The contract carries a base salary of $2.725 million, according to a source with knowledge of the deal. Another source said the terms include performance bonuses, with those bonuses based on appearances and games finished.
Kuo became the Dodgers' primary closer during the final weeks of last season, and the fact he could inherit that role again if Jonathan Broxton continues to struggle meant that any settlement to avoid arbitration almost had to include bonuses for games finished. As such, he will receive an additional $100,000 for each of 30, 35, 40, 45, 50 and 55 games finished.
Even if he doesn't become the closer, Kuo could earn up to an additional $100,000 based on appearances -- $25,000 each for 50 and 55 games and $50,000 for pitching in 60 games.
Although he had to be used judiciously because of his history of arm problems, Kuo had the best season of his career in 2010, posting a stellar 1.20 ERA in 56 appearances, compiling 12 saves and making the National League All-Star team for the first time.
Kuo, 29, was arbitration-eligible for the second time. He was seeking $3,075,000, while the Dodgers filed at $2,550,000, meaning that at least in terms of his base salary, he settled below the midpoint of $2,812,500. But if he reaches all of the aforementioned incentives -- the appearances clauses kick in whether he is closing or not -- he will receive $3.425 million.
Kuo settled at $950,000 last winter, then made an additional $25,000 last season for making at least 55 appearances.
Loney, who settled at $3.1 million last winter, is seeking $5.25 million this year, with the club countering at $4.7 million, a gap of more than half a million dollars.
One source said Wednesday that the sides don't appear close to a settlement, meaning the Dodgers could be heading to a hearing with Loney later this month in which a three-person arbitration panel would be forced to choose one of the two figures, with no room for compromise.
Tony Jackson covers the Dodgers for ESPNLosAngeles.com.