W.W. Grainger (GWW)

Compensation Committee

        The Compensation Committee oversees Grainger's activities in the area of compensation and benefits (generally with regard to all employees and specifically with regard to officers) and reviews and makes recommendations concerning compensation-related matters to be submitted to the Board and/or shareholders for approval. The general responsibilities of the Committee are to ensure:

•

That a market competitive compensation structure is in place that will attract, motivate, and retain key talent necessary to help deliver performance that will increase shareholder value;



•

That compensation and benefit policies and practices reflect the highest level of integrity;



•

That compensation, especially senior management compensation, is linked to performance, both personal and Company; and



•

The appropriate administration of various stock and incentive plans.

        In 2008, the Compensation Committee met five times. Each meeting included an executive session without management present. The Board has determined that each of the members of the Compensation Committee is "independent," as that term is defined in the independence

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requirements for members of compensation committees contained in the applicable standards of the NYSE.

        The Compensation Committee annually reviews and approves corporate goals and objectives, including financial performance measures relevant to chief executive officer compensation, evaluates the chief executive officer's performance in light of those goals and objectives, and, either as a committee or together with the other independent directors as directed by the Board, determines and approves the chief executive officer's compensation level based on this evaluation.

        In establishing Grainger's compensation systems, the Compensation Committee develops programs based on its own deliberations, as well as considers alternatives and recommendations from its own independent consultant, a variety of other compensation and benefits consultants, and management. Since 2004, the Committee has retained Deloitte Consulting LLP (Deloitte) as its independent compensation consultant. The independent compensation consultant is solely hired by and reports directly to the Committee, and it is the Committee's practice to routinely meet privately with the independent consultant in executive session. The Committee has sole authority to retain and terminate the independent consultant, including sole authority to approve the consultant's fees. The independent compensation consultant:

•

attends Committee meetings;



•

assists the Committee in evaluating compensation proposals;



•

helps analyze recommendations proposed by management;



•

responds to specific compensation-related inquiries; and



•

undertakes special projects as instructed by the Committee.

        The Committee seeks advice from the independent consultant on compensation trends and best practices, as well as in reviewing Grainger's plans to ensure they are designed and operate to achieve their purposes and goals. During 2008, the independent consultant performed a number of specific projects including recommendations on companies to include in the compensation comparator group, compensation guidance on the planned transition of the Chief Executive Officer and Chief Financial Officer positions, as well as provided advice on executive compensation disclosure requirements and trends. In 2008, the independent consultant attended Compensation Committee meetings as well as the executive sessions without management present.

        Deloitte provides other services to Grainger that are unrelated to executive compensation matters. The Committee believes that the scope and nature of these services do not impair the independence of its advisor.

        Members of management (including certain of its "Named Executive Officers," or NEOs, as that term is further described below) assist the Compensation Committee in performing its responsibilities by providing recommendations for the Committee's consideration concerning the design of Grainger's compensation program for its NEOs, other officers, and other employees. Management also recommends award levels, except those related to Messrs. Keyser and Ryan, which are reviewed by the Compensation Committee and then determined by the independent members of the Board in executive session without members of management present.

        The Compensation Committee grants equity awards (stock options, restricted stock units (RSUs), and performance shares) to elected officers and other employees under the 2005 Incentive Plan. The Committee delegates to management a limited authority to grant stock options and RSUs to

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employees. Awards under this authority are granted using features and agreements that have been approved by the Committee. The pool of shares available to management is refreshed annually to 50,000 options and 25,000 RSUs. The maximum amount that management can award to any employee is 5,000 stock options and 2,500 RSUs. The awards are effective the first business day of the month following the month in which the grant was approved by management. Information concerning the grants is shared with the Committee at its next meeting following the grant. The delegation of authority may be terminated by the Committee at its discretion.

