data for executive positions; conducting periodic reviews of elements of compensation; providing “best practices” about and advice in designing our annual and long-term incentive plans, including selecting metrics; updating the committee on executive compensation trends, issues, and regulatory developments; and participating in meetings of the Human Resources and Compensation Committee at which compensation was an agenda item.

The Human Resources and Compensation Committee believes that its consultant should be able to render advice to the committee independent of management’s influence. Therefore, the Human Resources and Compensation Committee has taken numerous steps to satisfy this objective. The Human Resources and Compensation Committee retained each of Hewitt and Compensation Advisory Partners independent of management. At least annually, the Human Resources and Compensation Committee reviews the types of advice and services provided by the consultants and the fees charged

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for those services. The consultants report directly to the Human Resources and Compensation Committee on all executive and director compensation matters; regularly meet separately with the committee outside the presence of management; and speak separately with the committee chair and other committee members between meetings, as necessary or desired. Interactions between the consultants and management are limited to those which the consultants need to provide the Human Resources and Compensation Committee with relevant information and appropriate recommendations.

For the year ended December 31, 2009, Hewitt billed Kraft Foods approximately $192,000 for advice and services to the Human Resources and Compensation Committee, including determining and recommending the amount and form of executive and director compensation. During this period, Hewitt also billed Kraft Foods $4.95 million for other services, including consulting and outsourcing services for Kraft Foods retirement plans, consulting services on Kraft Foods talent and organizational design, and employee communications. Hewitt provided these additional services with the Human Resources and Compensation Committee’s prior knowledge, which were subject to annual review.

To ensure Hewitt’s independence, the Human Resources and Compensation Committee implemented a process generally consistent with the Audit Committee’s process for managing Kraft Foods’ relationship with PricewaterhouseCoopers LLP, Kraft Foods’ independent auditors. Under the process, management could not significantly increase its use of Hewitt for non-executive compensation-related services without the Human Resources and Compensation Committee’s advance knowledge and approval. Further, the Human Resources and Compensation Committee regularly evaluated Hewitt’s consulting services. In addition, Hewitt separated through the use of different teams the executive compensation consulting services provided to the Human Resources and Compensation Committee from services it provided to Kraft Foods management. The team of Hewitt executive compensation professionals who worked on Kraft Foods executive compensation did not work on other consulting assignments for Kraft Foods. Hewitt also confirmed that the professionals who worked on these matters received no compensation for any other services that Hewitt provided to Kraft Foods. Based on the Human Resources and Compensation Committee’s regular discussions on the issue and its evaluation of the procedures Kraft Foods and Hewitt implemented to ensure independence, the Human Resources and Compensation Committee believes that Hewitt provided independent advice during the time it served as the committee’s compensation consultant.

As discussed above, in September 2009, the Human Resources and Compensation Committee replaced Hewitt with Compensation Advisory Partners as its compensation consultant. The committee believed that it was in the best interests of the committee and Kraft Foods to engage a compensation consulting firm that provides no other services to the company. For the year ended December 31, 2009, Compensation Advisory Partners provided no services to Kraft Foods other than executive and director compensation consulting services in support of decisions made by the Human Resources and Compensation Committee.

Analysis of Risk in the Compensation Architecture

In 2009, the Human Resources and Compensation Committee evaluated the current risk profile of our executive and broad-based compensation programs. In its evaluation, the Human Resources and Compensation Committee reviewed the executive compensation structure and noted numerous ways in which risk is effectively managed or mitigated. This evaluation covered a wide range of practices and policies including: the balance of corporate and business unit weighting in incentive plans, the balanced mix between short-term and long-term incentives, caps on incentives, use of multiple performance measures, discretion on individual awards, a portfolio of long-term incentives, use of stock ownership guidelines, and the existence of anti-hedging and clawback policies. In addition, the Human Resources and Compensation Committee analyzed the overall enterprise risks and how compensation programs impacted individual behavior that could exacerbate these enterprise risks. The Human Resources and Compensation Committee collaborated with the Audit Committee in this analysis. Additionally, we engaged an outside independent consultant to review our incentive plans (executive and broad-based) to determine if any practices might encourage excessive risk taking on the part of senior executives. The outside consultant noted several of the practices of our incentive

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plans (executive and broad-based) that mitigate risk, including the use of multiple measures in our annual and long-term incentive plans, Human Resources and Compensation Committee discretion in payment of incentives in the executive plans, use of multiple types of long-term incentives, payment caps, significant stock ownership guidelines, and our recoupment and anti-hedging policies. In light of these analyses, the Human Resources and Compensation Committee believes that the architecture of Kraft Foods’ compensation programs (executive and broad-based) provide multiple, effective safeguards to protect against undue risk.

