W.W. Grainger (GWW)

Management assists the Compensation Committee of the Board in the design, recommendation and implementation of compensation programs.

        The Company has established a committee of management to assist the Compensation Committee. This committee of management includes the Chairman, the President and Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, the General Counsel, and the Senior Vice President, Human Resources, and routinely recommends compensation and performance-incentive programs that it believes will provide the appropriate level of incentives consistent with the Company's compensation philosophy: attract the best people and encourage them to achieve results that create shareholder value. Consistent with this process and the factors discussed above, management works with advisors from Hewitt Associates LLC (Hewitt) to develop market information and recommends adjustments in base salaries, annual incentive targets, and long-term incentive awards to be reviewed by the Compensation Committee for officers including the NEOs other than Mr. Richard L. Keyser, Chairman of the Board, and Mr. James T. Ryan, President and Chief

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Executive Officer. The recommendations also include the structure of short- and long-term incentive programs for all employees and changes to programs required for regulatory compliance. These recommendations are reviewed and approved by the President and CEO before they are presented to the Compensation Committee of the Board.

        The compensation awarded to Messrs. Keyser and Ryan is considered by the Committee and its independent compensation consultant in relation to competitive market data and, following the Committee's recommendation, is then determined by the independent members of the Board in executive session without members of management present. Management also develops the annual and long-term incentive targets for the year for review and approval by the Committee. The Committee reviews these recommendations in conjunction with its independent compensation consultant.