SEARS HOLDINGS CORPORATION 2009 ANNUAL INCENTIVE PLAN

Exhibit 10.1

SEARS HOLDINGS CORPORATION

2009 ANNUAL INCENTIVE PLAN

SECTION 1

GENERAL

1.1. Purpose . The Sears Holdings Corporation 2009 Annual Incentive Plan (the “AIP”) is a performance-based incentive program. The purpose of the AIP is to reward eligible employees of Sears Holdings Corporation (the “Company”) and its participating subsidiaries and affiliates (collectively referred to as “Employers”), for sustained Company fiscal performance. The AIP is established under, and constitutes a part of, the Sears Holdings Corporation Umbrella Incentive Program (the “UIP”), which UIP was previously approved by shareholders. Both (a) Awards (as defined in Section 9) structured to satisfy the requirements for “performance-based compensation” outlined in regulations issued under Section 162(m) of the Internal Revenue Code (“Code”), and (b) Awards not so structured, may be issued hereunder. The effective date of the AIP is April 28, 2009, which is the date the Compensation Committee (as defined in Section 9) adopted the AIP (the “Effective Date”).

1.2. Operation, Administration and Definitions . The operation and administration of the AIP, including the Awards made under the AIP, shall be subject to the provisions of Section 7. Capitalized terms in the AIP shall be defined in the provision in which a term first appears or as set forth in Section 9.

1.3. Participating Employers . Each Employer whose eligible employee’s are covered by the AIP may be referred to herein as a “Participating Employer”. Participating Employers are listed on Appendix A .

SECTION 2

PARTICIPATION

2.1. Eligible Employee . Except as provided herein, the term “Eligible Employee” means all: (a) salaried employees and (b) “corporate hourly employees”, of any Employer, including the Company, which is a Participating Employer. “Corporate hourly employees” refer to hourly employees employed at a Support Center (as defined in Section 9). Subject to the terms and conditions of the AIP, the Senior Corporate Compensation Executive (as defined in Section 9) shall determine Eligible Employee status, except as determined by the Compensation Committee, in accordance with subsection 7.1. Eligible Employees are “Participants” in the AIP.

2.2. New Hires; Changes in Status; Promotions and Demotions .

(a) New Hires . The Senior Corporate Compensation Executive, the Compensation Committee, or an authorized representative of either, as applicable, shall determine whether and when an employee who is a new hire is an Eligible Employee. The terms and conditions of any Award for such an individual shall be (i) based on the Target Annual Incentive for the new hire’s incentive-eligible position and (ii) subject to a fraction, the numerator of which is the number of full days on active payroll (except as otherwise provided in Section 6.2) during the Performance Period (as defined in subsection 3.1) that the Eligible Employee was a Participant in the AIP and the denominator of which is the number of full days in the Performance Period.

2009 AIP

(b) Changes in Status . The Senior Corporate Compensation Executive or the Compensation Committee, as applicable, shall determine whether and when an employee who has a change in status becomes or ceases to be an Eligible Employee during the Performance Period. The terms and conditions of any Award for such an individual shall be (i) based on the Target Annual Incentive for the incentive-eligible position and (ii) subject to a fraction, the numerator of which is the number of full days on active payroll (except as otherwise provided in Section 6.2) during the Performance Period that the Eligible Employee was a Participant in the AIP and the denominator of which is the number of full days in the Performance Period.

(c) Promotion . If a Participant is promoted, the Award for such an individual shall be based on a pro-ration, whereby the Target Annual Incentive for the new position will apply to the remainder of the Performance Period and the Target Annual Incentive for the immediately preceding incentive-eligible position will apply to the portion of the Performance Period immediately preceding the effective date of the promotion, subject to subsection 3.2. Notwithstanding the foregoing, in no event will positive discretion be applied to any Award that has been designated as intended to meet the requirements of Code Section 162(m) (and the regulations issued thereunder) with respect to the Performance Period or as of the payment date (as defined under subsection 5.1).

(d) Demotions . If a Participant is demoted, the Award for such an individual shall be based on a pro-ration, whereby the Target Annual Incentive for the new incentive-eligible position (if any) will apply only to the remainder of the Performance Period and the Target Annual Incentive for the immediately preceding incentive-eligible position will apply only to the portion of the Performance Period immediately preceding the effective date of the demotion, subject to subsection 3.2.

SECTION 3

ANNUAL INCENTIVE AWARDS

3.1. Annual Incentive Awards . Except as provided herein, the Senior Corporate Compensation Executive shall determine, in its sole discretion, the “Target Annual Incentive” (as defined herein) for each Participant. Notwithstanding the forgoing, the Compensation Committee shall approve the Target Annual Incentives and the Awards for Executives (as defined in Section 9) under its purview.