Compensation of Directors

Directors who are full-time Kraft Foods employees receive no compensation for their services as directors. The table below summarizes the cash and equity compensation elements in place during 2009 for our non-employee directors.

We pay the directors their cash retainers and meeting fees quarterly. Directors can defer 25%, 50%, 75%, or 100% of their cash retainers and meeting fees into accounts that mirror the funds in the Kraft Foods Inc. Thrift 401(k) Plan pursuant to the Kraft Foods Inc. 2001 Compensation Plan for Non-Employee Directors. Directors also receive an annual stock award that is granted at the Board meeting immediately following our annual meeting of shareholders. The annual stock award is subject to a one-year restriction period from the date of grant. Directors can defer receipt of their stock award until the earlier of a specified date or their termination of service as directors pursuant to the 2006 Stock Compensation Plan for Non-Employee Directors. Dividends on deferred stock are reinvested in deferred shares until the previously elected distribution date.

To further align our non-employee directors’ interests with those of our shareholders, they are expected to hold shares of our common stock in an amount equal to five times the annual Board retainer. Under the Guidelines, non-employee directors are expected to attain this stock ownership level within five years of becoming a director. The Guidelines define stock ownership as direct ownership of Kraft Foods common stock, including sole ownership, direct purchase plan shares, restricted shares, restricted stock units, deferred shares, and shares held in accounts over which the director has direct or indirect ownership control. If a director does not meet the guideline stock ownership level within the required timeline, the Lead Director may take any further action as he deems appropriate after considering the director’s particular situation, including any potential financial hardship. The current annual Board retainer is $70,000, making the expected stock ownership level $350,000 within five years. If the Board increases the amount of the annual Board retainer, then the guideline stock ownership level would increase accordingly.

As of March 1, 2010, all of our independent directors had stock ownership levels at or above the guideline level, except for Myra M. Hart, Lois D. Juliber, Mackey J. McDonald, and Jean-François M. L. van Boxmeer. Mses. Hart and Juliber joined the Board in 2007 and have until December 2012 and November 2012, respectively, to attain the guideline level. Both are close to attaining the guideline stock ownership level. In addition, Messrs. Mackey and van Boxmeer joined the Board on January 1, 2010 and, as permitted by the Guidelines, have five years from that date to attain the guideline stock ownership level.

In addition to cash payments and stock awards, members of the Board were covered under a $100,000 term life insurance policy under the Kraft Foods Global, Inc. Life Insurance Plan. The

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Human Resources and Compensation Committee terminated this benefit effective December 31, 2009. A non-employee director may also participate in the Kraft Foods Foundation Matching Gift Program immediately upon becoming a member of the Board. Generally, Kraft Foods employees must wait one 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, the Kraft Foods Foundation matches up to $15,000 per director per year in contributions to 501(c)(3) non-profit organizations. In 2009, the following directors participated in this program: Ajaypal S. Banga, Myra M. Hart, Lois D. Juliber, Mark D. Ketchum, Richard A. Lerner, M.D., John C. Pope, Fredric G. Reynolds, Deborah C. Wright, and Frank G. Zarb.

2009 Director Compensation Table

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2009 Non-Employee Director Stock Awards Table

As of December 31, 2009, the directors held the same number of shares of restricted stock as shown in the table above. In addition, as of December 31, 2009, Mr. Pope and Mses. Schapiro and Wright each held options to purchase 3,995 shares of our common stock.

Human Resources and Compensation Committee Report for the Year Ended December 31, 2009

The Human Resources and Compensation Committee oversees our compensation programs on behalf of the Board. In fulfilling its oversight responsibilities, the Human Resources and Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. In reliance on that review and discussion, the Human Resources and Compensation 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 Foods’ Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on February 25, 2010.

Human Resources and Compensation Committee:

Ajaypal S. Banga, Chair

Lois D. Juliber

Mark D. Ketchum

Deborah C. Wright

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COMPENSATION DISCUSSION AND ANALYSIS

In our Compensation Discussion and Analysis, we:

Our “named executive officers” are those individuals who served as Kraft Foods’ Chief Executive Officer and Chief Financial Officer during 2009, as well as those other individuals included in the 2009 Summary Compensation Table under the heading “Executive Compensation Tables.”

Executive Summary of Compensation Actions

This section highlights key actions taken by the Human Resources and Compensation Committee (referred to in this Compensation Discussion and Analysis as the “Committee”).

