Compensation Committee Charter

Adopted on July 19, 2012

Purpose

The purpose of the Compensation Committee (the “Committee”) is to represent and assist the Board of Directors (the “Board of Directors” or “Board”) of Natural Grocers by Vitamin Cottage, Inc. (the “Company”) in carrying out its responsibilities with respect to: (a) overseeing the Company’s compensation policies and practices; (b) reviewing and approving annual compensation and compensation procedures for the Company’s executive officers; and (c) overseeing and recommending director compensation to the Board of Directors.

Membership

Recognizing that the Company is a “controlled company” under the rules of the New York Stock Exchange (the “NYSE”), Committee membership may consist of both independent and non-independent directors. If the Company’s “controlled” status changes, the Committee shall then be comprised of the number of independent directors then consistent with the NYSE rules. There shall be a minimum of three committee members at all times.

The members of the Committee, including the Chair of the Committee, will be appointed by and serve at the discretion of the Board of Directors. All Committee members shall be familiar with executive compensation issues and best practices, and will undertake to keep current on developments in this field while serving on the Committee.

In fulfilling its responsibilities, as set forth below, the Committee may delegate its authority to subcommittees, including subcommittees consisting solely of one or more employees of the Company, in each case to the extent permitted by applicable law.

Meetings

The Committee shall meet as often as may be deemed necessary or appropriate, in its judgment. Meetings of the Committee shall be held at such times and places as determined by the Committee. When necessary, the Committee shall meet in executive session outside of the presence of any senior executive officer of the Company. A majority of the Committee members must be in attendance for a quorum. The Committee may act by unanimous written consent. The Committee shall report regularly to the Board of Directors with respect to its activities.

Outside Advisors

The Committee shall have the authority to engage compensation consultants, independent legal, accounting and other advisors, as it determines necessary to carry out its duties and shall receive appropriate funding, as determined by the Committee, from the Company for payment of compensation to any such advisors. The Committee shall have sole authority to approve related fees and retention terms or terminate any such advisors.

Absent actual knowledge to the contrary (which shall be promptly reported to the Board), each member of the Committee shall be entitled to rely on (i) the integrity of those persons or organizations within and outside the Company from which he or she receives information and (ii) the accuracy of the financial and other information provided to the Committee by such persons or organizations.

Responsibilities

The Committee shall:

1. Oversee and review the Company’s overall compensation structure, practices, policies and programs, and assess whether the Company’s compensation structure establishes appropriate incentives for management and employees.
2. Determine the compensation of the Co-Presidents of the Company (the “Co-Presidents”) based on the annual performance evaluations of the Co-Presidents conducted by the Board of Directors in light of Company goals and objectives relevant to the compensation of the Co-Presidents, competitive market data pertaining to compensation at comparable companies, and such other factors as it shall deem relevant, and shall be guided by, and seek to promote, the best interests of the Company and its shareholders.
3. Determine salaries, bonuses, and other matters relating to compensation of executive officers of the Company other than the Co Presidents based on the officer’s performance in light of Company goals and objectives relevant to executive compensation, competitive market data pertaining to executive compensation at comparable companies, and such other factors as it shall deem relevant, and shall be guided by, and seek to promote, the best interests of the Company and its shareholders. If a Co-President is not serving as a member of the Committee at the time of such determination, the Co-President may be present and consult at meetings during which such compensation is under review and consideration, and may make recommendations with respect to compensation, but may not vote.
4. Review and make recommendations to the Board regarding executive compensation, incentive compensation, equity based plans, and benefit plans and programs.
5. Administer the Company’s equity and equity-based incentive plans, including the review and grant of stock option and other equity and equity-based incentive grants to executive officers.
6. Administer the Company’s employee stock purchase plan.
7. Prepare and publish an annual compensation committee report on executive compensation in the Company’s proxy statement or other annual report required by the rules and regulations of the Securities & Exchange Commission.
8. Review and make recommendations with respect to shareholder proposals related to compensation matters.
9. Review and recommend to the Board employment and retention agreements and severance arrangements for executive officers, including change-in-control provisions, plans or agreements.
10. Work with the Co-Presidents to develop succession plans for the Co-Presidents for an emergency situation and over the longer term. The Committee, in conjunction with the Co-Presidents, shall update the entire Board with respect to executive development and succession planning initiatives.
11. Review the Company’s practices and levels with respect to directors’ compensation paid to non-management Board members annually and make recommendations to the full Board with respect to any changes or modifications to the director’s compensation program. In making its recommendations, the Committee shall consider director compensation policies and practices at the Company’s principal competitors and other comparable companies to ensure that the compensation, both direct and indirect, paid to the Company’s directors is reasonable and appropriate.
12. Fulfill any other responsibilities that may be assigned to the Committee by the Board of Directors from time to time.

Other Matters

The Committee shall review and report additional compensation matters as necessary or appropriate or as directed by the Chairman of the Board of Directors, as well as review and oversee the preparation of any disclosure relative to the Company’s compensation practices provided in the Company’s annual proxy statement or other materials distributed to stockholders.

The Committee shall be responsible for developing and conducting an annual self-assessment of its performance. The Committee will design and coordinate the annual self-assessment in conjunction with the overall Board assessment process. The Committee shall report to the Board on the results of its assessment each year and shall make any appropriate recommendations to further enhance the Committee’s performance.

The Committee shall review this charter annually and may recommend to the Board from time to time any proposed changes to the charter and to any other documents related to the responsibilities of the Committee.

When appropriate, the Committee may designate one or more of its members to perform certain of its duties on its behalf, subject to such reporting to or ratification by the Committee as the Committee shall direct.