Annual Cash Incentive Compensation

                                                                    Exhibit 10.1

Michael T. Theilmann

Position:         Executive Vice President, Chief Human Resources and

                  Administration Officer

Starting Date:    June 1, 2005

Base Salary:      $500,000 reviewed annually beginning in 2006

Annual Cash Incentive Compensation

Your 2005 annual cash bonus target will be 50% of your base salary as if you had

been at JCPenney for the entire year. The maximum award will be at 100% of base

salary. You will participate on the basis of 50% of the award tied to overall

JCPenney company performance and 50% of the award based on your individual

performance measured against previously agreed objectives.

Fiscal 2005 Equity Grant

You will receive an option to purchase 70,000 shares of JCPenney stock. The

option exercise price will be the average of the high and lo