(a) A “Target Annual Incentive” shall refer to the percentage of a Participant’s rate of base pay during the Performance Period, which may be reflected as a percentage of base pay or flat dollar amount.

(b) The “Target Incentive Award” shall consist of a commitment by the Company to distribute, at the time specified in, and in accordance with the applicable provisions of, Section 5 below, a dollar amount based on a Participant’s Target Annual Incentive and based on actual performance of the Company and the Participant, as compared to established performance goals described in Section 4 below. The Target Incentive Award shall be subject to pro-ration (if applicable) and certification of the calculation of the final Award amount by the Senior Corporate Compensation Executive or the Compensation Committee, as applicable.

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2009 AIP

(c) The “Annual Incentive Award” shall refer to the final annual portion of a Participant’s Target Incentive Award payable on the payment date (as defined in subsection 5.1 below).

(d) Any Annual Incentive Award shall be satisfied by a distribution in accordance with Section 5 and subject to Sections 6 and 7.

3.2. Adjustments based on Status Changes during Performance Period . Notwithstanding anything in the AIP to the contrary, with respect to Awards that are not designated as intended to meet the requirements of “performance-based compensation” under Code Section 162(m) (and the regulations issued thereunder) and prior to the settlement of any Award, if the Target Annual Incentive for a new incentive-eligible position (including if due to promotion or demotion) is lower or higher than the Target Annual Incentive for a Participant’s immediately prior position, the Participant’s Target Incentive Award may be adjusted by the Senior Corporate Compensation Executive or the Compensation Committee, as applicable, to ensure that the overall target cash compensation (i.e., the sum of base pay and Target Annual Incentive) for the new position is comparable to the overall target cash compensation for the immediately prior position.

3.3. Performance Period . The “Performance Period” refers to the applicable Fiscal Year (as defined in Section 9). The amount of an Award, if any, shall be determined following completion of the Performance Period in accordance with this Section 3 and Section 4.

3.4. Pro-ration .

(a) The Annual Incentive Award of a Participant who experiences a status change or position change shall be pro-rated based on the number of days worked on active payroll in each incentive-eligible position during the Performance Period.

(b) The Annual Incentive Award of a Participant who experiences a demotion or promotion shall be pro-rated based on the Target Annual Incentives in effect during the Performance Period, subject to Sections 2.2 and 3.2 above.

(c) The Annual Incentive Award of a Participant who experiences a disability or death, as described in subsections 6.1(b) and (c) respectively, shall be pro-rated based upon a fraction, the numerator of which is the number of days worked on active payroll in an incentive-eligible position during the Performance Period and the denominator of which is the number of days in the Performance Period.

(d) The Annual Incentive Award of a Participant who experiences an unpaid leave of absence during the Performance Period shall be pro-rated in accordance with subsection 6.2(a).

SECTION 4

GOALS AND PERFORMANCE

4.1. Company Goals . The financial performance goals, which are approved by the Senior Corporate Compensation Executive or the Compensation Committee, as applicable, shall include the following levels of performance.

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(a) EBITDA

(i) EBITDA . EBITDA shall be the financial performance goal for Participants who are under a Support Business Unit (as defined in Section 9) and whose position cannot be tied directly, as determined by the Senior Corporate Compensation Executive or the Compensation Committee (as applicable), to a Business Unit (as defined in Section 9). Subject to adjustment, if any, in accordance with paragraph (iv) of this subsection 4.1(a), “EBITDA” refers to earnings before interest, taxes, depreciation and amortization for the Performance Period computed as operating income appearing on the Company’s statement of operations for the applicable reporting period, other than Sears Canada (referred to as the “Domestic Company”), less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude significant litigation or claim judgments or settlements (defined as matters which are $1,000,000 or more) including the costs related thereto; the effect of purchase accounting and changes in accounting methods; gains, losses and costs associated with acquisitions, divestitures and store closures; integration costs that are disclosed as merger related; and restructuring activities. If after the Effective Date, the Domestic Company acquires assets or an entity that has associated EBITDA (measured using the same principles as those described in the preceding provisions of this paragraph (i)) in its last full fiscal year prior to the acquisition, of greater than or equal to $100,000,000, any EBITDA associated with such assets or entity (after its acquisition) and during the Performance Period shall be disregarded in determining EBITDA under this paragraph (i).

(ii) Threshold EBITDA . “Threshold EBITDA” reflects the minimum EBITDA that must be achieved with respect to Awards based on EBITDA, which shall be equal to the greater of : (1) eighty percent (80%) of Target EBITDA or (2) the actual EBITDA for the 2007 fiscal year capped at ninety percent (90%) of Target EBITDA.