2009 Performance. In the first quarter of 2009, the Committee set financial objectives for the 2009 annual incentive plan and the 2009 – 2011 three-year Long-Term Incentive Plan (“LTIP”). In early 2010, the Committee reviewed performance with respect to the 2009 annual incentive plan objectives. During a volatile and challenging environment, Kraft Foods’ profitability and cash flow performance were strong and significantly exceeded 2009 goals. However, Kraft Foods’ revenue growth for 2009 was below target levels. Each of these three measures were weighted equally in the 2009 annual incentive plan, and as such, payments under the plan for 2009 were above target payout levels (see “– Elements of Executive Compensation – Annual Cash Incentives” below for more information). In 2009, senior executives, including the named executive officers, spent considerable effort transforming our portfolio to position us for successful long-term growth. This led to two significant events in early 2010: the sale of our North America frozen pizza business and the acquisition of Cadbury plc (“Cadbury”). The Committee heavily weighted the significant effort and the ultimate acquisition of Cadbury in assessing individual performance used to determine the value of the annual incentives paid to Ms. Rosenfeld and the other named executive officers.

2009 was also the final year in Kraft Foods’ three-year turnaround plan to improve overall profitability, revenue growth, and cash flow performance. The goals under our 2007 – 2009 LTIP were set in 2007 and, in part, reflected the objectives of the turnaround plan. In early 2010, the Committee reviewed performance with respect to the 2007 – 2009 LTIP objectives. We had strong growth in each of the performance measures related to the turnaround effort, which resulted in performance ratings above target for this portion of the 2007 – 2009 LTIP. However, our total shareholder return performance during this period was below the peer group median and yielded a zero payout for that portion of the 2007 – 2009 LTIP awards. Taken together, as discussed below under “– Elements of Executive Compensation – Long-Term Incentives”, the 2007 – 2009 LTIP yielded a payout that was 101% of target for each participating named executive officer.

Changes to our Compensation Programs. In 2009, we made several adjustments to our executive compensation programs.

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For 2010, we continued to modify the design of our incentive programs to further drive and reward higher levels of performance.

Additional Analyses Completed by the Committee. In 2009, the Committee analyzed the risk in the architecture of our compensation programs, policies, and practices (including programs, policies, and practices relating to employees outside of the named executive officer group). In this analysis, the Committee reviewed the compensation architecture of the executive and broad-based compensation programs to determine whether there are any inherent aspects of the pay programs that could lead to excessive risk taking and whether the current pay programs and practices properly address risk mitigation (See “Human Resources and Compensation Committee Matters – Analysis of Risk in the Compensation Architecture” above for more information). The Committee also completed a comprehensive study of the types and levels of perquisites offered to the named executive officers. In the study, the Committee concluded the types of perquisites offered by Kraft Foods are similar to the types offered at other peer companies and the total cost of perquisites is in line with market practices.

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Our Compensation Program Design

Our executive compensation program’s four primary goals are to:

Our executive compensation program is designed to achieve Kraft Foods’ four primary goals using the following principles:

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Summary of 2009 Compensation Program

The following table summarizes the elements and program objectives of our 2009 compensation program for executive officers, including named executive officers.

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2009 Compensation Mix

The chart below shows the total compensation mix, on average, for our named executive officers (NEOs), based on target awards in 2009, compared with the median of the Compensation Survey Group. Our mix is well aligned to the mix provided by companies in the Compensation Survey Group, and in the case of the Chief Executive Officer (CEO), our mix is more heavily weighted towards incentive pay than our peer companies.

Elements of Executive Compensation

A description of each of the compensation program elements follows, and individual compensation decisions are discussed under “– Compensation Paid to Named Executive Officers in 2009.”

Base Salary

Base salary is the principal “fixed” element of executive compensation. Base salary levels for named executive officers are targeted to be at or near the size-adjusted median of the Compensation Survey Group. However, the Committee also considers a number of other factors when reviewing and setting base salaries for named executive officers including: Kraft Foods’ performance and the named executive officer’s individual performance, level of responsibility, potential to assume roles with greater responsibility, tenure, and prior experience.

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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.

Ms. Rosenfeld recommended that several senior executives (more than 20), including the named executive officers, receive no salary increases in 2009. This recommendation reflected the economic environment at the time. The Committee agreed with this recommendation. In February 2010, the named executive officers were eligible and received salary increases by amounts commensurate with market practices.

Annual Cash Incentives

Overview

The annual incentive plan is designed to motivate and reward participants, including the named executive officers, for their contribution to Kraft Foods, or a business unit of Kraft Foods, for achieving our annual financial and strategic goals. The range of amounts that an executive may earn is determined at the beginning of the year, and the amount actually paid is based on the financial results achieved during the year and the individual’s contribution towards achieving those results. The three key financial metrics we use to measure business performance are Organic Revenue Growth, Adjusted Operating Income, and Adjusted Free Cash Flow (each, as defined below under “– 2009 Business Unit Rating”) for Kraft Foods Inc. and, with respect to Messrs. Clarke, Khosla, and Searer, for Kraft Foods Europe, Kraft Foods Developing Markets, and Kraft Foods North America, respectively. These measures are weighted equally in determining the overall performance rating. We chose these three metrics because of their high correlation to total shareholder return. We will continue using these metrics in our 2010 annual incentive plan design. The Committee believes that these metrics continue to be important measures, are highly correlated to total shareholder return, and maintain continuity with participants. These measures continue reinforcing the importance of driving both top-line and bottom-line performance while generating positive cash flow.

