W.W. Grainger (GWW)

Executive Compensation Policy

        The Company's compensation programs are designed to attract and retain high-quality executive and managerial talent and to provide appropriate incentives, including equity-based awards, for achieving the Company's business goals. The overall compensation program includes significant variable pay components which link total executive compensation to the Company's performance and to the creation of long term shareholder value.

        The Company endeavors to accomplish these objectives through executive officer compensation consisting of base salary, annual cash incentive compensation, long term incentive vehicles such as stock options and restricted stock units (RSUs) and benefits. In setting compensation levels for executive officers, the Committee reviews total compensation paid to similar executives in positions at a representative group of companies that are considered to be comparative because they are competitors for similar executive talent. The Committee then considers a variety of market reference points including competitive compensation data (at both the median and 75th percentile), the executive's background and overall experience, individual and Company performance, replaceability, internal equity and uniqueness of skill sets to determine the executive officer's compensation. All elements of compensation are valued and reviewed to determine the Company's compensation practices relative to this compensation comparator group.

        The compensation comparator group is determined regularly by the Committee, with input from consultants, including the Committee's independent compensation consultant. The current comparator group consists of businesses which are similar in complexity and size (based on revenues and market capitalization) to the Company and are representative of the types of major companies with which the Company historically competes for executive talent. This "competitive market" for executive talent includes companies both within and outside the same industry or sector as the Company. Including a broader number of companies provides a more representative depiction of the competitive market for talent. Therefore, companies used for compensation comparison purposes are not identical to those in the industry index used in the performance graph of Company total shareholder returns.

Executive Compensation Policy

        The Company's compensation programs are designed to attract and retain high-quality executive and managerial talent and to provide appropriate incentives, including equity-based awards, for achieving the Company's business goals. The overall program includes significant variable pay components which link total executive compensation to performance and to the creation of long-term shareholder value.

        The Company endeavors to accomplish these objectives through executive officer compensation consisting of base salary, cash incentive compensation, stock options, restricted stock units and benefits. When Company performance is at target, the Company's general objective is to pay executive officers at median. This means the Company intends total compensation to be at or near the size-adjusted median of total compensation paid to similar executive positions at a representative group of other companies that are considered to be comparative as competitors for executive talent. All elements of compensation are valued and reviewed to determine the Company's compensation practices relative to the median of this compensation comparator group.

        The compensation comparator group is determined regularly by the Committee, with input from consultants. The current comparator group is similar in complexity and size (based on revenues and market capitalization) to the Company and is representative of the types of major companies with which the Company historically competes for executive talent. This "competitive market" for executive talent is not necessarily the same as is used for industry or sector performance considerations. Therefore, companies used for compensation comparison purposes are not identical to those in the industry indices (S&P 500 Stock Index, Dow Jones Industrial Suppliers Index, Dow Jones Industrial Services Index) used in the performance graph of company total shareholder returns.