(iii) Target EBITDA . Subject to adjustment, if any, in paragraph (iv) immediately below, “Target EBITDA” refers to the target level of EBITDA, for the Performance Period, established by the Compensation Committee consistent with Company strategy, in accordance with paragraph (i) above of this subsection 4.1(a).

(iv) Adjustments to Target EBITDA . The EBITDA incentive target contemplates that the Domestic Company remains approximately the same size over the Performance Period. If, after the beginning of the Performance Period, Domestic Company divests itself of assets or an entity that has associated EBITDA (measured using the same principles as those described in paragraph (i) above of this subsection 4.1(a)) in its last full fiscal year prior to the divestiture of greater than or equal to $100,000,000, Target EBITDA for the Performance Period will be decreased by actual EBITDA of such assets or entity for the portion of such assets’ or entity’s last full fiscal year prior to the divestiture corresponding to the portion of the Performance Period (in which the divestiture occurs) remaining after the divestiture occurs.

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2009 AIP

(b) Business Operating Profit .

(i) Business Operating Profit . Business Operating Profit shall be the financial performance goal for Participants who are under a Business Unit and Participants who are under a Support Business Unit but whose position can be tied directly, as determined by the Senior Corporate Compensation Executive or the Compensation Committee (as applicable), to a Business Unit. “Business Operating Profit” refers to earnings before interest, taxes, and depreciation for each Business Unit as reported on the Company’s domestic internal operating statements, and generally consists of merchandise gross profit, vendor allowances/subsidy included in margin, return-to-vendor mark-outs, allocated zero percent (0%) finance promotion costs, product quality costs, inventory shrink, margin on service revenue, and business-specific expenses such as marketing, rent, logistics, IT projects, store and payroll and other intra-company expenses.

(ii) Threshold Business Operating Profit . “Threshold Business Operating Profit” reflects the minimum applicable Business Operating Profit that must be achieved with respect to Awards based on Business Operating Profit, which shall be equal to the greater of : (1) eighty percent (80%) of the applicable Target Business Operating Profit or (2) the actual applicable Business Operating Profit for the 2007 fiscal year capped at ninety percent (90%) of the applicable Target Business Operating Profit.

(iii) Target Business Operating Profit . “Target Business Operating Profit” refers to the target level of the applicable Business Operating Profit for the Performance Period, which varies by the Business Unit and as established and approved by the Compensation Committee, consistent with Company strategy, in accordance with paragraph (i) above of this subsection 4.1(b).

(c) Variable Store Contribution Profit .

(i) Variable Store Contribution Profit . Variable Store Contribution Profit shall be the financial performance goal for Participants who are under a Sears Full-Line Store (including the great indoors), Kmart Store or any other retail unit (referred to collectively herein as “Retail Units”), as determined by the Senior Corporate Compensation Executive. “Variable Store Contribution Profit” refers to the “variable profit contribution” balance reported on the system-generated store Profit & Loss Statement and generally consists of store gross margin less expenses categorized as variable at a store level, such as payroll, benefits, advertising, supplies and certain operating costs. This performance goal does not apply to any Executive.

(ii) Threshold Variable Store Contribution Profit . “Threshold Variable Store Contribution Profit” reflects the minimum applicable Variable Store Contribution Profit that must be achieved with respect to Awards based on a Variable Store Contribution Profit, which shall be equal to eighty percent (80%) of the applicable Target Variable Store Contribution Profit for a Sears Full-Line Store (including the great indoors) or a Kmart Store but shall vary for all other Retail Units.

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2009 AIP

(iii) Target Variable Store Contribution Profit . “Target Variable Store Contribution Profit” refers to the target level of the Variable Store Contribution Profit for the Performance Period, which varies by the Retail Units and as established and approved by the Senior Corporate Compensation Executive, consistent with Company strategy, in accordance with paragraph (i) above of this subsection 4.1(c).

4.2. Company Performance . Company performance is determined based on certain financial measurements including the following applicable measurements, which shall be applied to a Participant based upon his or her Assignment.

(a) EBITDA Performance .

(i) Threshold Payout . Subject to Participant performance and Sections 5 and 6, if Threshold EBITDA is met, sixty percent (60%) of a Target Incentive Award shall be paid to a Participant for whom EBITDA is the performance measure.

(ii) Target Payout . Subject to Participant performance and Sections 5 and 6, if Target EBITDA is met, one hundred percent (100%) of a Target Incentive Award shall be paid to a Participant for whom EBITDA is the performance measure.

(iii) If EBITDA performance falls between the Threshold EBITDA and the Target EBITDA payout levels, the adjustment to an Award shall be determined by straight-line interpolation.