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.

The business unit rating helps focus our named executive officers on achieving financial results, and the individual performance assessment encourages and rewards individual contributions in achieving those financial results.

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. Generally, this assures that if business and individual goals are met at the target level, the participant would be paid an incentive at or near the size-adjusted median for his or her position relative to the Compensation Survey Group.

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The individual targets, as a percentage of base salary, for the named executive officers were, as of December 31, 2009, as follows:

The maximum award under the annual incentive plan is 250% of target.

2009 Business Unit Rating

At the beginning of 2009, the Committee approved targets for Organic Revenue Growth, Adjusted Operating Income, and Adjusted Free Cash Flow for the Kraft Foods Inc., Kraft Foods North America, Kraft Foods Europe, and Kraft Foods Developing Markets organizational levels. These targets were set in the context of the third year of our three-year turnaround plan, which reflected a significant improvement over the prior year performance.

A performance rating scale was developed so that if the performance targets were achieved for each of the measures, then the business unit rating equals 100%. For achievement of performance above the targets, the business unit rating would be above 100%, and for performance below target, the business unit rating would be below 100%. In addition, both threshold and maximum performance levels are included in the performance scales. The business unit rating for each of Messrs. Clarke, Khosla, and Searer is linked 70% to the performance ratings of their respective businesses and 30% to the Kraft Foods Inc. performance rating. This alignment is meant to promote both “line-of-sight” accountability (by focusing the executive on the results of his business unit) as well as ensure collaboration of talent and ideas across the enterprise (by rewarding the executive for the performance of the company as a whole). Business unit ratings for the remainder of the named executive officers are aligned 100% to the Kraft Foods Inc. rating.

While we report our financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), our financial targets under our incentive plans are based on non-GAAP financial measures. The adjustments to the GAAP measure and rationale are described in the chart below.

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For supplemental financial data and corresponding reconciliations to certain GAAP financial measures for the year ended December 31, 2009, see Exhibit A attached to this Proxy Statement. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Kraft Foods’ results prepared in accordance with GAAP. In addition, the non-GAAP measures we use may differ from non-GAAP measures that other companies use.

The following are the financial targets and actual results that the Committee considered at year-end for the named executive officers in corporate positions:

In reviewing the results against key financial metrics, which were set in the context of the three-year turnaround plan and represent significant improvement, the Committee considered the following:

The following are the financial targets, actual results, and overall business unit ratings that were considered at year end for the named executive officers in business unit positions.

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The Committee took a similar approach in assessing performance for Kraft Foods North America, Kraft Foods Europe, and Kraft Foods Developing Markets. All units significantly exceeded Adjusted Segment Operating Income and Adjusted Free Cash Flow targets. Kraft Foods Developing Markets attained its Organic Revenue Growth target and Kraft Foods North America and Kraft Foods Europe fell short of their Organic Revenue Growth targets.

Although the business unit rating is a formulaic method for assessing performance against these three key internal measures, the Committee retains discretionary authority to adjust the business rating upwards by up to 25 percentage points or downwards by up to 25 percentage points to recognize innovation, portfolio management, talent management, and the quality of our results. For 2009, the Committee considered each factor and progress in each area when assessing performance, but did not exercise discretion to modify the business ratings.

Individual Performance Assessment

An executive officer’s individual performance assessment can range from 0% to 180%. The Committee first assigns to the executive officer an individual performance rating based on its consideration of the factors discussed under “– Additional Information on Compensation Principles – Assessing Individual Performance and Potential” and then determines the executive officer’s individual performance assessment from the range of percentages associated with that rating. Below is a summary of the five performance rating categories and the range of individual performance payouts associated with each category:

In 2009, the Committee took into account the following factors in determining the individual performance assessments for our named executive officers: contributions to the organization such as operational efficiency, leadership, acquisition/divestiture activity, quality of financial results, talent management, and diversity of employees. The Committee specifically considered the results of the Cadbury bid in 2009 and acquisition in early 2010 in determining actual annual incentives paid to the named executive officers. These factors are discussed in more detail under “– Compensation Paid to Named Executive Officers in 2009.”