Compensation Committee

       The Compensation Committee oversees Grainger's activities in the area of compensation and benefits (generally with regard to all employees and specifically with regard to officers) and reviews and makes recommendations concerning compensation-related matters to be submitted to the Board and/or shareholders for approval. The general responsibilities of the Committee are to ensure:

•

That a market competitive compensation structure is in place that will attract, motivate, and retain key talent necessary to help deliver performance that will increase shareholder value;

•

That compensation and benefit policies and practices reflect the highest level of integrity;

•

That compensation, especially senior management compensation, is linked to performance, both personal and Company; and

•

The appropriate administration of various stock and incentive plans.

10

       In 2007, the Compensation Committee met six times. Each meeting included an executive session without management present. The Board has determined that each of the members of the Compensation Committee is "independent," as that term is defined in the independence requirements for members of compensation committees contained in the applicable standards of the NYSE.

       The Compensation Committee annually reviews and approves corporate goals and objectives, including financial performance measures relevant to chief executive officer compensation, evaluates the chief executive officer's performance in light of those goals and objectives, and, either as a committee or together with the other independent directors as directed by the Board, determines and approves the chief executive officer's compensation level based on this evaluation.

       In establishing Grainger's compensation systems, the Compensation Committee develops programs based on its own deliberations, as well as considers alternatives and recommendations from its own independent consultant, a variety of other compensation and benefits consultants, and management. Since 2004, the Committee has retained Deloitte Consulting LLP (Deloitte) as its independent compensation consultant. The independent compensation consultant is solely hired by and reports directly to the Committee, and it is the Committee's practice to routinely meet privately with the independent consultant in executive session. The Committee has sole authority to retain and terminate the independent consultant, including sole authority to approve the consultant's fees. The independent compensation consultant:

•

attends Committee meetings;

•

assists the Committee in evaluating compensation proposals;

•

helps analyze recommendations proposed by management;

•

responds to specific compensation-related inquiries; and

•

undertakes special projects as instructed by the Committee.

       The Committee seeks advice from the independent consultant on compensation trends and best practices, as well as in reviewing Grainger's plans to ensure they are designed and operate to achieve their purposes and goals. During 2007, the independent consultant performed a number of specific projects including an analysis of executive compensation trends incorporating alternative ways to view executive compensation and an analysis and competitive market valuation for director compensation, as well as provided advice on executive compensation disclosure requirements and trends. In 2007, the independent consultant attended all Compensation Committee meetings as well as the executive sessions without management present.

       Deloitte provides other services to Grainger that are unrelated to executive compensation matters. The Committee believes that the scope and nature of these services do not impair the independence of its advisor.

       Members of management (including certain of its "Named Executive Officers," or NEOs, as that term is further described below) assist the Compensation Committee in performing its responsibilities by providing recommendations for the Committee's consideration concerning the design of Grainger's compensation program for its NEOs, other officers, and other employees. Management also recommends award levels, except those related to Messrs. Keyser and Ryan, which are reviewed by the Compensation Committee and then determined by the independent members of the Board in executive session without members of management present.

11

       The Compensation Committee grants equity awards (stock options, restricted stock units (RSUs), and performance shares) to elected officers and other employees under the 2005 Incentive Plan. The Committee delegates to management a limited authority to grant stock options and RSUs to employees. Awards under this authority are granted using features and agreements that have been approved by the Committee. The pool of shares available to management is refreshed annually to 50,000 options and 25,000 RSUs. The maximum amount that management can award to any employee is 5,000 stock options and 2,500 RSUs. The awards are effective the first business day of the month following the month in which the grant was approved by management. Information concerning the grants is shared with the Committee at its next meeting following the grant. The delegation of authority may be terminated by the Committee at its discretion.

Compensation Committee

        The Compensation Committee met six times in 2006. The Board has determined that each of the members of the Compensation Committee is "independent," as that term is defined in the independence requirements for members of compensation committees contained in the applicable standards of the NYSE.

        The Compensation Committee oversees Grainger's activities in the area of compensation and benefits (generally with regard to all employees and specifically with regard to officers) and reviews and makes recommendations concerning compensation-related matters to be submitted to the Board and/or shareholders for approval. The general responsibilities of the Committee include oversight to ensure that:

•

The Board appropriately discharges its responsibilities relating to senior management compensation;



•

A competitive compensation structure is in place that will attract, motivate, and retain key talent;



•

Compensation and benefit policies and practices reflect the highest level of integrity;

10

•

Compensation, especially senior management compensation, is linked to performance, both personal and Company; and



•

The interests of all shareholders are protected.

        Included among its duties are the review and approval of corporate goals and objectives relevant to chief executive officer compensation, the evaluation of chief executive officer performance in light of those goals and objectives and, either as a committee or together with the other independent directors, the determination and approval of the chief executive officer's compensation level based on this evaluation. The Committee also administers various stock and incentive plans.

        In establishing Grainger's compensations systems, the Committee develops programs based on its own deliberations, as well as considering alternatives and recommendations from its own independent consultant, a variety of other compensation and benefits consultants, and management. Since 2004, the Committee has retained Deloitte Consulting LLP as its independent compensation consultant. The nature of the independent compensation consultant's role is to assist the Committee in evaluating compensation proposals, attend Committee meetings, and respond to specific compensation-related inquiries or instructions raised by the Committee from time to time. The independent compensation consultant reports directly to the Committee. The Committee has sole authority to retain and terminate the independent consultant, including sole authority to approve the consultant's fees.

        Members of management (including certain of its "Named Executive Officers," or NEOs, as that term is further described below) assist the Committee in performing its responsibilities by providing recommendations for the Committee's consideration concerning the design of Grainger's compensation program for its NEOs and other executive officers, as well as recommended award levels, except those aspects related to Messrs. Keyser and Ryan, which are determined solely by the Committee in executive session without members of management present.

        The Committee grants equity to elected officers and other employees under the 2005 Incentive Plan. The Committee delegates to management a limited authority to grant stock options and restricted stock units (RSUs) to employees. The pool of shares available to management automatically refreshes annually to 100,000 options and 25,000 RSUs. The maximum amount that management can award to any employee is 20,000 stock options and 5,000 RSUs. The delegation of authority may be terminated by the Committee at any time and for any reason upon notice to management. The awards issued through this authority are granted using general features and agreements previously approved by the Committee and are effective the first business day of the month following the month the grant was approved by management. Information concerning the grants is shared with the Committee at its next meeting following the grant.

Compensation Committee

        The Compensation Committee met five times in 2005. The Board has determined that each of the members of the Compensation Committee is "independent," as that term is defined in the independence requirements for members of compensation committees contained in the applicable standards of the NYSE.

        The Compensation Committee oversees Grainger's activities in the area of compensation and benefits (generally with regard to all employees and specifically with regard to officers) and reviews and makes recommendations concerning compensation-related matters to be submitted to the Board and/or shareholders for approval. It also acts as the administration committee under various stock and incentive plans. Included among its duties are the review and approval of corporate goals and objectives relevant to chief executive officer compensation, the evaluation of chief executive officer performance in light of those goals and objectives and, either as a committee or together with the other independent directors, the determination and approval of the chief executive officer's compensation level based on this evaluation.

Compensation Committee

        The Compensation Committee met five times in 2004. The Board has determined that each of the members of the Compensation Committee is "independent," as that term is defined in the independence requirements for members of compensation committees contained in the applicable standards of the NYSE.

        The Compensation Committee oversees Grainger's activities in the area of compensation and benefits (generally with regard to all employees and specifically with regard to officers) and reviews and makes recommendations concerning compensation-related matters to be submitted to the Board and/or shareholders for approval. It also acts as the administration committee under various stock and incentive plans. Included among its duties are the review and approval of corporate goals and objectives relevant to chief executive officer compensation, the evaluation of chief executive officer performance in light of those goals and objectives and, either as a committee or together with the other independent directors, the determination and approval of the chief executive officer's compensation level based on this evaluation.