(iv) Subject to Participant performance and Sections 5 and 6, with respect to a Participant for whom EBITDA is the performance measure, if EBITDA performance exceeds the Target EBITDA, a percentage of the Target Incentive Award shall be paid equal to one hundred percent (100%) plus two percent (2%) for each one percent (1%) by which EBITDA performance exceeds Target EBITDA. There is no maximum payout percentage.

(b) Business Operating Profit .

(i) Threshold Payout . Subject to Participant performance and Sections 5 and 6, if the applicable Threshold Business Operating Profit is met, sixty percent (60%) of a Target Incentive Award shall be paid to a Participant for whom Business Operating Profit is the performance measure.

(ii) Target Payout . Subject to Participant performance and Sections 5 and 6, if the applicable Target Business Operating Profit is met, one hundred percent (100%) of a Target Incentive Award shall be paid to a Participant for whom Business Operating Profit is the performance measure.

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2009 AIP

(iii) If the applicable Business Operating Profit performance falls between the applicable Threshold and Target payout levels, the adjustment to an Award shall be determined by straight-line interpolation.

(iv) Subject to Participant performance and Sections 5 and 6, with respect to a Participant for whom Business Operating Profit is the performance measure, if the applicable Business Operating Profit performance exceeds the Target Business Operating Profit, a percentage of the Target Incentive Award shall be paid equal to one hundred percent (100%) plus two percent (2%) for each one percent (1%) by which the applicable Business Operating Profit performance exceeds the applicable Target Business Operating Profit. There is no maximum payout percentage.

(c) Variable Store Contribution Profit .

(i) Payout under Target . Subject to Participant performance and for Sears Full-Line Stores (including the great indoors) and Kmart Stores their Location Balanced Scorecard performance, and Sections 5 and 6, with respect to a Participant for whom Variable Store Contribution Profit is the performance measure, if at least the applicable Threshold Variable Store Contribution Profit but not the Target Variable Store Contribution Profit is met, payout of a Target Incentive Award shall be based on the following schedule:

(A) With respect to Participants under a Sears Full-Line Store (including the great indoors) or a Kmart Store:

In this case, if the applicable Variable Store Contribution Profit performance is above ninety-five (95%) of Target Variable Store Contribution Profit but below Target Variable Store Contribution Profit payout levels, the adjustment to an Award shall be determined by straight-line interpolation.

(B) With respect to all other Retail Units, the payout level(s) for performance under Target shall be as determined by the Senior Corporate Compensation Executive in accordance with Section 4.4 below.

(ii) Target Payout . Subject to Participant performance and for Sears Full-Line Stores (including the great indoors) and Kmart Stores their Location Balanced Scorecard performance, and Sections 5 and 6, if the applicable Target Variable Store Contribution Profit is met, one hundred percent (100%) of a Target Incentive Award shall be paid to a Participant for whom Variable Store Contribution Profit is the performance measure.

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2009 AIP

(iii) Subject to Participant performance and for Sears Full-Line Stores (including the great indoors) and Kmart Stores their Location Balanced Scorecard performance, and Sections 5 and 6, if the applicable Variable Store Contribution Profit performance exceeds the applicable Target Variable Store Contribution Profit, the maximum payout percentage shall be as determined by the Senior Corporate Compensation Executive.

4.3. Participant and Team Performance .

(a) Individual Modifier . Except as provided in subsection (a)(ii) herein, the Senior Corporate Compensation Executive or the Compensation Committee, as applicable, shall have the discretion to apply an individual performance modifier to a Participant’s Annual Incentive Award, which enables the Award to be modified, positively or negatively, based on individual Participant or team performance, subject to the following:

(i) An individual modifier may be applied to modify a Participant’s Annual Incentive Award as follows:

(ii) The individual modifier shall not apply to the portion of an Award attributable to any portion of the Performance Period during which a Participant is an Executive (as defined in Section 9), and in no event will positive discretion be applied to any Award for a Participant who is a “covered employee” within the meaning of Code Section 162(m) (and the regulations issued thereunder) with respect to the Performance Period or as of the payment date (as defined under subsection 5.1).

(iii) Notwithstanding the forgoing, the Award payable to any Participant under a Retail Unit shall be subject to the applicable maximum payout percentage, if any, as determined by the Senior Corporate Compensation Executive.

(b) Location Balanced Scorecard . The Senior Corporate Compensation Executive shall apply the results of the Location Balanced Scorecard to qualify or modify the Annual Incentive Award of Participants under a Sears Full-Line Store (including the great indoors) or Kmart Store, provided such units have met its applicable Threshold Variable Store Contribution Profit, subject to the following:

(i) The Location Balanced Scorecard results will a