Long-Term Incentives

The Committee uses long-term incentive equity award grants to align the interests of our executive officers with those of our shareholders. In 2009, we delivered our equity awards to eligible employees, including the named executive officers, through a combination of non-qualified stock options, restricted stock, and performance shares. As described under “– Our Compensation Program Design – Summary of 2009 Compensation Program,” we use a portfolio of different types of awards to accomplish multiple objectives with our equity-based incentives.

Equity Awards – Restricted Stock and Stock Options

We grant restricted stock and non-qualified stock options on an annual basis. In 2009, we intended that one-half of the value be delivered in the form of restricted stock and one-half of the value be delivered as stock options. To maintain this balance, the ratio of restricted shares to stock options was one to four in 2009. The Committee decided on this equity mix because it balances the retention value of restricted stock with the performance aspect of stock options. We are committed to growing

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shareholder value, and our incentive plans support this objective. To support the retention aspects of the program, the restricted stock does not vest until three years after the date of grant. The stock options vest one-third each year over three years. For non-U.S. employees, we grant deferred stock units instead of restricted stock, which have the same vesting as restricted stock.

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

The range of award opportunities, expressed in terms of grant value, for the named executive officers as of February 20, 2009, the date of the 2009 annual stock award grant, are shown in the table below. There is no grant value award range for the Chief Executive Officer. In determining Ms. Rosenfeld’s equity award in 2009, the Committee considered competitive data from the Compensation Survey Group as well as her performance.

All equity awards approved by the Committee and granted to the named executive officers in 2009 were within the respective ranges presented above. Actual equity award amounts in 2009 are presented in this Proxy Statement in the 2009 Grants of Plan-Based Awards Table under “Executive Compensation Tables.”

The date for annual restricted stock and stock option awards is pre-set on the date of the second regularly scheduled Committee meeting of the calendar year. The exercise price for stock options is determined on the date the awards are approved by the Committee and is set as the average of the high and low trading prices on that date.

LTIP – Performance Shares (2009 – 2011 performance cycle)

The LTIP is designed to motivate executive officers to achieve long-term financial goals and top-tier shareholder returns. The plan measures performance over a three-year period (2009 – 2011) and shares of Kraft Foods’ common stock are earned based on the actual performance against goals set at the beginning of the cycle. The number of shares earned by an executive officer under this program depends on achievement of key internal financial metrics and total shareholder return results relative to our peers. There is no individual performance factor used in the calculation.

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

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Individual Target Percentage. Each participant in the plan is assigned a target award as a percentage of his or her base salary at the beginning of the performance cycle. Target award levels, as a percentage of base salary at the beginning of the performance period, for the named executive officers as of January 1, 2009 were:

At the beginning of the performance cycle, these target amounts are converted to a target number of shares. Actual shares earned can range from 0 – 200% of target shares at the end of the performance cycle based on the business performance rating.

Business Performance Rating. For the 2009 – 2011 LTIP, the Committee will measure the following corporate-focused measures, with specific weightings for all participants:

We do not publicly disclose specific long-term incentive plan targets on a prospective basis due to potential competitive harm. Revealing specific objectives prospectively would provide competitors and other third parties with insights into our confidential planning process and strategies, thereby causing competitive harm. The performance goals are designed to be aggressive, and there is a risk that payments will not be made at all or will be made at less than 100% of the target amount. The performance goal for Organic Revenue Growth is in line with our stated long-term goal of delivering 4-plus percent top-line growth. Similarly, our Ongoing EPS Growth goal is also in line with our 7-9% long-term guidance on bottom-line growth. Our Cumulative Adjusted Free Cash Flow goal is based on our three-year strategic plan. The degree of difficulty in achieving the internal measures is challenging. In this regard, we have met or exceeded our Organic Revenue Growth and Cumulative Adjusted Free Cash Flow objectives in three of the past five years. Ongoing EPS Growth goals have been met or exceeded twice in the past five years.

We also believe that disclosure of the related financial targets is not critical to shareholder understanding of compensation paid to the named executive officers until payments are made. At the conclusion of each plan performance cycle and upon payment to participants, we will disclose the three-year performance targets and results.

The target objective set for relative total shareholder return is the median of the Performance Peer Group from 2009 to 2011. The Organic Revenue Growth, Ongoing EPS Growth, and Cumulative Adjusted Free Cash Flow targets were set relative to historical results from the Performance Peer Group.

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Both our short-term and long-term plans use Organic Revenue Growth and Adjusted Free Cash Flow measures but our benchmarks used to set targets for these plans are different. We believe the use of these measures focus our employees on critical internal drivers, both in the short term and long term. The short-term targets are set against our plan. The long-term targets are set against the performance benchmarks of our peers. These metrics, when used together, have a high correlation with increasing shareholder value. As noted in “– Executive Summary of Compensation Actions,” the Committee eliminated the Adjusted Free Cash Flow metric and increased the Relative Total Shareholder Return metric to a 50% weighting for the 2010 – 2012 LTIP.

To address unforeseen or unintended consequences, the Committee retains discretion to adjust the final business performance rating upwards by up to 25 percentage points or downwards by up to 25 percentage points, including factoring in a qualitative review of financial results, portfolio management, innovation, and talent development. Any discretion applied by the Committee at the conclusion of the performance cycle will be disclosed.

Cash-Based LTIP Award (2007 – 2009 performance cycle)

In 2007, the Committee granted senior executive officers at the time, including Ms. Rosenfeld and Messrs. Firestone, Khosla, McLevish, and Searer, long-term cash-based incentives. The plan measured Kraft Foods’ performance over a three-year period (2007 – 2009) and cash was to be awarded based on actual performance against goals set at the beginning of the cycle. The amount of cash earned by an executive officer under this program was based on achievement of key internal financial metrics and relative total shareholder return results using the Performance Peer Group at the beginning of the performance cycle. The plan measures were based on the three-year strategic turnaround plan that was established in 2007 to get key financial measures including revenue, operating income, and cash flow from lower tier to top-tier levels compared to our peer group.

Business Performance Rating and Payments. The Committee established the following weightings and target goals for the 2007 – 2009 three-year cycle and approved the resulting performance and rating for determining the ultimate payout. There was no individual or business unit performance factor used in the calculation. Kraft Foods’ performance was significantly above target in Ongoing Operating Income Growth and Cumulative Adjusted Free Cash Flow. Organic Revenue Growth was above target. Relative Total Shareholder Return was below threshold and served to significantly reduce the overall performance rating.

As discussed above, the Committee had discretion to adjust the final business performance ratings. The Committee did not exercise any discretion.

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As previously disclosed when target award opportunities were granted, a transition multiplier was applied to these awards since we were transitioning from end-to-end discrete performance cycles to overlapping performance cycles. As a result, the actual award opportunities were approximately 183.3% of the current award opportunities. Based on target awards, as a percent of salary, and the business performance rating of 101% of target, the chart below shows the payouts for each of the named executive officers.

Voluntary Non-Qualified Deferred Compensation Plan

In 2009, certain U.S. senior management (approximately 125 employees) including the named executive officers were eligible for the voluntary non-qualified deferred compensation plan. The program is similar to those provided to executive officers at many of the companies within the Compensation Survey Group, and, thus, is provided for retention and recruitment purposes. The deferred compensation plan provides an opportunity for executives to defer, on a pre-tax basis, up to 50% of salary and up to 100% of their annual and long-term cash incentives. The investment choices are the same as those in Kraft Foods Inc. Thrift/TIP 401(k) Plan. Kraft Foods also provides a company match on deferrals of base salary and annual cash incentives under the Kraft Foods Supplemental Benefits Plan.

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 security and personal safety reasons, we require Ms. Rosenfeld to use the corporate aircraft for both business and personal travel. Use of the corporate aircraft for business and personal reasons also allows Ms. Rosenfeld to be more productive and efficient when she travels. Taxes on all perquisites are the sole responsibility of the named executive officer.

In 2009, the Committee reviewed market data for named executive officers in the Compensation Survey Group. The types and total costs of perquisites offered by Kraft Foods are similar to the types and costs offered at other peer companies. Accordingly, the Committee believes that the perquisites Kraft Foods offers are important for retention and recruitment purposes. Specific executive officer perquisites are listed in the footnotes to the Summary Compensation Table under “Executive Compensation Tables.” Other than these perquisites, executive officers receive the same benefits as other Kraft Foods employees.

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Post-Termination Compensation

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

Change in Control Plan. We have a Change in Control Plan (the “CIC Plan”) for senior executive officers. The provisions in the CIC Plan are consistent with similar plans maintained by companies in the Compensation Survey Group, including eligibility, severance benefit levels, and treatment of cash and equity incentive compensation. The separation payments are structured to help assure that key personnel, including our named executive officers, would be available to assist in the successful transition following a change in control and provide a competitive level of severance protection if the executive officer is involuntarily terminated without cause following a change in control. Under the CIC Plan, restricted stock and stock options only vest upon a change in control if the participant is terminated without cause or resigns for good reason within two years following the change in control or if the acquiring entity does not assume the awards (“double trigger”). 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. In addition, under the CIC Plan, Kraft Foods 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 Foods if change in control separation payments exceed 110% of the IRS-imposed cap of 2.99 times the base amount. To the extent that separation payments do not exceed 110% of the IRS-imposed cap but do 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. In 2009, we eliminated the excise tax gross up for all executives who first become eligible to participate in the CIC Plan after December 31, 2009.

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 do not have individual severance agreements with our 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. The severance arrangements and other benefits provided for under these severance plans are described under “Executive Compensation Tables – Potential Payments upon Termination or Change in Control.”

Retirement Benefits. 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 2009 Pension Benefits Table and the accompanying narrative to the table under “Executive Compensation Tables.”

Ms. Rosenfeld’s 2006 employment letter provides her with an enhanced pension benefit that credits her pension service for the period of time that she was not employed by Kraft Foods between 2004 and 2006. This enhanced pension benefit was provided to her because Ms. Rosenfeld had forfeited her right to a pension benefit at her previous employer when she joined Kraft Foods and was part of a broader incentive program to help encourage her to return to Kraft Foods. Additional details of this enhanced pension benefit are presented in the 2009 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

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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 Foods matching contributions, as all other employees, without regard to the compensation limit established by the Internal Revenue Code of 1986, as amended (the “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 2009 Non-Qualified Deferred Compensation Table and the accompanying narrative to the table under “Executive Compensation Tables.”

Compensation Paid to Named Executive Officers in 2009

Overview

There are no material differences in compensation policies with respect to each named executive officer. We designed each of the named executive officer’s target compensation levels to be at or near the Compensation Survey Group’s size-adjusted median. Based on compensation actions taken for each of the named executive officers in 2009, target total compensation for each of them remains below the size-adjusted median of the Compensation Survey Group, based on the latest available data reported by Hewitt.

Below are the specific compensation actions for each of the named executive officers in 2009. While the named executive officers include Richard Searer, he retired from the company, effective October 1, 2009.

Ms. Rosenfeld

Base Salary Increase. Ms. Rosenfeld did not receive a base salary increase in 2009. Her salary is below the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. The Committee determined Ms. Rosenfeld’s annual incentive for 2009 in accordance with the 2009 annual incentive plan mechanics. Based on the strong quality financial and strategic results discussed below, the Committee set Ms. Rosenfeld’s individual performance assessment at 130% of target. For 2009, the Committee considered the following performance in determining the individual performance assessment element of her annual incentive award in the context of the final year of the three-year turnaround:

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Equity Award (stock options and restricted stock). As part of our annual equity program in 2009, the Committee granted Ms. Rosenfeld an award of $5,954,328 (173,300 restricted stock shares and 693,200 stock options). The Committee granted an award above the Compensation Survey Group median in recognition of company results based on the progress of 2007 strategic initiatives and strong individual performance in 2008.

2007 – 2009 LTIP. Based on the formulaic determination of this incentive, Ms. Rosenfeld was awarded a cash payment of $6,628,125, which represented 101% of her target award opportunity.

As discussed previously, when these awards were originally made, Kraft Foods was transitioning from end-to-end, discrete LTIP cycles to overlapping LTIP cycles. The purpose of shifting from an end-to-end pay cycle to overlapping pay cycles was to better align pay to performance. Beginning a new performance cycle each year allows us to set new goals each year (versus once every three years). As a result of this shift, the new target amounts were appropriately adjusted downward to one-third of the original targets so that payments over any three-year period would be essentially equivalent to the amount paid under the former design. As a consequence, for the next two performance cycles (2007 - 2009 and 2008 - 2010), the LTIP targets will be greater than 100% of the current target to account for this shift, assuming achievement of target performance. Participants will achieve parity with the end-to-end program following the conclusion of the first two overlapping performance cycles. This transition is illustrated below.

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Alternative View of Total Compensation to Ms. Rosenfeld. The chart below shows how the Committee thinks about Ms. Rosenfeld’s total compensation for 2007, 2008, and 2009 in making decisions with respect thereto. While her 2007 – 2009 LTIP payment is disclosed as a payment in 2009 in the Summary Compensation Table below under “Executive Compensation Tables” and represented the most significant portion of the increase in her total compensation compared to 2008, the award was granted to Ms. Rosenfeld in 2007 and the payment represents performance over a three-year performance cycle.

The chart below illustrates the amount of compensation earned each year. This table shows how the Committee viewed Ms. Rosenfeld’s compensation and provides context for the decisions made by the Committee. This table is different than the disclosure in the Summary Compensation Table. As depicted in the chart below, Ms. Rosenfeld’s Total Direct Compensation (salary plus annual incentives paid plus long-term incentive grant values) changed from $14.9 million to $15.3 million to $15.1 million from 2007 to 2009. This table is not intended to replace the Summary Compensation Table.

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Other Named Executive Officers

Below are the specific compensation actions for each of the other named executive officers in 2009.

Mr. McLevish

Base Salary Increase. Mr. McLevish did not receive a base salary increase in 2009. His salary is below the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. In 2009, Mr. McLevish’s individual performance guidelines were primarily related to his leadership associated with the financing of the Cadbury acquisition and on the divestiture of the frozen pizza business. In addition, the Committee noted his contribution to the quality of financial results delivered in 2009 as well as his strong leadership on diversity within his function.

Equity Award (stock options and restricted stock). As part of our annual equity program in 2009, the Committee granted Mr. McLevish 37,020 restricted stock shares and 148,080 stock options. His total award was at the size-adjusted peer group median for his position.

2007 - 2009 LTIP. Mr. McLevish’s award was $792,219. Per the design of the incentive, no individual adjustments were made.

Mr. Clarke

Base Salary Increase. Mr. Clarke was hired in January 2009 at a salary of $650,000. In 2009, he did not receive any subsequent increases. His salary is at the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. In 2009, Mr. Clarke’s individual performance guidelines were primarily related to his leadership on delivering strong financial results despite significant market challenges. The Committee noted his efforts in strengthening the talent in his business through a series of internal appointments and external hires. The Committee also noted his solid diversity leadership within his business unit.

Equity Award (stock options and deferred stock units). As part of our annual equity program in 2009, the Committee granted Mr. Clarke 18,720 deferred stock units and 74,880 stock options. His annual award was at the size-adjusted peer group median for his position. In addition, Mr. Clarke was a awarded a deferred stock unit grant of $750,060 upon hire as an inducement to accept his position at Kraft Foods.

Mr. Firestone

Base Salary Increase. Mr. Firestone did not receive a base salary increase in 2009. His salary is at the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. In 2009, Mr. Firestone’s individual performance guidelines were primarily related to his leadership on several major initiatives including the divestiture of the frozen pizza business and the successful acquisition of Cadbury. The Committee also noted his strong leadership on diversity within his function.

Equity Award (stock options and restricted stock). As part of our annual equity program in 2009, the Committee granted Mr. Firestone 20,630 restricted stock shares and 82,520 stock options. His total award was at the size-adjusted peer group median for his position.

2007 - 2009 LTIP. Mr. Firestone’s award was $1,175,388. Per the design of the incentive, no individual adjustments were made.

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Mr. Khosla

Base Salary Increase. Mr. Khosla did not receive a base salary increase in 2009. His salary is at the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. In 2009, Mr. Khosla’s individual performance guidelines were primarily related to his role in leading Kraft Foods Developing Markets through an exemplary year on financial performance. The Committee also recognized Mr. Khosla’s role in maximizing results from the Category Executive Teams in which he leads. The Committee also noted his strong leadership on diversity within his area of responsibility.

Equity Award (stock options and restricted stock). As part of our annual equity program in 2009, the Committee granted Mr. Khosla 20,100 restricted stock shares and 80,400 stock options. His annual award was at the size-adjusted peer group median for his position. In addition, Mr. Khosla was awarded an off-cycle restricted stock grant of $1,000,415 to recognize and encourage him in his new role that is more focused on high growth markets.

2007 - 2009 LTIP. Mr. Khosla’s award was $900,583. Per the design of the incentive, no individual adjustments were made.

Mr. Searer

Base Salary Increase. Mr. Searer did not receive a base salary increase in 2009. His salary is at the size-adjusted median of the Compensation Survey Group.

Actual Annual Incentive. In 2009, Mr. Searer’s individual performance guidelines were primarily related to his leadership in driving continued financial performance improvement in Kraft Foods North America.

Equity Award (stock options and restricted stock). As part of our annual equity program in 2009, the Committee granted Mr. Searer 25,390 restricted stock shares and 101,560 stock options. His total award was below the size-adjusted peer group median for his position. His equity awards were forfeited at the time of his retirement.

2007 - 2009 LTIP. Mr. Searer’s award was $1,884,281. Per the design of the incentive, no individual adjustments were made.

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Additional Information on Compensation Principles

Providing Competitive Pay

Composition and Purpose of the Compensation Survey Group

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

To assure that the Compensation Survey Group includes the most appropriate companies, the Committee considers companies meeting the following criteria: companies that are of similar revenue size and market capitalization, emphasize the food and beverage industry, have a global focus, are recognized for their industry leadership and brand recognition, have executive positions similar in breadth, complexity, and scope of responsibility, and compete with us for executive talent. In its evaluation of companies, the Committee starts with companies with revenue over $10 billion and up to 2.5 times Kraft Foods’ revenue.

Based on this, and in consultation with management and with the assistance of Hewitt, the Committee’s former compensation consultant, the Committee selected these companies for the 2009 Compensation Survey Group: