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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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o | Soliciting Material under §240.14a-12 | |
| W.W. Grainger, Inc. | ||||
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| W.W. GRAINGER, INC. 100 GRAINGER PARKWAY LAKE FOREST, ILLINOIS 60045-5201 (847) 535-1000 |
March 16, 201719, 2020
Dear Grainger Shareholder:Shareholders:
The 2017We are pleased to invite you to attend the 2020 annual meeting of shareholders of W.W. Grainger, Inc. on Wednesday, April 29, 2020, at 10 a.m. Central Daylight Time. This year's annual meeting will be held at our headquarters located at 100 Grainger Parkway in Lake Forest, Illinois 60045 (see map overleaf), on Wednesday, April 26, 2017, at 10 A.M. (CDT).60045.
At the meeting, we will report on our operations and other matters of current interest. Shareholders will also vote on the matters set forthdescribed in the accompanying Notice of Annual Meeting and Proxy Statement and any other matters properly brought before the meeting.
As in prior years, we have elected to deliver our proxy materials to the majority of our shareholders over the Internet. This delivery process allows us to provide shareholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. The BoardNotice of DirectorsAnnual Meeting of Shareholders on the following page contains instructions on how to:
Please take the time to carefully read the Notice of Annual Meeting and Proxy Statement that follow. Whether or not you plan to attend the meeting, please ensure that your shares are represented by giving us your proxy. You can do so by telephone, by Internet, or by signing and dating the enclosed proxy form and returning it promptly in the envelope provided.
We look forward to seeing you at the meeting.
Sincerely,
YOUR VOTE IS IMPORTANT
A majority of the outstanding shares entitled to vote on a matter must be represented either in person or by proxy to constitute a quorum for consideration of that matter at the annual meeting of shareholders. If your shares are held by a broker, unless you provide specific voting instructions, your broker will not be able to vote your shares for the election of directors, on the advisory votes related to executive compensation or on other non-routine matters.
Please make sure your shares are voted.
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| Sincerely, | ||
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the Board and Chief Executive Officer |
Table of Contents NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
| Proposal | Board Recommendation | For more information | ||||||||
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| 1. | to elect 11 Directors for the ensuing year | (all nominees) | Page 10 | |||||||
to ratify the appointment of Ernst & Young LLP as independent auditor for the year ending December 31, 2020; and | FOR | Page 36 | ||||||||
3. | to approve on a non-binding advisory basis the compensation of Grainger's Named Executive Officers | FOR | Page 76 | |||||||
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NOTICE OFWe will also consider any other matters that may properly be brought before the meeting (and any postponements or adjournments of the meeting). As of the date of this proxy statement, we have not received notice of any such matters.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD Voting
APRIL 26, 2017
Dear Grainger Shareholder:
The 2017 annual meeting of shareholdersShareholders of W.W. Grainger, Inc. will be held at our headquarters at 100 Grainger Parkway, Lake Forest, Illinois 60045 (see map on previous page)(Grainger), on April 26, 2017, at 10 A.M. (CDT) for the following purposes:
The Board has fixed the close of business on March 6, 2017, as the record date, for determining shareholdersare entitled to vote, atas follows:
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| Internet | Telephone | |||||
| www.proxyvote.com for beneficial ownership | 1-800-690-6903 for beneficial ownership | Mark, sign and date your proxy card and return it in the pre-addressed postage-paid envelope we have provided or return it to: | ||||
| up until 11:59 p.m. EDT April 26, 2020 | or 1-800-652-8683 | For beneficial ownership: Vote Processing | For registered ownership: Proxy Services | |||
| www.investorvote.com/GWW for registered ownership up until 1:00 a.m. CDT April 29, 2020 | for registered ownership up until 1:00 a.m. CDT, on April 29, 2020 | c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717 | c/o Computershare Investor Services PO Box 505008 Louisville, KY 40233-9814 | |||
Regardless of whether you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote eitheryour shares in person, over the Internet or via a toll-free telephone number. If you received a paper copy of a proxy or voting instruction card by proxy.mail, you also may submit your proxy or voting instruction card for the annual meeting by completing, signing, dating and returning your proxy or voting instruction card in the pre-addressed envelope provided.For specific instructions on voting, please refer to the section, Questions and Answers—Voting Information / page 79.
In the event that public health concerns make it inadvisable to hold the annual meeting in person, we will announce alternative arrangements for the meeting in advance, which may include a change in venue or holding the meeting by means of remote communication. Please monitor our website athttp://invest.grainger.com for updated information. As always, we encourage you to vote your shares prior to the annual meeting.
This Notice of Annual Meeting, Proxy Statement and Form of Proxy were first distributed or made available to shareholders on or about March 19, 2020.
By order of the Board of Directors.
Hugo Dubovoy, Jr.
Vice President, Corporate SecretaryLake Forest, IllinoisMarch 16, 2017
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 26, 201729, 2020
Grainger'sThis Notice of Annual Meeting, Proxy Statement and Form of Proxy and our 2019 Annual Report on Form 10-K are available under "Financials" in the 2017 Annual Shareholder Meeting/Proxy InformationInvestor Relations section of Grainger'sour website athttp://www.grainger.com/investorinvest.grainger.com/ and also may be obtained free of charge on written request to the Corporate Secretary at Grainger's headquarters, 100 Grainger Parkway, Lake Forest, Illinois 60045-5201.
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TABLE OF CONTENTS |
| C | orporate Governance | |
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The Board of Directors of the Company (the Board) acts as the steward of the Company for the benefit of the Company's shareholders. Our Directors bring to the Board a wealth of business experience and a track record of good business judgment in situations relevant to the Company's operations.
Our Board recognizes the importance of ensuring that our business strategy is designed to create long-term value for Grainger's shareholders. The Board maintains an active role in formulating, planning and overseeing the implementation of Grainger's strategy. Each year, for example, the Board travels as a group to at least one of our strategic operating locations. In 2019, the Board met with employees and held its formal Board and Committee strategy meetings at the Company's new offices at The Merchandise Mart in Chicago, Illinois, which house the Company's enterprise systems and digital architecture and operations functions.
The Board has a robust annual strategic planning process during which key elements of our business and financial plans, strategies and near- and long-term initiatives are developed and reviewed. This process culminates with a full-day Board session with our senior leadership team to review Grainger's overall strategy, opportunities, challenges, and capabilities. The annual strategy process also helps shape the strategic content presented in our communications with the investment community. In addition to business strategy, the Board reviews Grainger's short-term and long-term financial plans, which serve as the basis for the annual operating and capital plans for the upcoming year. The Board evaluates progress made, as well as related challenges and risks with respect to our strategy and plans throughout the year.
The Board strongly believes that the business strategy must be aligned with the Company's culture to create value. To that end, the Board is engaged with senior management in developing and reviewing Grainger's purpose and culture. The Board believes that a purpose-driven culture is an asset of the Company that creates a sustainable competitive advantage and is critical to Grainger's future success. Last year, Grainger's CEO introduced the Grainger Edge, a new strategic framework that defines who Grainger is, why Grainger exists, and how team members will work together to achieve Grainger's objectives.
The Grainger Edge includes a set of principles that define the behaviors expected from team members as they work with each other, customers and suppliers. They support the Company's commitment to having an inclusive culture where all team members operate with the highest ethics in and outside of the Company's industry. All team members hold each other and themselves accountable to these principles and believe they will help execute the Company strategy and create value for its shareholders.
The Grainger Edge also is the foundational structure for the Company's strategy, which is to consistently gain share through two distinct business models that allow it to leverage its scale and supply chain to support customers with different needs.
Proxy Statement 
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The Grainger Edge principles are:
The Board is committed to helping the Company make the Grainger Edge a successful foundational framework for Grainger and its employees as the Company works to consistently serve customers and gain share. The Board understands that top talent is necessary to achieve these goals. A priority of the Board is ensuring that the Company recruits, develops, promotes and retains top diverse talent across the Company. The Board routinely conducts in-depth reviews of senior leaders and their development. This engagement gives the Board insight into the Company's talent and succession plans.
The Board believes a culture of ethical behavior is also essential to meeting the Company's goals. Last year, under the Board's direction, management revised Grainger's Business Conduct Guidelines to better reflect emerging risks, including as to data privacy and workplace behaviors, use plain language to make expectations more understandable, and encourage a "speak up" culture for early issue identification. The Business Conduct Guidelines apply to all Directors, officers, and employees.
Delivering business results and creating a sustainable business that does the right thing has guided the Company for more than 90 years. To ensure the Company continues to deliver on these objectives, the Board carefully reviews the Company's corporate social responsibility initiatives.
Collectively, the Board's activities in reviewing strategy, culture, talent, ethical behavior and corporate responsibility enable Grainger to help millions of customers worldwide keep their operations running and their people safe.
Operating Principles of the Board of Directors
The Board recognizes that defining its role under the Company's operating principles is an evolving process. The Board established the W.W. Grainger, Inc. Operating Principles for the Board of Directors (the Operating Principles) to provide a general framework of reference to assist the Board in the performance of its duties and responsibilities. Each year, the Board reviews and revises the Operating Principles, as appropriate, to address emerging needs and practices. The Operating Principles are available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/.
Our Board of Directors is committed to excellence in its governance practices, including Board composition. Of our current Board, 10 of 11 Directors are independent. The Board has adopted "categorical standards" to assist it in making independence determinations of Director nominees. The categorical standards are intended to help the Board determine, for example, whether certain
2 www.grainger.com
W.W. GRAINGER, INC.100 Grainger ParkwayLake Forest, Illinois 60045-5201(847) 535-1000
PROXY STATEMENT
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Corporate Governance | | | |
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relationships between nominees and Grainger are "material relationships" for purposes of the New York Stock Exchange (NYSE) independence standards. The categorical standards adopted by the Board have more restrictive thresholds than the NYSE's bright line revenue test for independence.The categorical standards adopted by the Board are set forth in Appendix A to this proxy statement and are also available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/.
Grainger's Board currently consists of eleven Directors. After more than 30 years of service, James D. Slavik is retiring from the Board effective immediately following the 2020 annual meeting of shareholders of the Company (the Annual Meeting) and is not standing for re-election at the Annual Meeting. In addition, the Board is proposing one new independent nominee, Susan Slavik Williams, for election as a Director (the New Nominee).
The Board considered a variety of factors, including any related party transactions, in assessing the independence of our Directors and the New Nominee against the NYSE's independence standards and Grainger's categorical standards. The Board considered ordinary course business transactions and charitable donations by the Company where a Director or the New Nominee serves as an officer and/or a board member. The Board has made an affirmative determination that all ten of our non-employee directors and the New Nominee have no direct or indirect material relationship with Grainger within the meaning of the NYSE independence standards and Grainger's categorical standards and, accordingly, meet the applicable requirements for "independence" set forth in the NYSE's listing standards.
BOARD QUALIFICATIONS, ATTRIBUTES, SKILLS AND BACKGROUND
In addition to independence, the Board and the Board Affairs and Nominating Committee (the BANC) believe that a diverse, experienced and vibrant board is of utmost importance for the broad-based thinking needed to reach the sound decisions that drive shareholder value. As evidence of this commitment to a diversity of perspectives, our Board slate is comprised of 11 Director nominees of varying experience and background, including two new Directors appointed in 2017, and the New Nominee.
We determined that the Board's various experiences and viewpoints benefit us most when they are aligned with our global business needs, reflective of our strong corporate governance practices, and consistent with our corporate social responsibility goals. As a result of the Board's ongoing refreshment efforts, we added Directors with expertise in the technology and digital space as well as in leading corporate social responsibility initiatives for a global business. Our three newest Directors, Rodney Adkins, Beatriz Perez and Lucas Watson, and the New Nominee, enhance the diversity of our Board in addition to bringing their valuable perspectives and experiences.
A breadth of Board perspectives supports our business as a broad line, business-to-business distributor of maintenance, repair and operating (MRO) products and services with 2019 sales of approximately $11.5 billion. Grainger operates through its distribution centers, eCommerce platform, contact centers, branches and sales and service representatives with approximately 25,300 employees primarily in the United States and Canada, and with a presence in Europe, Asia, and Latin America. Approximately 5,000 suppliers provide Grainger with approximately 1.6 million products stocked in Grainger's distribution centers and branches worldwide. Approximately 3.5 million customers worldwide rely on Grainger for products such as safety, gloves, ladders, motors and janitorial supplies, along with services like inventory management and technical support.
Proxy Statement 3
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Table of ContentsThe following table highlights specific experience, qualifications, attributes, skills, and background information that the Board considered for each Director nominee. A particular Director nominee may possess additional experience, qualifications, attributes, or skills, even if not indicated below.
Director Nominee Qualifications, Attributes, Skills and Background Matrix
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| Experience developing and implementing operating plans and business strategy | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | |||||
| Finance/Capital Allocation | | | | | | | | | | | | ||||||||||||||||
| Knowledge of finance or financial reporting; experience with debt and capital market transactions and/or mergers and acquisitions | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | | ✓ | | ✓ | | ✓ | | ✓ | ||||||
| Supply Chain/Logistics | | | | | | | | | | | | ||||||||||||||||
| Experience in supply chain management encompassing the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities | | ✓ | | ✓ | | | | ✓ | | ✓ | | ✓ | | | | ✓ | | | | | | ✓ | |||||
| Digital/eCommerce | | | | | | | | | | | | ||||||||||||||||
| Experience implementing digital and omni-channel strategies and/or operating an eCommerce business | | | | ✓ | | ✓ | | ✓ | | | ✓ | | | | | ✓ | |||||||||||
| Marketing/Sales & Brand Management | | | | | | | | | | | | ||||||||||||||||
| Experience managing a marketing/sales function, and in increasing the perceived value of a product line or brand over time in the market | | ✓ | | | | | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | |||||
| Human Resources/Compensation | | | | | | | | | | | | ||||||||||||||||
| Experience managing a human resources/compensation function; experience with executive compensation and broad-based incentive planning | | ✓ | | ✓ | | | ✓ | | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ||||||||
| Public Company/Leadership | | | | | | | | | | | | ||||||||||||||||
| "C-Suite" experience with a public company and/or leadership experience as a division president or functional leader within a complex organization | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | |||||
| Corporate Governance/Public Company Experience | | | | | | | | | | | | ||||||||||||||||
| Experience serving as a public company director; demonstrated understanding of current corporate governance standards and best practices in public companies | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | | ✓ | ||||||
| International | | | | | | | | | | | | ||||||||||||||||
| Experience overseeing a complex global organization | | ✓ | | | | | | ✓ | | ✓ | | | | ✓ | | ✓ | | ✓ | | | | ✓ | |||||
| Risk Assessment & Risk Management | | | | | | | | | | | | ||||||||||||||||
| Experience overseeing complex risk management matters | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | | | ✓ | | ✓ | |
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What is the purpose of this proxy statement?
This proxy statement relates to the 2017 annual meeting of shareholders of W.W. Grainger, Inc., an Illinois corporation (Grainger or the Company) to be held on April 26, 2017, and any adjournment of that meeting to a later date. It contains information intended to help you make your voting decisions. We are sending this proxy statement to you because Grainger's Board of Directors is soliciting your proxy to vote your shares at the meeting. This proxy statement and other proxy-soliciting materials were first sent or made available to shareholders on or about March 16, 2017.
What matters are scheduled to be presented at the 2017 annual meeting of shareholders?
Who is entitled to vote?
Holders of shares of common stock outstanding on Grainger's books at the close of business on March 6, 2017, the record date for the meeting, may vote. There were 58,719,653 shares of common stock outstanding on that date.
If my shares are held in street name can my broker vote for me?
Unless you have given specific voting instructions to your broker, your broker cannot vote your shares on the election of directors, on the advisory votes related to executive compensation, or on any non-routine matters.
What is the difference between holding shares as "shareholder of record" and as "beneficial owner"?
If your shares are registered directly in your name with Grainger's transfer agent, Computershare Trust Company, N.A., you are the shareholder of record with respect to those shares and you have the right to instruct us directly how to vote your shares or to vote in person at the meeting.
If your shares are held in street name by a brokerage firm, bank, or other nominee, you are the beneficial owner of the shares. Your nominee is required to vote your shares according to your direction.If you do not instruct your nominee how you want your shares voted, your shares cannot be voted for the election of directors, on the advisory vote on the compensation of Grainger's Named Executive Officers or on the frequency of the advisory vote on the compensation of Grainger's Named Executive Officers. Please contact your brokerage firm, bank, or other nominee with instructions to vote your shares for the election of directors and on other matters to be considered at the meeting.
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Corporate Governance | | | |
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| Director Nominee Qualifications, Attributes and Skills (continued) | | | | | | | | | | | | |||||||||||
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| Technology/Cybersecurity | | | | | | | | | | | | |||||||||||
| Experience implementing technology strategies and managing/mitigating cybersecurity risks | | ✓ | | | | | | | | ✓ | | ✓ | | | | | | ✓ | | | | ✓ |
| Government/Public Policy | | | | | | | | | | | | |||||||||||
| Experience overseeing complex regulatory matters that are integral to a business | | ✓ | | | | ✓ | | ✓ | | | ✓ | | ✓ | | ✓ | | | ✓ | ||||
| Real Estate | | | | | | | | | | | | |||||||||||
| Experience overseeing complex real estate matters that are integral to a business | | ✓ | | ✓ | | | | | | | | | | | | ✓ | | | | ✓ | | |
| Business Ethics/Corporate Social Responsibility | | | | | | | | | | | | |||||||||||
| Track record of integrity, uncompromising moral principles and strength of character; informed on company issues related to corporate social responsibility, sustainability and philanthropy while monitoring emerging issues potentially affecting the reputation of the business | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ |
| Director Nominee Tenure, Gender, Age and Race/Ethnicity | | | | | | | | | | | ||||||||||||
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| Board Tenure | | | | | | | | | | | | |||||||||||
| Years | | 6 | | 21 | | 14 | | 14 | | 4 | | 21 | | 3 | | 14 | | 10 | | 0 | | 2 |
| Gender | | | | | | | | | | | | |||||||||||
| Male | | ✓ | | ✓ | | | ✓ | | ✓ | | ✓ | | | ✓ | | ✓ | | | ✓ | |||
| Female | | | | ✓ | | | | | ✓ | | | | ✓ | | ||||||||
| Age | | | | | | | | | | | | |||||||||||
| Years Old | | 61 | | 69 | | 69 | | 67 | | 52 | | 65 | | 50 | | 69 | | 58 | | 51 | | 49 |
| Race/Ethnicity | | | | | | | | | | | | |||||||||||
| African American/Black | | ✓ | | ✓ | | | | | | | | | | |||||||||
| Asian, Native Hawaiian, or Pacific Islander | | | | | | | | | | | | |||||||||||
| Caucasian /White | | | | ✓ | | ✓ | | ✓ | | ✓ | | | ✓ | | ✓ | | ✓ | | ✓ | |||
| Hispanic/Latino | | | | | | | | ✓ | | | | | ||||||||||
| Native American | | | | | | | | | | | | |||||||||||
| Other | | | | | | | | | | | | |||||||||||
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The Board believes that a fully engaged Board is a strategic asset of the Company, and fresh viewpoints and perspectives are important for informed decision-making. At the same time, the Company believes that Directors develop a deeper understanding of the Company over time, which
Proxy Statement 5
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provides significant shareholder value, and that year-over-year Director continuity is beneficial to shareholders.
Even before Board vacancies arise, the Board periodically evaluates whether its Directors collectively have the right mix of experience, qualifications, attributes, skills, backgrounds and diverse viewpoints necessary for it to be a good steward for the Company's shareholders. The results of these evaluations are used to identify desirable skill sets for potential Board nominees and to screen Director candidates. In 2017, the Board codified this skills matrix evaluation practice into the BANC's charter.
Also, as part of the planning for Board refreshment and Director succession, the BANC periodically considers potential Director candidates. As a result of these ongoing reviews, in the last five years, four new Directors have been elected.
The Board previously disclosed its membership expectations in the Company's Criteria for Membership on the Board of Directors (the Criteria). The Board's Criteria list the various factors that the BANC should consider in reviewing candidates for the Board. For example, the Criteria ensures turnover by generally prescribing a retirement age of 72 for non-employee Director candidates. Within the last four years, two of our non-employee Directors did not stand for re-election based on retirement age, and this year Mr. Slavik has opted to retire from the Board prior to reaching age 72.
Age | 0-50 | 51-59 | 60+ | |||
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Number of Director Nominees | 2 | 3 | 6 |
As a group, the average tenure of the 2020 nominees for election to Grainger's Board of Directors is approximately 10 years, with 36% of the non-employee nominees having Board tenure of less than five years.See Board Qualifications, Attributes, Skills and Background / page 3-5 of this proxy statement for a matrix reflecting tenure for each nominee.
Years of Service | 0-5 | 6-10 | 11-15 | 16-25 | ||||
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Number of Director Nominees | 4 | 2 | 3 | 2 |
In addition to relevant business experience, qualifications, attributes, skills, and the willingness to become a Director, the Board's Criteria also enumerate personal characteristics that the Board should consider, including reputation for ethics and integrity, common sense and judgment, independent and objective thought, and the consideration of diverse opinions.
Regarding diversity, the Criteria specify that consideration will be given to candidates without regard to race, color, religion, gender or national origin. To ensure that the Board benefits from diverse perspectives, it proactively seeks qualified nominees from a variety of backgrounds, including candidates of gender, age, and racial diversity. We have established a standing relationship with a nationally recognized third-party search firm to assist us in identifying potential new Directors. In any retained search for Board candidates, the Board is seeking candidates with gender and racial diversity and will only consider and interview slates that include gender and racially diverse candidates.
6 www.grainger.com
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Corporate Governance | | | |
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The diversity of the Director nominees is set forth below.
| Gender | Female | Male | ||
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| Number of Director Nominees | 3 | 8 | ||
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| Number of Committee Chairs | 1 (Audit Committee) | 2 (BANC; Compensation Committee) |
| Race/Ethnicity | African American/Black | Caucasian/White | Hispanic/Latino | Other | ||||
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| Number of Director Nominees | 2 | 8 | 1 | — |
How many votes do I have?ATTENDANCE OF DIRECTORS AT MEETINGS
YouAs set forth in the Operating Principles, Grainger expects all Directors to attend the annual meeting of shareholders, Board meetings, and meetings of committees on which they serve, and to spend the time needed to properly discharge their duties. All Directors attended the 2019 annual meeting. In addition, during 2019, no Director attended fewer than 75% of the total number of Board meetings and meetings of the Committees on which he or she served.
Grainger's Directors are elected for a one-year term each year at the annual meeting of shareholders. Eleven Directors, 10 current Board members and the New Nominee, have been nominated by the Board for election. Each nominee will, therefore, serve until the 2021 annual meeting of shareholders if elected.
As required under Illinois law, majority voting and cumulative voting apply to all Director elections. Under our majority voting standard, Directors are elected by vote of a majority of the shares of Grainger common stock represented and entitled to vote in person or by proxy at the meeting. Under cumulative voting, shareholders have the right to cumulative votingcumulate their votes in the election of directors.Directors. This means that youshareholders have a number of votes in the election equal to the number of shares you ownowned multiplied by the number of directorsDirectors being elected. You canShareholders may cast those votes for the nominees as youthey choose. For example, youall votes may be cast all your votes for one nominee, or you may apportion your votesbe apportioned among two or more nominees.
In any matter other than the election of directors,Directors, each of your sharesshare is entitled to one vote.
Does GraingerA shareholder directing to withhold authority for re-election of a Director will have majority voting forthe same effect as votes against the election of directors withthat Director. Assuming a resignation policyquorum is present, broker non-votes will not affect the outcome of the vote. If any of the nominees for directors failingDirector mentioned below should be unavailable for election, a circumstance that is not expected, the person or persons voting your proxy may exercise discretion to receive the required majority vote?
Yes. As required under Illinois law, directors are electedvote for a substitute nominee selected by the votes of a majority of the shares represented in person or by proxy at the meeting and entitled to vote. Moreover, in accordance with the Company's Criteria for Membership on the Board of Directors, any director standing for re-election (including the 10 nominees standing for election at the annual meeting) who fails to receive the required majority vote is expected to tender his or her resignation for consideration by the Board Affairs and Nominating Committee. Board.
CANDIDATES FOR BOARD MEMBERSHIP
The Board Affairs and Nominating Committee will consider the resignation and make a recommendationBANC recommends to the Board of Directors concerning the acceptance or rejection of the resignation. Thecandidates for Board will then take formal action onmembership.
Before recommending candidates to the Board, Affairs and Nominating Committee's recommendation within 90 days afterthe BANC reviews the results of the director election atannual Board evaluation process and its skills matrix in determining the annual meeting are certified. Following the Board's decision on the Board Affairs and Nominating Committee's recommendation, the Company will publicly disclose the Board's decision.desired skill set for potential new candidates.
What voting standard applies to the ratificationProxy Statement 7
Table of the appointment of the independent auditor?Contents
Ratification of the appointment of the independent auditor requires the affirmative votes of a majority of the shares represented in person or by proxy at the meeting and entitled to vote.
What voting standard applies to the advisory vote on the compensation of the Named Executive Officers?
Although the shareholders' vote is advisory and therefore non-binding, the vote on the compensation of the Named Executive Officers—Grainger's six highest paid officers whose compensation is discussed in the Compensation Discussion and Analysis section of this proxy statement—is determined by the votes of a majority of the shares represented in person or by proxy at the meeting and entitled to vote.
What voting standard applies to select the frequency of the advisory vote on the compensation of the Named Executive Officers?
If a majority of the votes are not cast for one of the options for the frequency of the advisory vote (one year, two years, or three years), the Board of Directors will consider the option that receives the highest number of votes cast as the shareholders' preferred choice; however, this vote is advisory only and is not binding.
How frequently does Grainger conduct an advisory vote on the compensation of its Named Executive Officers?
The Board of Directors has determined to hold an advisory vote on the compensation of the Named Executive Officers (Say on Pay) at every annual meeting of shareholders. Shareholders have the opportunity to cast an advisory vote on the frequency of Say on Pay votes at least every six years. There will be an advisory vote on the frequency of the Say on Pay vote at this year's annual meeting. Assuming that shareholders vote to approve annual Say on Pay advisory votes, the next advisory vote to approve the compensation of the Named Executive Officers will occur at the 2018 annual meeting. The next advisory vote on the frequency of the Say on Pay vote following this year's annual meeting will occur at Grainger's 2023 annual meeting.
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What if I don't indicate my voting choices?
If Grainger receives your proxy in time to permit its use at the meeting, your shares will be voted in accordance with the instructions you indicate. If we have received your proxyexperience, qualifications, attributes, skills, backgrounds and you have not indicated otherwise, your shares will be voted as recommended by Grainger's Board. Specifically, your shares will be voted, either individually or cumulatively:
If you are a beneficial owner and the shares you own are held in street name by a brokerage firm, bank, or other nomineeyou must specifically instruct your nominee how you want your shares voteddiverse viewpoints necessary for the election of directors, on the advisory resolution on the compensation of Grainger's Named Executive Officers, and on the frequency of the shareholder advisory votes on the compensation of Grainger's Named Executive Officers; otherwise your nominee is not allowedBoard to vote your shares. Please contact your brokerage firm, bank, or other nominee with instructions to vote your sharesbe a good steward for the election of directors and on other matters to be considered at the meeting.
How does discretionary voting apply?
Grainger is not aware of any matter not described in this proxy statement that will be presented for consideration at the meeting. If another matter is properly presented, your shares will be voted on the matter in accordance with the judgment of the person or persons voting the proxy unless your proxy withholds discretionary authority.
May I revoke my proxy?
Yes. You may revoke your proxy at any time before the voting at the meeting. You can do so in one of the following ways:
What does it mean if I receive more than one set of proxy materials?
Receiving multiple sets of proxy-soliciting materials generally means that your Grainger shares are held in different names or in different accounts. You must sign, date and return all proxy forms to ensure that all of your shares are voted.
What constitutes a quorum at the meeting?
A majority of the outstanding shares entitled to vote on a matter, whether present in person or by proxy, constitutes a quorum for consideration of that matter at the meeting. A quorum is necessary for valid action to be taken on the matter. Your shares will be present by proxy and count toward the quorum if you give us your proxy by telephone, by Internet, or by signing, dating, and returning a proxy form.
Describe what types of shareholder engagement occurred in 2016.
Grainger has a very expansive shareholder engagement process. We hosted our annual investor day in November with more than 90 investors and analysts in attendance and several
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hundred listening via webcast. In addition, we presented at 11 investor conferences and met with 500 unique firms and more than 850 unique investors in 2016. Our investor outreach includes both existing and potential shareholders and we ensure that we meet with at least 80% of our largest investors each year. We also met with 90% of our top 15 investors, excluding index and exchange traded funds, between January and April prior to our 2016 annual meeting of shareholders to answer their questions regarding Company strategy, results, governance, executive compensation and other topics. We plan to follow a similar practice in 2017. Further, management, including our Chief Executive Officer and Chief Financial Officer, actively engages with investors throughout the year, in addition to the Investor Relations team.
Who pays the costs of soliciting proxies?
Grainger will pay all the costs of soliciting management proxies. Brokerage firms, custodians, nominees, fiduciaries, and other intermediaries are being asked to forward the proxy-soliciting materials to beneficial owners of Grainger common stock and to obtain their authority to give proxies. Grainger will reimburse these intermediaries for their reasonable expenses.
In addition to mailing proxy-soliciting materials, Grainger's directors, officers, and regular employees may solicit proxies personally, by telephone, or by other means. They will not receive additional compensation for these services, other than normal overtime pay, if applicable. Representatives of Grainger's transfer agent may also solicit proxies. Grainger additionally has employed D.F. King & Co., Inc. to help solicit proxies and will pay that firm approximately $7,000 for its services, plus reasonable costs and expenses.
Where can I find the voting results?
We will report the voting results on a Form 8-K within four business days after the end of our annual meeting.
What is the deadline for receipt of shareholder proposals for inclusion in the 2018 annual meeting proxy statement?
A shareholder who intends to present a proposal at the next annual meeting of shareholders and who wishes the proposal to be included in our proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (Exchange Act), must submit the proposal in writing to the Corporate Secretary at the address on the notice of annual meeting accompanying this proxy statement. The proposal must be received by Grainger no later than November 16, 2017, and must comply with the applicable SEC rules and other requirements prescribed in our by-laws.
What is the procedure for nomination of directors at the 2018 annual meeting of shareholders using Grainger's proxy access by-laws?
A qualifying shareholder, or a group of up to 20 qualifying shareholders, owning 3% or more of the Company's outstanding shares of common stock continuously for at least three years may nominate and include in Grainger's proxy statement and proxy card qualifying director nominees constituting up to the greater of two directors or 20% of the directors then serving on the Board, provided that the shareholder(s) and nominee(s) satisfy the requirements specified in our by-laws.shareholders.
What is the procedure for other nominations of directors or proposals to transact business at the 2018 annual meeting of shareholders?
A shareholder entitled to vote for the election of directors at an annual meeting and who is a shareholder of record on:
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may directly nominate persons for director, or make proposals of other business to be brought before the annual meeting, by providing proper timely written notice to the Corporate Secretary at the address on the notice of annual meeting accompanying this proxy statement.
Our by-laws require that written notice of proposals intended to be presented by a shareholder at the next annual meeting, but that are not intended for inclusion in our proxy statement for that meeting pursuant to Rule 14a-8 of the Exchange Act, be delivered no earlier than December 27, 2017, and no later than January 26, 2018.
Our by-laws also require that written notice of nominees for the election of directors intended to be made by a shareholder at the next annual meeting be delivered by no later than the date with respect to submission of shareholder proposals under Rule 14a-8 of the Exchange Act as set forth in the proxy statement for the preceding annual meeting of shareholders, which in this case is November 16, 2017.
To be in proper written form, these notices must include certain information required by our by-laws, including information about the shareholder, any beneficial owner on whose behalf the nomination or proposal is being made, their respective affiliates or associates or others acting in concert with them, and any proposed director nominee.
A copy of our by-laws is available in the Governance section of Grainger's website at www.grainger.com/investor or may be obtained free of charge on written request to the Corporate Secretary at the address on the notice of annual meeting accompanying this proxy statement.
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The BANC screens Board Affairs and Nominating Committee recommends candidates for Board membership based on a number of criteria, including ethical standards, judgment, independence and objectivity, strategic perspective, record of accomplishment, business knowledge, and experience applicable to Grainger's goals. Suggestionsgoals, and diversity.
The BANC is assisted with its recruitment efforts by a nationally recognized third-party search firm, which helps identify candidates that satisfy the Board's criteria. In addition to Board candidates recommended by the BANC, suggestions as to candidatesnominees are received from members of the Board Affairs and Nominating Committee, other directors, employees, search firms, shareholders, and others, including shareholders.others.
The proxy access provisions of our By-laws permit a qualifying shareholder or group of up to 20 qualifying shareholders who have maintained continuous qualifying ownership of 3% or more of our outstanding common stock for at least the previous three years to nominate and include in our proxy materials qualifying Director nominees constituting up to the greater of two Directors or 20% of the Directors then serving on the Board at the time of the nomination, presuming that the shareholder(s) and nominee(s) satisfy the requirements specified in our By-laws.
Any shareholder who would like the Board Affairs and Nominating CommitteeBANC to consider a candidate for Board membership should send a letter of recommendation containing the name and address of the proposing shareholder and of the proposed candidate and setting forth the business, professional and educational background of the proposed candidate, as well as a description of any agreement or relationship between the proposing shareholder and proposed candidate. A written consent of the proposed candidate to beingbe identified as a nominee and to serve as a directorDirector if elected must also be provided. The communication should be sent by mail or other delivery service to the attention of the Corporate Secretary at Grainger's headquarters.
DIRECTOR NOMINEES' EXPERIENCE AND QUALIFICATIONS
The Board has adopted "categorical standards" to assist it in making independence determinations of nominees. The categorical standards are intended to help the Board in determining whether certain relationships between nominees and Grainger are "material relationships" for purposes of the New York Stock Exchange (NYSE) independence standards. The categorical standards adopted by the Board have more restrictive thresholds than the NYSE's bright line revenue test for non-independence. The categorical standards adopted by the Board are set forth in Appendix A to this proxy statement and are also available in the Governance section of Grainger's website at www.grainger.com/investor.
In the ordinary course of its operations during 2016, Grainger engaged in various types of transactions with organizations with which Grainger directors are associated in their principal business occupations or otherwise. Specifically, in the ordinary course of its business during 2016, Grainger bought products and/or services from, or sold products and/or services to, companies with which Messrs. Santi and Slavik are or were associated as executive officers or otherwise as of December 31, 2016. In no instance did the total amount of the purchases from or sales to any such company during 2016 represent more than 0.241% of the projected consolidated gross revenues of that company for the year or more than 0.325% of the consolidated gross revenues of Grainger for the year.
In addition, as part of its overall 2016 charitable contributions program, Grainger made donations to tax-exempt organizations with which Messrs. Novich and Santi serve as officers, directors or trustees. In no instance did the total amount of the contributions to such an organization during 2016 represent more than 0.0526% of that organization's projected total receipts for the year.
The Board considered these transactions and donations in assessing the independence of the directors involved against the NYSE's independence standards and Grainger's categorical standards, and determined that none of the directors had any direct or indirect material interest in the transactions and donations. Similar transactions and donations are likely to occur in the future, and are not expected to impair the independence of the directors involved.
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The Board has determined that each of Messrs. Adkins, Anderson, Levenick, Novich, Roberts, Santi, and Slavik, and Ms. Hailey has no material relationship with Grainger within the meaning of the NYSE independence standards and Grainger's categorical standards. The other nominees, Messrs. Ryan and Macpherson, are Grainger employees and, accordingly, are not considered "independent." Mr. Rogers, who is not standing for re-election at the annual meeting, has also been determined by the Board to have no material relationship with Grainger within the meaning of the NYSE independence standards and Grainger's categorical standards.
Grainger's directors are elected each year at the annual meeting. As set forth in the Operating Principles for the Board of Directors, Grainger expects all directors and nominees to attend annual meetings. At the 2016 annual meeting, all of the persons serving as directors at the time were in attendance. In addition, all directors attended at least 75% of Board and Committee meetings.
Ten directors, all current Board members, have been nominated by the Board for election at this year's annual meeting of shareholders. While Gary L. Rogers is also a current Board member, he will not be standing for re-election this year in accordance with the Company's Criteria for Membership on the Board of Directors, which provide that an outside director generally will not be nominated after the age of 72. All directors are elected for a one-year term. Each director will therefore serve until the 2018 annual meeting of shareholders or until his or her successor has been qualified and elected. Details concerning the nominees are provided below.
As required under Illinois law, majority voting applies to all Grainger director elections. Accordingly, directors are elected by the votes of a majority of the shares of Grainger common stock represented in person or by proxy at the meeting and entitled to vote. A shareholder directing to withhold authority for re-election of a director will have the same effect as votes against the election of that director. Assuming a quorum is present, broker non-votes will not affect the outcome of the vote. If any of the nominees for director mentioned below should be unavailable for election, a circumstance that is not expected, the person or persons voting your proxy may exercise discretion to vote for a substitute nominee selected by the Board.
The nominees have provided the following information about themselves, including their ages as of March 2017.19, 2020. Each nominee has provided information on his or her relevant background that includes the nominee's experience for at least the past five years.
Grainger's directors and nominees have varied
8 www.grainger.com
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Corporate Governance | | | |
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experience, qualifications, attributes, skills, and skillsbackgrounds that assist them in providing guidance and oversight to Grainger's management as it operates the business through a network of highly integrated distribution centers, websites and branches and with more than 25,600 employees in the United States, Canada, Europe, Asia, and Latin America. With 2016 sales of $10.1 billion and as a broad line distributor of maintenance, repair and operating (MRO) supplies and other related products and services used by businesses and institutions primarily in the United States and Canada, with a presence also in Europe, Asia and Latin America, Grainger has a diverse customer base necessitating depth and breadth of product lines and offerings.management.
The Board has identified experience, qualifications, attributes, skills, and skillsbackgrounds that, in light of Grainger's business, structure and challenges, are relevant to service on the Board of Directors. The Board considers nominees who have demonstrated integrity and accomplishment in their business and professional careers and who possess the necessary experience qualifications, attributes, and skillsbackground to contribute to the Board and Grainger. In addition, ongoing director education, whether provided by Grainger or by a third party, is important to service on the Board of Directors. Current nominees have engaged in continuing education and other programs to remain current in their particular areas of expertise, as well as to further their understanding of corporate governance, and in other matters relevant to Grainger.
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The Board believes each of the experience, qualifications, attributes, and skills of each nominee qualify the nomineecurrent nominees qualifies for service on the Board of Directors. EachMoreover, each of the current nominees has significant leadership experience in large, multifaceted organizations. This leadership experience includes developing and executing corporate strategy, overseeing operations, and managing risks in organizations similar in size or complexity to Grainger.
The summarysummaries provided below isare not a comprehensive statement of each nominee's background, but isare provided to describe the primary experience, qualifications, attributes, skills, and skillsbackground that led the Board to nominate each individual.
Proxy Statement 
9
Rodney C. Adkins
Rodney C. Adkins, age 58, is PresidentTable of 3RAM Group LLC, a privately held company specializing in capital investments, business consulting services and property management. Formerly, Mr. Adkins was Senior Vice President of International Business Machines Corporation (IBM), a leading manufacturer of information technologies, having served in that position from 2007 until 2014. In his over 30-year career with IBM, Mr. Adkins held a number of development and management roles, including Senior Vice President of Corporate Strategy from 2013 to 2014, Senior Vice President of Systems and Technology Group from 2009 to 2013, Senior Vice President of Development & Manufacturing from 2007 to 2009, and Vice President of Development of IBM Systems and Technology Group from 2003 to 2007. He is also a director of Avnet, Inc., where he serves on its audit committee, PPL Corporation, where he serves on its audit committee, and United Parcel Service, Inc., where he chairs the risk committee and is a member of the compensation committee. Mr. Adkins was also a director of Pitney Bowes Inc. from 2007 to 2013, where he served on its audit committee and executive compensation committee. Mr. Adkins, an independent director, was first appointed a director of Grainger in July 2014 and is a member of the Compensation Committee and a member of the Board Affairs and Nominating Committee.Contents
Director Qualifications
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| Rodney C. Adkins Former Senior Vice President of IBM; President of 3RAM Group LLC
Independent Director Age: 61 Director Since: 2014 Grainger Board Committees: BANC CCOB | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Risk Assessment & Risk Management • Technology/Cybersecurity • Government/Public Policy • Real Estate • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • Avnet, Inc. (Chairman of the Board; compensation committee; corporate governance committee) • PayPal Holdings, Inc. (audit, risk and compliance committee; corporate governance and nominating committee) • United Parcel Service, Inc. (Chair, risk committee; compensation committee) Prior Public Company Boards • Pitney Bowes Inc. (2007-2013) (audit committee; executive compensation committee) • PPL Corporation (2014-2019) (audit committee; finance committee) Prior Business and Other Experience • International Business Machines Corporation (IBM), a globally integrated technology and consulting company, where Mr. Adkins held numerous development and management roles, including Senior Vice President of Corporate Strategy (2013-2014); Senior Vice President of Systems and Technology Group (2009-2013); Senior Vice President of Development & Manufacturing (2007-2009); and Vice President of Development of IBM Systems and Technology Group (2003-2007). • 3RAM Group LLC (2015-present), a privately held company specializing in capital investments, business consulting services and property management, where Mr. Adkins serves as President. Mr. Adkins served as a Senior Vice President at IBM, where he held various senior roles, including heading Corporate Strategy. Over the course of his 30-year career with IBM, he developed a broad range of experience, including extensive experience in emerging technologies, global business operations, product development, and brand management. He also gained significant experience managing and understanding corporate finance, financial statements and accounting through his many operational roles with IBM. Additionally, Mr. Adkins managed IBM's supply chain and procurement, giving him direct insight into global trade and supply chains, and the role of distributors in those efforts. Mr. Adkins has extensive experience in corporate governance matters, is a recognized leader in technology and technology strategy, and serves as a director of other publicly traded companies with additional responsibilities, including one board chairmanship, and two compensation committee and one audit committee assignments. | ||||||
10 www.grainger.com
Brian P. Anderson
Brian P. Anderson, age 66, is the former Executive Vice President of Finance and Chief Financial Officer of OfficeMax Incorporated, a distributor of business-to-business and retail office products, having served in that position until January 2005. Prior to assuming this position in 2004, Mr. Anderson was Senior Vice President and Chief Financial Officer of Baxter International Inc., a position he assumed in 1998. He is also a director of James Hardie Industries plc where he chairs the audit committee and serves on the remuneration committee, PulteGroup, Inc. where he chairs the audit committee and serves on the nominating and governance committee, and Stericycle, Inc. where he serves on the audit committee. He is a director and Chairman of The Nemours Foundation, a non-profit children's health organization, and a member of the Governing Board of the Center for Audit Quality's (CAQ) Governing Board. Mr. Anderson was also a director of A.M. Castle & Co. from 2005 to 2016, where he served as Chairman of the Board and Chairman of its audit committee. Mr. Anderson, an independent director, was first elected a director of Grainger in 1999 and is a member of the Audit Committee, an "audit committee financial expert," and a member of the Board Affairs and Nominating Committee.
Director Qualifications
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| Brian P. Anderson Former Chief Financial Officer of OfficeMax Incorporated and Baxter International Inc.
Independent Director Age: 69 Director Since: 1999 Grainger Board Committees: Audit BANC | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • Risk Assessment & Risk Management • Real Estate • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • James Hardie Industries plc (Chair, audit committee; remuneration committee) • Pulte Group, Inc. (Chair, audit committee; finance and investment committee; nominating and governance committee) • Stericycle, Inc. (Chair, audit committee) Prior Public Company Boards • A.M. Castle & Co. (2005-2016) (Chairman of the Board; Chair, audit committee) Prior Business and Other Experience • OfficeMax Incorporated (2004-2005), a distributor of business to business and retail office products, where Mr. Anderson served as Senior Vice President and Chief Financial Officer. • Baxter International Inc. (1991-2004), a global diversified medical products and services company, where he held various roles, including Senior Vice President and Chief Financial Officer (1998-2004); Vice President, Finance (1997-1998); Corporate Controller (1993-1997); and Vice President, Corporate Audit (1991-1993). • Deloitte LLP (formerly, Deloitte & Touche LLP) (1976-1991), a global professional services firm, where Mr. Anderson served as Audit Partner, for several years. Mr. Anderson served as the Chief Financial Officer of two large, multinational companies: OfficeMax Incorporated and Baxter International Inc. In the course of his career, he also held various finance positions, including Corporate Controller and Vice President of Audit at Baxter, and spent 15 years at an international public accounting firm, including as an Audit Partner. As a result, Mr. Anderson has in-depth knowledge of accounting and finance, including in the preparation and review of complex financial reporting statements, as well as experience in risk management and risk assessment and the application of the Committee of Sponsoring Organizations of the Treadway Commission internal controls framework. Mr. Anderson also has extensive experience sitting on and chairing the audit committees of public companies. He also brings to the Board meaningful experience based on his service as the Company's former Lead Director and former Chairman of the Board of A.M. Castle & Co., as well as his service as a Governing Board Member at the Center for Audit Quality. Mr. Anderson is an audit committee financial expert for purposes of the SEC's rules. See "Audit Committee" below for the Board's determination concerning Mr. Anderson's service on more than three public company audit committees. |
| V. Ann Hailey Former Executive Vice President and Chief Financial Officer of L Brands, Inc. (formerly, Limited Brands, Inc.)
Independent Director Age: 69 Director Since: 2006 Grainger Board Committees: Chair, Audit BANC | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Digital/eCommerce • Public Company/Leadership • Corporate Governance/Public Company Experience • Risk Assessment & Risk Management • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • Realogy Holdings Corp. (Chair, audit committee; nominating and corporate governance committee) • TD Ameritrade Holdings, Inc. (audit committee; risk committee; outside independent director's committee) Prior Public Company Boards • Avon Products, Inc. (2008-2016) (audit committee; finance committee) • Federal Reserve Bank of Cleveland (2004-2009) (audit committee) • L Brands, Inc. (formerly, Limited Brands, Inc.) (2001-2006) Prior Business and Other Experience • L Brands, Inc., a retail apparel, personal care and beauty products company, where Ms. Hailey served as Executive Vice President and Chief Financial Officer (1997-2006); Executive Vice President, Corporate Development (2006-2007); and as a board member (2001-2006). • Famous Yard Sale, Inc. (2012-2014), an online marketplace, where Ms. Hailey served as President, Chief Executive Officer and Chief Financial Officer. • Gilt Groupe, Inc. (2009-2010), an online shopping and lifestyle company, where Ms. Hailey served as Chief Financial Officer. • PepsiCo, Inc. (1977-1990), a global food and beverage company, where Ms. Hailey served in various leadership roles, including Vice President, Headquarters Finance, Pepsi Cola Company; and Vice President, Finance and Chief Financial Officer of Pepsi Cola Fountain Beverage and USA Divisions, as well as holding positions in the marketing and human resources functions. • Pillsbury Company and RJR Nabisco Foods, Inc., where Ms. Hailey held various leadership roles. Ms. Hailey has spent her career as a senior finance executive in consumer businesses, such as L Brands (ten years), PepsiCo (13 years), Pillsbury Company, and RJR Nabisco Foods, and brings extensive financial and operations experience to the Company. In particular, Ms. Hailey possesses broad expertise in finance, strategic planning, branding and marketing, and retailing on a global scale. Ms. Hailey's positions as chief financial officer, her current and prior service on the audit committees of other public companies and as audit chair of the Cleveland Federal Reserve Bank and her accounting and financial knowledge, also impart significant expertise to the Board, including an understanding of financial statements, corporate finance, accounting and capital markets. Ms. Hailey also gained expertise in online businesses as well as new venture management and funding through her experiences at Famous Yard Sale and Gilt Groupe. Ms. Hailey is an audit committee financial expert for purposes of the SEC's rules. |
Proxy Statement 11
V. Ann Hailey
V. Ann Hailey, age 66, spent 10 years with L Brands, Inc. (formerly Limited Brands, Inc.), a retail apparel, personal care and beauty products company, where she served as Executive Vice President and Chief Financial Officer from 1997 to 2006, as Executive Vice President of Corporate Development from 2006 to 2007 and as a board member from 2001 to 2006. Prior to joining L Brands, Ms. Hailey spent 13 years at PepsiCo, Inc. in various leadership positions, including Vice President, Headquarters Finance, Pepsi-Cola Company and Vice President, Finance and Chief Financial Officer of Pepsi-Cola Fountain Beverage and USA Divisions. She most recently served from July 2012 to March 2014 as President, Chief Executive Officer and Chief Financial Officer of Famous Yard Sale, Inc., an online marketplace for celebrities offering items in a virtual yard sale format, and as Chief Financial Officer of Gilt Groupe, Inc., an Internet retailer of discount luxury goods, from January 2009 until January 2010. Ms. Hailey has also held leadership roles at Pillsbury Company and RJR Nabisco Foods, Inc. Ms. Hailey serves as a director of Realogy Holdings Corp., where she chairs its audit committee and is a member of its nominating and corporate governance committee. She also serves as a director of TD Ameritrade Holdings, Inc., where she serves on several board committees, including its audit and risk committees. She was formerly a director of Avon Products, Inc. from 2008 to 2016, where she served on its audit and finance committees, and the Federal Reserve Bank of Cleveland, where she served as the chair of its audit committee. Ms. Hailey, an independent director, was first elected a director of Grainger in 2006 and is a member of the Audit Committee, an "audit committee financial expert," and a member of the Board Affairs and Nominating Committee.
Director Qualifications
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| Stuart L. Levenick Former Group President at Caterpillar Inc.
Independent Director Lead Director Age: 67 Director Since: 2005 Grainger Board Committees: Chair, BANC CCOB | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Digital/eCommerce • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Risk Assessment & Risk Management • Government/Public Policy • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • Entergy Corporation (since 2005) (lead director (since May 2016); corporate governance committee; executive committee; nuclear committee) • Finning International Inc. (since 2016) (Chair, audit committee; corporate governance committee) Prior Business and Other Experience • Caterpillar Inc., a multinational manufacturer of construction and mining equipment, where Mr. Levenick held various leadership roles, including Group President, Customer & Dealer Support (2004-2015); Executive Office Member (2004-2015); Group President of Caterpillar Inc. (2004-2014); Vice President, Caterpillar Inc. and Chairman of Shin Caterpillar Mitsubishi Ltd. (2000-2004); and Vice President, Asia Pacific Division (2001-2004). Prior to 2000, he held various senior positions with Caterpillar in North America, Asia, and Europe. Mr. Levenick served as a Group President of Caterpillar Inc., leading several divisions for 10 years as part of a 37-year career at the company, in various leadership roles, including as the senior executive of Caterpillar's former joint venture with Mitsubishi in Japan. He has extensive international operations experience as a result of positions outside of the United States in Japan, Singapore, Russia and other countries for more than 20 years. During his career at Caterpillar, Mr. Levenick held leadership roles with operational responsibility for supply chain and logistics, engineering and design, manufacturing, global parts and product support, and global dealer and marketing functions. In addition, he led Caterpillar's global human resources and global purchasing functions. Mr. Levenick also has experience sitting on and chairing the audit and finance committees of other public companies and brings a broad range of experience to the Board based on his service as the lead director of Entergy Corporation. In addition, Mr. Levenick is a former chairman and director of the Association of Equipment Manufacturers and is a director of the University of Illinois Foundation. He also served as a director of the U.S./Japan Business Council, the U.S./China Business Council, the U.S./Russia Business Council, and as executive director of the U.S. Chamber of Commerce. |
| D.G. Macpherson Chairman of the Board and Chief Executive Officer of W.W. Grainger, Inc.
Chairman of the Board Age: 52 Director Since: 2016 | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Digital/eCommerce • Marketing/Sales & Brand Management • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Risk Assessment & Risk Management • Technology/Cybersecurity • Government/Public Policy • Business Ethics/Corporate Social Responsibility Business and Other Experience • Chairman of the Board of Directors of the Company, a position assumed in October 2017, and Chief Executive Officer of the Company, a position assumed in October 2016, at which time Mr. Macpherson was also appointed to the Board of Directors. • Previously, Mr. Macpherson held numerous senior management roles at the Company, including Chief Operating Officer (2015-2016); Senior Vice President and Group President, Global Supply Chain and International (2013-2015); Senior Vice President and President, Global Supply Chain and Corporate Strategy (2012-2013); and Senior Vice President, Global Supply Chain (2008-2012). • The Boston Consulting Group, Partner and Managing Director (2002-2008). Mr. Macpherson has served Grainger in many capacities over his more than 10 years with the Company, including developing Company strategy, overseeing the launch of Grainger's U.S. endless assortment business, Zoro Tools, Inc., building the Company's supply chain capabilities globally and realigning the U.S. business to create greater value for customers of all sizes. Mr. Macpherson also has extensive experience in strategic planning, development and execution. Mr. Macpherson joined Grainger in 2008 after working closely with Grainger for six years as a partner and managing director at The Boston Consulting Group, a global management consulting firm, where he was a member of the Industrial Goods Leadership Team. |
12 www.grainger.com
Stuart L. Levenick
Stuart L. Levenick, age 64, is a retired Group President of Caterpillar Inc., a manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Prior to assuming that position in 2004, Mr. Levenick served as Vice President, Caterpillar Inc., and Chairman of Shin Caterpillar Mitsubishi Ltd. from 2000 to 2004, and as Vice President, Asia Pacific Division, from 2001 to 2004. He is also the Lead Director of Entergy Corporation, where he also chairs its finance committee and is a member of its governance and executive committee, and Finning International Inc., where he is a member of its audit committee and safety, environment and social responsibility committee. Mr. Levenick, an independent director, was first appointed a director of Grainger in 2005, and is the Lead Director, Chair of the Board Affairs and Nominating Committee and a member of the Compensation Committee.
Director Qualifications
D.G. Macpherson
D.G. Macpherson, age 49, is Chief Executive Officer of Grainger, a position assumed in October 2016 at which time he was also appointed to the Board. Previously, he served as Chief Operating Officer of Grainger from August 2015 through September 2016. Prior to these roles, Mr. Macpherson was Senior Vice President and Group President, Global Supply Chain and International, where he led the development of corporate strategy and continuous improvement, the global supply chain organization, the Company's single channel online business model and international operations in Asia and Europe. Prior to that, Mr. Macpherson was Senior Vice President and President, Global Supply Chain and Corporate Strategy. Mr. Macpherson joined Grainger in 2008 from The Boston Consulting Group, a global management consulting firm, where he was a partner and managing director from 2002 to 2008.
Director Qualifications
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| Neil S. Novich Former Chairman of the Board, President and Chief Executive Officer of Ryerson Inc.
Independent Director Age: 65 Director Since: 1999 Grainger Board Committees: Audit BANC | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • Risk Assessment & Risk Management • Technology/Cybersecurity • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • Beacon Roofing Supply, Inc. (Chair, compensation committee; former Chair, audit committee) • Hillenbrand, Inc. (Chair, audit committee; mergers and acquisitions committee; nominating and corporate governance committee; former Chair, compensation committee) Prior Public Company Boards • Analog Devices, Inc. (2008-2020) (audit committee; former Chair, compensation committee) • Ryerson Inc., Chairman of the Board (1999-2007) Prior Business and Other Experience • Ryerson, Inc. (1994-2007), a global metal distributor and fabricator, where Mr. Novich joined in 1994 as Chief Operating Officer, was named President and CEO in 1994, and was additionally appointed Chairman in 1999. He remained Chairman and CEO until 2007, when the company was sold. • Bain & Company (1981-1994), an international management consulting firm, where Mr. Novich spent several years as a partner and led the firm's Distribution and Logistics Practice. Mr. Novich served as the Chairman of the Board, President and Chief Executive Officer of a global public company where he was deeply engaged in its distribution operations on a domestic and international basis, and also on leadership development and human resources functions. He also spent 13 years with a major management consulting firm, where he was a partner and led the firm's Distribution and Logistics Practice. As a result, Mr. Novich has in-depth operational experience in supply chain, distribution and logistics and experience in developing strategy across a variety of industries. Mr. Novich also has extensive experience in corporate governance matters and serves as a director of other publicly traded companies with additional responsibilities, including one audit committee chairmanship, one compensation committee chairmanship, and service on various board committees. Mr. Novich is an audit committee financial expert for purposes of the SEC's rules. Mr. Novich is a trustee of the Field Museum of Natural History and a Member of the Dean's Council to the Physical Sciences Division of the University of Chicago. |
| Beatriz R. Perez Senior Vice President and Chief Communications, Public Affairs, Sustainability and Marketing Assets Officer of The Coca-Cola Company
Independent Director Age: 50 Director Since: 2017 Grainger Board Committees: BANC CCOB | | Qualifications, Attributes and Skills • Operational/Strategy • Digital/eCommerce • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Government/Public Policy • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • Primerica, Inc. (compensation committee) Prior Public Company Boards • HSBC North America Holdings, Inc. (2007-2014), the HSBC Finance Corporation (2008-2014), and the HSBC Bank Nevada, N.A. (2011-2013) (nominating and governance; risk & compliance committee; audit committee) Prior Business and Other Experience • The Coca-Cola Company (1996-present), a global beverage company, where prior to assuming her current position in March 2017, Ms. Perez held several leadership positions including as the company's first Chief Sustainability Officer (2011- 2017). Prior to that she held various roles of increasing responsibility at The Coca-Cola Company in the North America Operating Division, including Chief Marketing Officer, Senior Vice President Integrated Marketing, and multiple field operating roles. Ms. Perez is a Senior Vice President and named executive officer of The Coca-Cola Company, a public multinational beverage company, where she leads an integrated team across public affairs and communications, sustainability and marketing assets to support the company's growth model and strategic initiatives. In this role, Ms. Perez aligns a diverse portfolio of work against critical business objectives to support brands, communities, consumers and partners worldwide. During her tenure of more than two decades at that company, she has held several leadership roles while garnering significant experience in marketing and sustainability programs. Ms. Perez also has experience in corporate governance matters and serves as a director of another publicly traded company, with additional responsibilities including a compensation committee assignment. Ms. Perez is a strong advocate for community service, serving on various non-profit boards, including The Coca-Cola Foundation. |
Proxy Statement 13
Neil S. Novich
Neil S. Novich, age 62, is the former Chairman, President, and Chief Executive Officer and a former director of Ryerson Inc., a major metal distributor and fabricator. Mr. Novich became Ryerson's President and Chief Executive Officer in 1996 and also Chairman in 1999, a position he held through 2007. He is also a director of Analog Devices, Inc., where he chairs the compensation committee, Beacon Roofing Supply, Inc., where he chairs the compensation committee and previously chaired the audit committee, and Hillenbrand, Inc., where he chairs the compensation and management development committee. He is a trustee of The Field Museum of Natural History, and a member of the Visiting Committee to the Physical Sciences Division, University of Chicago. Mr. Novich, an independent director, was first elected a director of Grainger in 1999 and is a member of the Audit Committee, an "audit committee financial expert," and a member of the Board Affairs and Nominating Committee.
Director Qualifications
Michael J. Roberts
Michael J. Roberts, age 66, is the former Global President and Chief Operating Officer of McDonald's Corporation from 2004 to 2006. His previous positions at McDonald's Corporation include Chief Executive Officer—McDonald's USA during 2004; President—McDonald's USA from 2001 to 2004; and President, West Division—McDonald's USA from 1997 to 2001. Mr. Roberts is also a director of CenturyLink, Inc., where he serves on its compensation committee. Mr. Roberts previously served on the board of directors of Qwest Communications International, Inc. (prior to its acquisition by CenturyLink) from August 2009 to April 2011, where he served on the compensation and human resources committee, and SP Plus Corporation (formerly, Standard Parking Corporation) from April 2010 to June 2013, where he served on the audit, compensation and executive committees. Mr. Roberts, an independent director, was first appointed a director of Grainger in 2006 and is Chair of the Compensation Committee and a member of the Board Affairs and Nominating Committee.
Director Qualifications
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| Michael J. Roberts Former Global President and Chief Operating Officer of McDonald's Corporation; Chief Executive Officer and founder of Westside Holdings LLC
Independent Director Age: 69 Director Since: 2006 Grainger Board Committees: BANC Chair, CCOB | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Government/Public Policy • Real Estate • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • CenturyLink, Inc. (human resources and compensation committee; nominating and corporate governance committee) Prior Public Company Boards • Qwest Communications International, Inc. (prior to its acquisition by CenturyLink) (2009-2011) (compensation and human resources committee) • SP Plus Corporation (formerly, Standard Parking Corporation) (2010-2013) (audit committee; compensation committee; executive committee) Prior Business and Other Experience • McDonald's Corporation (1997-2006), a global food service retailer, where Mr. Roberts held numerous leadership roles, including President and Chief Operating Officer (2004-2006); Chief Executive Officer, McDonald's USA (2004); President, McDonald's USA (2001-2004); and President, West Division, McDonald's USA (1997-2001). • Westside Holdings LLC (2006-present), a marketing and brand development company, where Mr. Roberts is Chief Executive Officer and founder. Mr. Roberts served as President and Chief Operating Officer of McDonald's Corporation, a public, multinational corporation. In his nearly 30 years with the company, he held key executive roles, including President and Chief Executive Officer of McDonald's USA. In these capacities, he acquired extensive management, and profit and loss responsibilities. He was also responsible for marketing and branding experience, and the international operations of the company. In addition, Mr. Roberts has significant experience in human resources and corporate governance matters and serves as a director of another publicly traded company with additional responsibilities, including service on the human resources and compensation committee. |
| E. Scott Santi Chairman and Chief Executive Officer of Illinois Tool Works Inc.
Independent Director Age: 58 Director Since: 2010 Grainger Board Committees: Audit BANC | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Risk Assessment & Risk Management • Technology/Cybersecurity • Government/Public Policy • Business Ethics/Corporate Social Responsibility Other Current Public Company Boards • Illinois Tool Works Inc. (Chairman of the Board, 2015-present); director (2012-present) Prior Business and Other Experience • Illinois Tool Works Inc. (2004-2012), a worldwide manufacturer of engineered components and systems, where Mr. Santi has served as Chief Executive Officer, since November 2012. Previously, Mr. Santi held various senior management roles with ITW, including Vice Chairman of ITW (2008-2012) and Executive Vice President (2004-2008). Mr. Santi is the Chairman and Chief Executive Officer of ITW, a global public company. In the course of his more than 30 years with ITW, he has served in various management roles for ITW including positions requiring significant operational and financial responsibility. During his tenure he has had extensive international responsibility including operating responsibility for a business with annual international revenues of several billion dollars. Mr. Santi has significant experience with mergers and acquisitions and integrating acquired companies. He has also had significant strategic marketing responsibilities and human resource experience including compensation policy, leadership development and succession planning. Mr. Santi is an audit committee financial expert for purposes of the SEC's rules. In addition, Mr. Santi is a member of the board of directors of the Federal Reserve Bank of Chicago. He also serves as a trustee or director in various civic, non-profit and other boards, including the board of trustees of Northwestern University, the Museum of Science and Industry, and Rush University Medical Center and the board of directors of United Way of Metropolitan Chicago, the Economic Club of Chicago, and the Chicago Council on Global Affairs. |
14 www.grainger.com
James T. Ryan
James T. Ryan, age 58, is Grainger's Chairman of the Board, a role he has held since April 2009. Mr. Ryan served as President and Chief Executive Officer of Grainger from June 2008 through September 2016. He served as Chief Operating Officer from 2007 to 2008 and was appointed to the Board of Directors in February 2007. Prior to these roles, Mr. Ryan served as Group President, responsible for the Company's businesses operating under the Grainger brand in the United States. He has served Grainger in increasingly responsible roles since 1980, including Executive Vice President, Marketing, Sales and Service; President, Grainger.com; Vice President, Information Services; and President, Grainger Parts. Mr. Ryan is the Vice Chair of the Board of Trustees of DePaul University, Co-Chair of the Business Advisory Council for the Farmer School of Business at Miami University, Oxford, Ohio, and is a member of the Civic Committee of the Commercial Club of Chicago, the Economic Club of Chicago and the National Association of Wholesaler-Distributors.
Director Qualifications
E. Scott Santi
E. Scott Santi, age 55, is Chairman and Chief Executive Officer of Illinois Tool Works Inc. (ITW), a worldwide manufacturer and marketer of engineered components and industrial systems and consumables. Mr. Santi was elected Chief Executive Officer of ITW in November 2012, after serving as acting Chief Executive Officer since October 2012, and was elected Chairman in May of 2015. Previously, Mr. Santi served as Vice Chairman of ITW from 2008 to 2012, and Executive Vice President from 2004 until 2008. Mr. Santi, an independent director, was first elected a director of Grainger in 2010 and is Chair of the Audit Committee, an "audit committee financial expert," and a member of the Board Affairs and Nominating Committee.
Director Qualifications
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| Susan Slavik Williams President, Four Palms Ventures; Director, Mark IV Capital, Inc.; President, The Donald Slavik Family Foundation
Director Nominee Age: 51 Director Since: New Nominee | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Marketing/Sales & Brand Management • Human Resources/Compensation • Public Company/Leadership • Risk Assessment & Risk Management • Real Estate • Business Ethics/Corporate Social Responsibility Business and Other Experience • Four Palms Ventures, a venture capital firm founded by Ms. Slavik Williams focused on investing in early stage agtech and other technology companies, where Ms. Slavik Williams serves as President (2019-present). • Mark IV Capital, Inc., a private commercial real estate development and investment company, where Ms. Slavik Williams serves on its Board of Directors and presently chairs its compensation committee (1989-present). • The Donald Slavik Family Foundation, a nonprofit organization supporting programs that preserve wildlife and the environment, where Ms. Slavik Williams presently serves as President and a member of its Board of Directors (1995-present). • Ernst & Young Consulting (now Capgemini), a global consulting and technology services company, where Ms. Slavik Williams was a Manager (1994-1998). Ms. Slavik Williams is a private investor who has been a long-term significant shareholder of the Company as well as an entrepreneur and environmentalist. She has expansive knowledge in investments, financing, and real estate, including as a result of her 30 years of service on the board of directors of Mark IV Capital, Inc., where she presently chairs the compensation committee. She also has a deep understanding of environmental and social matters, working for 25 years as President and member of the board of directors of a foundation focused on wildlife preservation in the United States, Africa, South America, and Asia. Since 2017, Ms. Slavik Williams has served as a member of the board of directors of iSelect Fund, a venture capital investment firm. For 12 years, Ms. Slavik Williams was a director of the Saint Louis Zoo and currently serves on the conservation committee of its strategic planning group. As a longstanding significant shareholder of the Company, she possesses extensive knowledge of the Company's business, organization, and culture. Ms. Slavik Williams is the cousin of James D. Slavik, a current Director who is not standing for re-election at the Annual Meeting. |
| Lucas E. Watson Chief Marketing Officer and Rideshare General Manager at GM Cruise LLC
Independent Director Age: 49 Director Since: 2017 Grainger Board Committees: Audit BANC | | Qualifications, Attributes and Skills • Operational/Strategy • Finance/Capital Allocation • Supply Chain/Logistics • Digital/eCommerce • Marketing/Sales & Brand Management • Public Company/Leadership • Corporate Governance/Public Company Experience • International • Technology/Cybersecurity • Government/Public Policy • Business Ethics/Corporate Social Responsibility Prior Business and Other Experience • Intuit, Inc. (2016-2018), a global provider of business and financial management solutions, where Mr. Watson served as an Executive Vice President and Chief Marketing and Sales Officer. • Google, Inc. (2011-2016), a global technology company, where Mr. Watson served as Vice President, Global Brand Solutions. • Procter & Gamble Company (1994-2011), a global consumer products company, where Mr. Watson served in various sales, marketing and digital business roles. Mr. Watson is currently Chief Marketing Officer and Rideshare General Manager at GM Cruise LLC, an autonomous vehicle technology company owned by General Motors company. Previously, he served as Executive Vice President and Chief Marketing and Sales Officer at Intuit, where he led the company's global sales and go-to-market efforts bringing Intuit's financial management solutions to market across a variety of channels while focusing on global brand expansion, market share growth and strengthening brand equity. As Vice President, Global Brand Solutions at Google, he led the company's brand advertising business, working with some of the world's leading companies to build stronger and more trusted brands. At Procter & Gamble, a global consumer products company, he served as a Digital Marketing executive and held a variety of other roles across the globe. While at P&G, Mr. Watson drove P&G's digital initiatives for 75 brands across 200 countries. During his tenure of more than two decades at these multinational public companies, Mr. Watson has held several leadership roles while acquiring a deep understanding of sales, marketing, technology and digital business. |
Proxy Statement 15
James D. Slavik
James D. Slavik, age 64, is Chairman and a director of Mark IV Capital, Inc., a private commercial real estate development and investment company that was founded in 1974. Mark IV Capital acquires, invests in, develops and manages commercial real estate projects. Mr. Slavik was named to his current position in 2003, after serving as Mark IV Capital, Inc.'s Chairman and Chief Executive Officer from 1990 to 2003. He also serves on the Advisory Board for the Cove Fund, a seed capital fund affiliated with UCI Applied Innovation (formerly the Institute for Innovation) at the University of California at Irvine and is a Founding Director for UCI Applied Innovation. Mr. Slavik is also a director of the Hoag Hospital Foundation and is a member of its investment and nominating committees. Mr. Slavik, an independent director, was first elected a director of Grainger in 1987 and is a member of the Board Affairs and Nominating Committee and the Compensation Committee.
Director Qualifications
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Table of Contents2019 BOARD MEETINGS AND COMMITTEE MEMBERSHIP
The following table highlights specific experience, qualifications, attributes,Operating Principles provide for the Board's Committees and skills thatthe process for selecting Committee leadership. The BANC's recommendations are considered by the Board considered forfollowing each director. A particular director may possess additional experience, qualifications, attributes, or skills even if not expressly indicatedannual meeting of shareholders. The Committees are appointed by the Board based on recommendations of the BANC. As required by each Committee's charter, all members of each Committee must be "independent" Directors.
Five meetings of the Board were held in 2019. Each Board meeting included at least one executive session, during which only independent Directors were present. In total, 18 Committee meetings were held in 2019. During each Committee meeting, Committee members met in closed session, without management present. The Committees report regularly to the full Board on their activities and actions.
The Board has delegated certain responsibilities and authority to its standing Committees, as described below.
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The Board believes that it has the appropriate mix of relatively new directors and those with longer service to the Company. One longstanding director, Mr. Slavik, is the beneficial owner of approximately 6.5% of the Company's shares as of March 6, 2017. Mr. Slavik's beneficial ownership of Company shares pre-dates Grainger's initial public offering in 1967. As a group, the average tenure of the nominees for election to Grainger's Board of Directors is approximately 12 years. The chart below reflects length of service:
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Years of Service | 0-5 | 6-11 | 12-18 | 25+ | |||||
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One of the primary objectives of Grainger's corporate governance structure is to have a highly functional Board that properly oversees Grainger's strategies and operations. The Board's Criteria for Membership on the Board of Directors (Criteria) list the various characteristics that the Board Affairs and Nominating Committee should consider in reviewing candidates for the Board. In addition to relevant business experience, qualifications, attributes, skills, and the willingness to become involved with Grainger, the Criteria also enumerate personal characteristics that should be considered, including reputation for ethics and integrity, common sense and judgment, independent and objective thought, and the consideration of diverse opinions.
Regarding diversity, the Criteria specify that consideration shall be given to candidates without regard to race, color, religion, gender or national origin. To ensure that the Board benefits from diverse perspectives, it seeks qualified nominees from a variety of backgrounds, including candidates of gender and racial diversity, and in any retained search for Board candidates, Grainger specifies that the Board is seeking candidates with gender and racial diversity. The Board actively reviews diversity recruiting efforts.
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Five meetings of the Board were held in 2016. Each Board meeting included at least one executive session, during which only independent directors were present.
The Board has three standing committees: Audit, Board Affairs and Nominating, and Compensation. All members of these committees are required to be "independent" directors.
All non-employee directors have been determined to be independent. Committee memberships are shown in the following table:
Independent Directors' Committee Assignments
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Chairperson Member Lead Director
Each Committee has a charter that it reviews annually and then makes recommendations to our Board for charter revisions that may be needed to reflect evolving best practices.Copies of each Committee charter are available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/.
16 www.grainger.com
Brian P. Anderson
V. Ann Hailey
Stuart L. Levenick
Neil S. Novich
Michael J. Roberts
Gary L. Rogers
E. Scott Santi
James D. Slavik
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The Operating Principles for the Board of Directors and Grainger's by-laws created the leadership position of Lead Director, to be elected annually by and from the Board's independent directors. Mr. Stuart L. Levenick was appointed to serve as Lead Director after the April 2016 annual meeting of shareholders.
The Audit Committee of the Board (the Audit Committee) met sixeight times in 2016.2019. The Board has determined that each of the members of the Audit Committee is "independent," as that term is defined in the independence requirements for audit committee members contained in the applicable rules of the U.S. Securities and Exchange Commission (SEC)(the SEC) and in the listing standards of the NYSE. The Board has also determined that each of Mr. Santi, Chairthe members of the Audit Committee is financially literate and that each of Ms. Hailey, Mr. Anderson, Mr. Novich, and Ms. Hailey,Mr. Santi is an "audit committee financial expert," as that term is defined in the applicable rules of the SEC. Further, in accordance with applicable NYSE listing standards, the Board has considered Mr. Anderson's simultaneous service on the audit committees of more than three public companies, namely the audit committees of Grainger, PulteGroup Inc., James Hardie Industries plc, and Stericycle, Inc., and has determined that suchthis service will not impair his ability to serve effectively on the Company's Audit Committee.
The Audit Committee assists the Board in its oversight responsibility with respect to the following:
Proxy Statement 17
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| | | Corporate Governance |
| Number of Meetings Held in Fiscal 2019: 5 |
The Board Affairs and Nominating Committee of the Board (the Board Affairs and Nominating Committee)BANC) met five times in 2016.2019. The Board has determined that each of the members of the Board Affairs and Nominating CommitteeBANC is "independent," as that term is defined in the independence requirements for members of nominating committees contained in the applicable listing standards of the NYSE.
The BANC assists the Board Affairsin its oversight responsibility as follows:
Board Composition and Nominating Committee Renewal
Governance
18 www.grainger.com
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Table of ContentsCorporate Social Responsibility (CSR)
Succession Planning and Nominating Committee are to make initial assessments regarding major issues or proposals and workManagement Development
The Compensation Committee of the Board (the Compensation Committee or the Committee) met five times in 2016.2019. The Board has determined that each member of the Compensation Committee is "independent," as defined in the independence requirements for members of compensation committees in the applicable rules of the SEC, the listing standards of the NYSE, and under the Internal Revenue Code.
The Compensation Committee assists the Board in its oversight responsibility as follows:
The Board has determined that eachadministered, including the review and approval of the membersperformance measures applicable to the Company's short-term and long-term incentive plans;
The Committee Company's shareholder approved equity plans;
Proxy Statement 19
In overseeing the Company's compensation programs, the Committee develops programs based on its own deliberations. It also considers programs and recommendations from its independent compensation consultant, a variety of other compensation and benefits consultants, and management. After a review of the factors prescribed by the SEC and the NYSE rules and regulations, the Committee determined that Deloitte Consulting is independent and has retained Deloitte Consulting as its independent compensation consultant.
The independent compensation consultant is solely hired by and reports directly to the Committee. The Committee's practice is to routinely meet with the independent compensation consultant in executive session, without management present, following each Committee meeting. The Committee has sole authority to retain and terminate theContents
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independent compensation consultant, including sole authority to approve the consultant's fees. At the Committee's direction, the independent compensation consultant:
The Committee grants equity awards (stock options,(including, restricted stock units (RSUs), and performance shares)stock units (PSUs)) to NEOs, other officers and other employees under the shareholder-approved 2015 Incentive Plan. The Committee has delegatedapproved shareholder plans; and, may delegate to management limited authority to grant "off-cycle" equity-based compensation awards of stock options and RSUs to non-officer employees. Awardsemployees and to CEO direct reports that are new hires; and, awards under this authority are granted under thepursuant to terms and conditions that have been approved by the Compensation Committee. Management informs the Compensation Committee of the awarded grants at the Compensation Committee's next meeting. The pool of shares available to management under this delegation has beenis refreshed annually by the Committee to 20,000 stock options and 35,000 RSUs.Compensation Committee. The maximum amount that management is authorized to award to any individual is 5,000 stock options and 2,500 RSUs, and to avoid any real or perceived manipulated timing, all awards are effective the first business day of the month following the award. Information concerning the grants by management is shared with the Committee at its next meeting. TheCompensation Committee may terminate this delegation of authority at its discretion.discretion; and
20 www.grainger.com
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Corporate Governance | | | |
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The Board has strong governance structures and processes in place to ensure the independence of the Board. These structures and processes, which are reflected in the Operating Principles and the Committees' charters, allow for the independent Directors to effectively exercise the Board's authority in overseeing critical matters of strategy, operations, enterprise risk management, and financial reporting.
The Board carefully consideredconsiders its leadership structure and believes that a combined Chairman/Chief Executive OfficerCEO position, coupled with an independent Lead Director appointed by the Board, represents the best long-term leadership structure for Grainger. In the Board's view, having a single individual serving as both the Chairman and Chief Executive OfficerCEO assists in the timely flow of relevant information, which supports effective Board decision-making and provides a useful connection between the Board and management so that Board actions are appropriately and efficiently executed.
In deciding that a combined Chairman and CEO position is the appropriate leadership structure for Grainger, the Board also recognized the need for independent leadership and oversight. The Board's Lead Director structure helps assureis responsible for facilitating Board involvement in major issues and/or proposals, ensuring that the Board is addressing major strategic and operational initiatives, reviewing meeting agendas and information to be provided to the Board, consulting with Directors, the CEO and management, and presiding at executive sessions of the Board. With the Lead Director performing these functions are properly performed. Theimportant duties, the Board does not believe that permanently separating the role of the Chairman and Chief Executive OfficerCEO would result
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in strengthening Grainger's corporate governance or in creating or enhancing long-term value for our shareholders.
The Board has strong governance structures and processes in place to ensure the independence of the Board. These established structures and processes, which are reflected in the Operating Principles for the Board of Directors and the various Board Committee charters, provide for the independent directors to exercise authority so that the Board is effective in overseeing critical matters of strategy, operations, and reporting. Important duties performed by the independent directors,Directors, either collectively or through committees made upCommittees comprised solely of independent directors,Directors, include selecting the Chairman and Chief Executive OfficerCEO and evaluating his or her performance, and the resultingsetting his or her compensation.
While the Board generally believes that splitting the roles of Chairman and Chief Executive Officer is unnecessary and not in the best interest of shareholders, effective October 1, 2016, as part of a planned succession process, the Company temporarily separated the two positions naming Mr. Macpherson Chief Executive Officer, with Mr. Ryan continuing to serve as Chairman of the Board. Concurrently with his appointment as Chief Executive Officer, Mr. Macpherson was also appointed to the Board. Prior steps in the succession planning included promoting Mr. Macpherson to Chief Operating Officer in August 2015. In that role, Mr. Macpherson was responsible for the Company's day-to-day operations and reported to Mr. Ryan. Previously, Mr. Macpherson had served the Company in various roles as a Senior Vice President and Group President since 2008.
The Board believes that Mr. Ryan's continued service as Board Chairman has enabled the Company to execute a smooth transition of the Chief Executive Officer role, while ensuring that the Board and Mr. Macpherson have retained Mr. Ryan and his significant knowledge of the Company's operations, strategy, people and resources during the succession process.
In deciding that a combined Chairman and Chief Executive Officer position is the appropriate long-term leadership structure for Grainger, the Board also recognized the need for independent leadership and oversight. Since 1995, Grainger's Operating Principles for the Board of Directors have assigned a leadership role to the independent director serving as Chair of the Board Affairs and Nominating Committee. Over time, this director has been responsible for facilitating Board involvement on major issues and/or proposals, reviewing meeting agenda and information to be provided to the Board, consulting with directors, the Chief Executive Officer, and management and presiding at executive sessions of the Board.
In 2010, the Board revised its Operating Principles and by-laws to create the leadership position of Lead Director, to be elected annually by and from the Board's independent directors. Among the duties assigned to the Lead Director is the responsibility for:
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The Board believes that given Grainger's corporate governance structures and processes, a combined Chairman and Chief Executive OfficerCEO position in conjunction with an independent Lead Director provides effective oversight of management by the Board and results in a high level of management accountability to shareholders.
Under Grainger's By-Laws and the Operating Principles, the Lead Director is elected by and from the Board's independent Directors. The current Lead Director, Mr. Stuart L. Levenick, was appointed to serve in this capacity after the April 2014 annual meeting of shareholders. Among the duties assigned to the Lead Director is the responsibility for:
Proxy Statement 21
BOARD, COMMITTEE AND DIRECTOR EVALUATIONS
The Board recognizes that a rigorous, ongoing evaluation process is an essential component of strong corporate governance practices and promoting continuing Board effectiveness. Each year, the Board conducts a three-part evaluation process coordinated by the Lead Director and the Committee Chairs. The evaluation framework is constituted of the following.
Full Board Evaluation. Each director completes a questionnaire designed to evaluate overall Board effectiveness and identify opportunities for improvement. TheChairs: full Board evaluation, seeksCommittee evaluations, and Director self-assessments. To help make sure the evaluations are useful and that we are implementing best practices, we routinely review the evaluation process with an external governance expert.
Our historic approach has been to determineask each Director to respond to written survey questions on how the Board can improve its key function of maximizing long term shareholder value and considers a number of factors, including, among others, the following:
Committee Evaluations. Each director completes a questionnaire designed to evaluate overall effectiveness and identify opportunities for improvement with respect to each Committee in which he or she serves. The Committee evaluations consider a number of factors, including, among others, the following:
Director Self-Assessments. Each director completes a self-assessment designed to evaluate the performance and effectiveness of the director. The director self-assessments consider a number of factors, including, among others, the following:
These questionnaires ask directors to assign ratings to how the Board performs and seekperforms. We have also sought written feedback on more open-ended topics, including Board and Committee processes and effectiveness. The
In reviewing our approach to evaluation, frameworkincluding the actions that resulted from past surveys, in 2019 we decided to adopt a new approach designed to facilitate conversation focused on the Board's challenges and process is reviewed periodically with an outside corporate governance expert, including as to opportunities to enhanceopportunities. We made the following changes:
The results of the evaluations are compiled anonymously and include responses and comments. The results of the completed Board evaluationsCommittee, and individual director self-assessments are furnishedDirector engagement and effectiveness.
We believe that this open-ended question/interview approach helps elicit thoughtful and useful responses that encourage more valuable conversations and actionable insights. Supplementing the annual surveys is a continuous feedback loop that does not rely solely on a single, formal event at the end of the year.
As before, the results of the completedevaluations/interviews were compiled anonymously. The Lead Director discussed with the Board the results of the Board evaluations, forindividual Director self-assessments, and the Committees are furnished tomanagement leadership team feedback, while the corresponding Committee Chairs and then discussed at the Board andresults of the Committee meetings, respectively.evaluations with their respective Committees.
22 www.grainger.com
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Corporate Governance | | | |
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Below is an overview of the key steps in the annual evaluation process:
Annual Board, Committee and Director Evaluation Process
Proxy Statement 23
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The information gained through this process helps shape the content of educational presentations to the Board and identify the skill sets desirable in Director searches conducted from time-to-time by the Board.
Among the actions that resulted from the Board's evaluation processes were an analysis of the desired skill sets for future directors and changes to meeting agenda to create more time for in-depth discussions.
The Board oversees, counsels, and directs management in the long-term interests of the Company and its shareholders. The Board's oversight responsibilities include, among other things:
Board's Role in Shareholder Engagement
The Board believes it is important that the Company's strategy is effectively communicated to the Company's shareholders, and that shareholders' perspectives are understood and considered by the Board, including as to strategy, business performance, corporate governance, executive compensation practices, and other environmental, social, and governance concerns. During 2019, the Company proactively arranged for the Board's Lead Director to meet with a variety of institutional investors to explain the Company's corporate governance practices and policies as part of a corporate governance roadshow.
As part of its oversight role, the Board routinely receives reports and briefings from the Company's Investor Relations team. Grainger has a comprehensive shareholder engagement program to reach a significant cross-section of our shareholder base, including large institutional investors, pension funds, and other investors. Our CEO, CFO and VP, Investor Relations, and other members of our Investor Relations team, maintain regular contact throughout the year with a broad base of shareholders to understand their concerns on various topics, including financial performance, strategy, competitive environment, and environmental, social and governance matters. Contact with shareholders includes quarterly earnings calls, individual meetings and other channels of communication. In 2019, we engaged with shareholders representing over 40% of our outstanding shares. Throughout the shareholder engagement in 2019, the Board routinely received updates from the Company's CFO and VP, Investor Relations, regarding shareholder concerns, trends, and various questions.
24 www.grainger.com
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Following discussion of the reports at the Board and respective Committee meetings, the Lead Director and the Committee Chairs develop plans for any items that may warrant additional action.
The information gained through this process helps inform the content of educational presentations to the Board as well as the skills sets desirable in director searches conducted by the Board from time to time. As a result of the Board's 2016 evaluation process and related follow-up, the Board identified the need for director candidates with proven track records of strategic thinking and experience in eCommerce.
The Board has overall responsibility for risk oversight. Its role is to oversee risk assessment and risk management processes and policies used by Grainger to identify, assess, monitor and address potential financial, compensation, operational, strategic and legal risks on an enterprise-wide basis. The risks monitored include threats to information technology systems and other issues of cyber security. The Audit Committee also regularly reviews Grainger's risk assessment and risk management processes and policies, including receiving regular reports from the members of Grainger's management who are responsible for risk assessment and risk management on the effectiveness of Grainger's Enterprise Risk Management (ERM) initiatives. As part of its oversight responsibility, the Compensation Committee assesses the relationship between potential risk created by Grainger's compensation programs and their impact on long-term shareholder value.
Our Board recognizes that it has an important duty to ensure senior leadership continuity by overseeing the development of executive talent and planning for the efficient succession of the Chief Executive OfficerCEO and other key leadership positions. OurThe Board has delegated primary oversight responsibility for management development and leadership succession planning and management development to the Board Affairs and Nominating Committee.BANC. The CommitteeBANC reports on its activities to the full Board, which routinely addresses planned succession planning during executive sessions.scenarios and also has developed emergency succession plans reviewed annually.
OurRecruiting, developing, promoting and retaining top diverse talent is a key priority for the Company. The Board generally conducts an in-depth reviewreviews of senior leader development and succession planning, including emergency succession scenarios, at least once a year.development. This review addresses the Company's management development initiatives, assesses senior management resources, and identifies individuals who should be considered as potential future senior executives. To ensure that the succession planning and management development process supports and enhances Grainger's strategic objectives, the Board and the Board Affairs and Nominating CommitteeBANC also regularly consult with the Chairman of the Board and Chief Executive OfficerCEO on the Company's organizational needs, the leadership potential and related development plans for key managers and plans for future developmentsdevelopment and emergency situations.
To supplement these efforts, throughout the year, the senior management team, as well as a broader array of executives throughout our businesses, make presentations to the Board and its Committees and also interact with the Directors during Board dinners that coincide with our regularly scheduled Board meetings or visits to our operations. This engagement between Directors and our current and future leaders gives our Directors meaningful insight into our current pool of talent, what attracts and retains our executives, and the Company's culture.
Board's Role in Risk Oversight
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The Board has overall responsibility for risk oversight, with the Audit Committee assisting the Board in performing this function. The Board's role is to oversee the Company's enterprise risk management (ERM) programs, including risk assessment and risk management processes and policies used by Grainger has adopted Business Conduct Guidelinesto identify, assess, monitor and address potential financial, compensation, operational, strategic and legal risks on an enterprise-wide basis.
As part of its ERM oversight, the Board oversees and reviews the Company's programs and processes for directors, officers,cybersecurity risk, including the Company's framework for preventing, detecting, and employees, incorporatingaddressing cybersecurity incidents. To help inform its approach to devising an appropriate governance framework, cadence, metrics, and reporting to discharge its cybersecurity oversight responsibilities, the CodeBoard appointed an Ad Hoc Committee on Cybersecurity constituted of Ethics required by rulesGrainger Directors with technology and cybersecurity experience. The Board's cybersecurity oversight framework—full Board ownership and oversight, with Audit Committee support, and quarterly informational updates and annual briefings—was implemented upon the recommendation of the SECAd Hoc Committee, which remains available to be applicable to a company's chief executive officer, chief financial officer,provide strategic advice as needed.
Both the Board and chief accounting officer or controller,the Audit Committee regularly review Grainger's risk assessment and intends to satisfy any disclosure requirements with respect tomanagement processes and policies, including receiving regular reports from the Business Conduct Guidelines by postingCompany's Chief Information Security Officer, and the information on its website. Grainger also has adopted Operating Principlesmembers of Grainger's management who are responsible for the Boardeffectiveness of Directors, which representGrainger's ERM program. As part of its corporate governance guidelines.oversight responsibility, the Compensation Committee assesses the relationship between potential risk created by Grainger's compensation programs and their impact on long-term shareholder value.
Proxy Statement 25
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TableCorporate Social Responsibility
Grainger is committed to being a responsible corporate citizen and strives to integrate environmental, social and governance (ESG) principles into the daily operation of Contentsits business. Grainger's Corporate Social Responsibility (CSR) platform includes our commitment to operating responsibly, valuing our people, serving our communities and sustaining our environment. These commitments shape our focus on corporate citizenship and fuel our determination to make a positive difference today and in the future.
Grainger's Business Conduct GuidelinesWe integrate citizenship initiatives into the Company's strategy and Operating Principles fordaily operations at each level of our business. This begins with oversight by the BANC. The BANC annually reviews the Company's promotion of environmental sustainability and community engagement. In addition, the BANC receives routine reports and updates on ESG matters. In 2017, the Board appointed a new Director with expertise in sustainability and the New Nominee has expertise on environmental matters. The Company's CSR Advisory Council, led by a senior executive and comprised of Directorsa select group of senior-level team members, provides guidance, strategic awareness and counsel to the Company's CSR program. Also, the Company has a cross-functional CSR Working Group that implements day-to-day programs and drives progress toward the success of our roadmap.
Grainger strives to ensure its team members reflect its increasingly global and diverse customer base. Diversity and inclusion are integral to Grainger's business success. The Company is committed to fostering an inclusive environment where all team members feel safe, valued and encouraged to voice their opinions regardless of age, gender, race, religion, ethnicity, sexual orientation, veteran status, disabilities or backgrounds. Grainger is also committed to leadership effectiveness as part of its people strategy.
The Company began reporting with reference to the Global Reporting Initiative's Sustainability Reporting Standards in 2016 and, since 2017, has been a member of the Dow Jones Sustainability Index. Grainger continues to evolve its ESG program in a manner that is beneficial to the Company and its investors. As part of this commitment, Grainger is working toward aligning its ESG reporting to the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) frameworks by the end of 2020.
Grainger publishes an annual CSR report that is periodically updated and, while it is available under "Corporate Citizenship" in the GovernanceInvestor Relations section of Grainger'sour website at www.grainger.com/investor.
Also available in the Governance section of that website are the charters, as amended from time to time, of the Audit Committee, Board Affairs and Nominating Committee, and Compensation Committee, which were adoptedhttp://www.GraingerCSR.com, it is not being incorporated by the Board.
All of these documents are also available to shareholders in print, free of charge, upon request to the Corporate Secretary at Grainger's headquarters, 100 Grainger Parkway, Lake Forest, Illinois 60045-5201.reference into this proxy statement.
Grainger has established a process by which shareholders and other interested parties may communicate with the Board, its Committees, and/or individual directorsDirectors on matters of interest. Such communications should be sent in writing to:
[Name(s) of director(s)Director(s)]
or
[Non-management directors]Directors]
or
[Board of Directors]
W.W. Grainger, Inc.
P.O. Box 85666Skokie,Lake Forest, Illinois 60076-085660045-0066
26 www.grainger.com
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Corporate Governance | | | |
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If the matter is confidential in nature, please mark the correspondence accordingly. Additional information concerning this process is available in the are available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/.
All the documents below are available to shareholders and under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/ or in print, free of charge, upon request to the Corporate Secretary at Grainger's headquarters, 100 Grainger Parkway, Lake Forest, Illinois 60045-5201.
Grainger has adopted Business Conduct Guidelines for Directors, officers, and employees, which incorporate the Code of Ethics required by the SEC to apply to a company's chief executive officer, chief financial officer, and chief accounting officer or controller. The Company provides annual Business Conduct Guidelines training and all Directors, officers, and employees are required to certify annually that they have read, understand and are in compliance with the Business Conduct Guidelines. Our Business Conduct Guidelines are posted in the Governance section ofon Grainger's website at www.grainger.com/investor.http://invest.grainger.com/.
Operating Principles for the Board of Directors
Grainger also has adopted Operating Principles for the Board of Directors, which represents its corporate governance guidelines. The Operating Principles are available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/.
The charters, as adopted by the Board and amended from time to time, of the Audit Committee, the BANC, and the Compensation Committee are available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/.
Corporate Social Responsibility
Grainger publishes a CSR report that is periodically updated and, while it is available under "Corporate Citizenship" in the Investor Relations section of our website athttp://www.GraingerCSR.com, it is not being incorporated by reference into our proxy statement.
Proxy Statement 27
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Grainger's non-employee directorsDirectors each receive an annual cash retainer of $85,000$100,000 and an annual deferred stock grant of $145,000. The Lead Director and Directors serving as Committee Chairs receive an additional annual cash retainer.
Grainger's non-employee directorsDirectors are compensated at a level that approximates median market practice. In benchmarking directorDirector pay, Grainger uses the same compensation comparator group that is used to benchmark compensation for Grainger's executives as described in theCompensation Discussion and Analysis.Analysis / page 39. The Compensation Committee's independent compensation consultant periodically reviews and updates the comparator group as well as comparative compensation information and advises on directorDirector compensation.
The directors'Directors' compensation program, which was last adjusted in 2015, consistedApril 2018, consists of the following:
| | Compensation for | | Value | | ||||
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| Annual Cash Retainer for each Director | $100,000 | |||||||
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| | Deferred Stock Unit Grant for each Director | | $145,000 | | ||||
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| Annual Retainer for the Lead Director | $25,000 | |||||||
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| | Audit Committee | | $20,000 | | ||||
| | Compensation Committee | | $15,000 | | ||||
| | Board Affairs and Nominating Committee | | $10,000 | | ||||
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All non-employee directorsDirectors receive an annual deferred stock unit grant worth $145,000. TheIn 2019, the number of shares covered by each grant iswas equal to $145,000 divided by the 200-day20-day average stock price through January 31 (a methodology consistent with the calculation used for equity awards to Grainger executives)grant-eligible employees), rounded up to the next ten-share increment.whole share. Beginning with the 2020 equity grants, Grainger has adjusted this methodology to be the 20-day average stock price through March 31. The deferred stock units are settled in shares upon termination of service as a director.Director. Directors may also defer their annual cash retainers, lead directorLead Director retainer, committee chairand Committee Chair retainers (as applicable), and meeting fees ininto a deferred stock unit account.
Stock ownership guidelines applicable to non-employee directorsDirectors were established in 1998. These guidelines provide that within five years after election, a directorDirector must own Grainger common stock and common stock equivalents having a value of at least five times the annual cash retainer fee for serving on the Board. The policy also states that any pledged shares cannot be used to meet the ownership guidelines. Thehedging or pledging of Company shares by directorsDirectors or executive officers is prohibited by Company policy (see further details under the "HedgingHedging and Pledging Prohibition" section)Prohibition / page 59). No directorsDirectors (or executive officers) have hedged or pledged any of the shares beneficially owned by them and all directorsDirectors are currently in compliance with the ownership guidelines.
In addition, Grainger matches directors'Directors' charitable contributions on a three-to-one basis up to a maximum Company contribution of $7,500 per Director annually and provides discounts on product purchases, both on the same basis as provided to U.S. Grainger employees.
A directorMr. Macpherson, who is an employee of Grainger, or any Grainger subsidiary does not receive any compensation for serving as a director.Director.
28 www.grainger.com
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Name | | Fees Earned or Paid in Cash(1) | | Stock Awards(2) | | All Other Compensation(3) | | Total | | |||||||||||||||||||||||||
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Name | | Fees Earned or Paid in Cash1 | | Stock Awards2 | | All Other Compensation3 | | Total | Rodney C. Adkins | $100,000 | $147,475 | $7,500 | $254,975 | |||||||||||||||||||||
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Rodney C. Adkins | $ | 85,000 | $ | 154,651 | $ | 0 | $ | 239,651 | ||||||||||||||||||||||||||
| Brian P. Anderson | | $100,000 | | $147,475 | | $0 | | $247,475 | | ||||||||||||||||||||||||
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Brian P. Anderson | $ | 85,000 | $ | 154,651 | $ | 2,250 | $ | 241,901 | V. Ann Hailey | $120,000 | $147,475 | $0 | $267,475 | |||||||||||||||||||||
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V. Ann Hailey | $ | 85,000 | $ | 154,651 | $ | 0 | $ | 239,651 | ||||||||||||||||||||||||||
| Stuart L. Levenick | | $135,000 | | $147,475 | | $0 | | $282,475 | | ||||||||||||||||||||||||
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Stuart L. Levenick | $ | 120,000 | $ | 154,651 | $ | 0 | $ | 274,651 | Neil S. Novich | $100,000 | $147,475 | $7,500 | $254,975 | |||||||||||||||||||||
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Neil S. Novich | $ | 85,000 | $ | 154,651 | $ | 7,500 | $ | 247,151 | ||||||||||||||||||||||||||
| Beatriz R. Perez | | $100,000 | | $147,475 | | $7,500 | | $254,975 | | ||||||||||||||||||||||||
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Michael J. Roberts | $ | 100,000 | $ | 154,651 | $ | 0 | $ | 254,651 | Michael J. Roberts | $115,000 | $147,475 | $7,500 | $269,975 | |||||||||||||||||||||
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Gary L. Rogers | $ | 85,000 | $ | 154,651 | $ | 0 | $ | 239,651 | ||||||||||||||||||||||||||
| E. Scott Santi | | $100,000 | | $147,475 | | $0 | | $247,475 | | ||||||||||||||||||||||||
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E. Scott Santi | $ | 105,000 | $ | 154,651 | $ | 7,500 | $ | 267,151 | James D. Slavik | $100,000 | $147,475 | $7,500 | $254,975 | |||||||||||||||||||||
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James D. Slavik | $ | 85,000 | $ | 154,651 | $ | 7,500 | $ | 247,151 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | Lucas E. Watson | | $100,000 | | $147,475 | | $7,500 | | $254,975 | | ||||||||||||
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Proxy Statement 29
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Security Ownership of Certain Beneficial Owners
The following table sets forth information concerning any person known to Grainger to beneficially own more than 5% of Grainger's common stock, as of December 31, 2019 except as otherwise noted below. The information in the table and the related notes are based on statements filed by the respective beneficial owners with the SEC pursuant to Sections 13(d) and 13(g) under the Securities Exchange Act of 1934, as amended.
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership(1) | | Percent of Class | ||||
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The Vanguard Group | 5,865,471(2) | 10.88% | ||||||
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Susan Slavik Williams | | 4,810,153(3) | | 8.96% | ||||
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Longview Partners (Guernsey) Limited | 4,106,146(4) | 7.65% | ||||||
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BlackRock, Inc. | | 3,182,616(5) | | 5.9% | ||||
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30 www.grainger.com
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each has (i) shared voting power with respect to 2,457,292 shares and (ii) shared dispositive power with respect to 4,106,146 shares. Longview Partners (Guernsey) Limited is an investment advisor registered under section 203 of the Investment Advisors Act of 1940. Longview Partners (UK) Limited is 100% owned by Longview Partners (Guernsey) Limited. Longview Partners (UK) Limited is the managing member of Longview Partners LLP. The shares reported herein have been acquired on behalf of discretionary clients of Longview Partners. Persons other than Longview Partners are entitled to receive dividends from, and proceeds from the sale of, those shares. None of those persons to the knowledge of Longview Partners has an economic interest in more than 5% of the class. The Schedule 13G certifies that the securities were acquired and held in the ordinary course of business and not with the purpose or effect of changing or influencing the control of Grainger.
Proxy Statement 31
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The table below shows how many sharesthe ownership of Grainger common stock the directors, certain executive officers,by each Director nominee, each of our NEOs, and all directorsDirector nominees and all executive officers as a group, beneficially owned as of March 6, 2017.2, 2020 except as otherwise noted below.
Beneficial ownership is a term broadly defined by the SEC. In general, a person beneficially owns securities if the person, alone or with another, has voting power or investment power (the power to sell) over the securities. Being able to acquire either voting or investment power within 60 days, such as by exercising stock options, also results in beneficial ownership of securities. Unless otherwise indicated in the footnotes following the table, each of the named persons had sole voting and investment power with respect to the indicated number of Grainger shares.
| | | | | | | | | | | | | | | | | | Name of Beneficial Owner | | Shares | | Stock Option Shares Exercisable within 60 Days(1) | | Stock Units(2) | | Percent of Class(3) | | ||||||||||
Beneficial Owner | | Shares | | Stock Option Shares Exercisable Within 60 Days1 | | Stock Units2 | | Total | | Percentage of Common Stock3 | ||||||||||||||||||||||||||
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James D. Slavik4,5,6 | 3,830,417 | 0 | 19,112 | 3,849,529 | 6.5 | % | ||||||||||||||||||||||||||||||
Rodney C. Adkins | 400 | 0 | 3,767 | * | ||||||||||||||||||||||||||||||||
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Rodney C. Adkins | | 400 | | 0 | | 1,679 | | 2,079 | | * | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Brian P. Anderson | | 3,340 | | 0 | | 18,825 | | * | | ||||||||||
Brian P. Anderson | 4,340 | 0 | 15,906 | 20,246 | * | |||||||||||||||||||||||||||||||
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V. Ann Hailey | | 200 | | 0 | | 10,224 | | 10,424 | | * | ||||||||||||||||||||||||||
V. Ann Hailey | 200 | 0 | 12,871 | * | ||||||||||||||||||||||||||||||||
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Joseph C. High | 6,038 | 26,695 | 0 | 32,733 | * | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | John L. Howard(4) | | 415,125 | | 51,620 | | 24,811 | | * | | ||||||||||
John L. Howard7 | | 897,670 | | 86,109 | | 20,000 | | 1,003,779 | | 1.7 | % | |||||||||||||||||||||||||
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Ronald L. Jadin8 | 20,459 | 103,737 | 0 | 124,196 | * | |||||||||||||||||||||||||||||||
Stuart L. Levenick | 400 | 0 | 19,438 | * | ||||||||||||||||||||||||||||||||
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Stuart L. Levenick | | 400 | | 0 | | 16,388 | | 16,788 | | * | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | D.G. Macpherson | | 34,039 | | 129,773 | | 8,507 | | * | | ||||||||||
D.G. Macpherson | 27,447 | 95,806 | 0 | 123,253 | * | |||||||||||||||||||||||||||||||
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Neil S. Novich | | 4,605 | | 0 | | 23,420 | | 28,025 | | * | ||||||||||||||||||||||||||
Deidra C. Merriwether | 0 | 10,580 | 5,092 | * | ||||||||||||||||||||||||||||||||
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Paige K. Robbins | 1,729 | 11,087 | 8,713 | 21,529 | * | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Neil S. Novich | | 4,605 | | 0 | | 28,118 | | * | | ||||||||||
Michael J. Roberts | | 1,000 | | 0 | | 18,259 | | 19,259 | | * | ||||||||||||||||||||||||||
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Gary L. Rogers | 310 | 0 | 11,758 | 12,068 | * | |||||||||||||||||||||||||||||||
Thomas B. Okray | 1,690 | 3,118 | 5,823 | * | ||||||||||||||||||||||||||||||||
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James T. Ryan | | 143,478 | | 423,523 | | 20,000 | | 587,001 | | 1.0 | % | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Beatriz R. Perez | | 0 | | 0 | | 2,367 | | * | | ||||||||||
E. Scott Santi | 303 | 0 | 5,587 | 5,890 | * | |||||||||||||||||||||||||||||||
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Directors and Executive Officers as a group9,10 | | 4,946,531 | | 767,919 | | 179,292 | | 5,893,742 | | 9.6 | % | |||||||||||||||||||||||||
Paige K. Robbins | 6,252 | 21,789 | 4,038 | * | ||||||||||||||||||||||||||||||||
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| Michael J. Roberts | | 1,000 | | 0 | | 22,810 | | * | | ||||||||||||||||||||||||||
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E. Scott Santi | 303 | 0 | 7,931 | * | ||||||||||||||||||||||||||||||||
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| James D. Slavik(5) | | 2,033,325 | | 0 | | 22,341 | | 3.79% | | ||||||||||||||||||||||||||
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Susan Slavik Williams(6) | 4,810,153 | 0 | 0 | 8.96% | ||||||||||||||||||||||||||||||||
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| Lucas E. Watson(7) | | 195 | | 0 | | 2,379 | | * | | ||||||||||||||||||||||||||
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Directors and Executive Officers as a group | 7,311,895 | 219,090 | 193,230 | 13.97% | ||||||||||||||||||||||||||||||||
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The following table sets forth information concerning all other persons knownand shared dispositive power with respect to Grainger to beneficially own more than 5% of Grainger's common stock on December 31, 2016, as reported in Schedules 13D/13G. Schedule 13G filers generally are institutional investors who acquire873,492 shares. Mr. Slavik's aggregate beneficial ownership of more than 5%2,033,325 shares excludes 1,038,890 shares that are held in trusts for the benefit of a public company's voting securities in the ordinary course of business without the purpose of changing or influencing control of the company.
Beneficial Owner | Shares Beneficially Owned1 | Percentage of Common Stock | |||||
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BlackRock, Inc. | 3,418,523 | 2 | 5.7 | % | |||
Longview Partners (Guernsey) Limited | 2,989,184 | 3 | 5.1 | % | |||
MBC Investments Corporation | 3,106,063 | 4 | 5.2 | % | |||
State Street Corporation | 3,247,812 | 5 | 5.5 | % | |||
The Vanguard Group | 5,245,242 | 6 | 8.8 | % | |||
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Section 16(a) of the Exchange Act requires our directors and officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC and the NYSE, and to furnish us with copies of the reports. Specific due dates for these reports are prescribed by SEC rules and we are required to report in this proxy statement any failure by directors, officers, or 10% holders to file such reports on a timely basis. Based on our review of such reports and written representations from our directors and officers, we believe that all such filing requirements were timely met during 2016, except for two Forms 4 that were filed late with respect to two 2015 sales by James D. Slavik to certain family trusts of equity interests in an entity through which he beneficially owns shares of Grainger common stock.
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| Corporate Governance |
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home and who serve as sole trustees of such trusts. The 3.79% calculation is based on 53,673,069 shares of common stock outstanding as of March 2, 2020, the record date for the Annual Meeting. Mr. Slavik, a current Director who is not standing for re-election at the Annual Meeting, is the cousin of Susan Slavik Williams, a Director nominee for election at the Annual Meeting. Neither Mr. Slavik nor Ms. Slavik Williams has any beneficial ownership of the other's shares
Proxy Statement 33
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| | | Corporate Governance |
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The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities. The Board has determined that each of the members of the Audit Committee is "independent," as that term is defined in the independence requirements for audit committee members contained in the applicable rules of the SECSecurities and Exchange Commission (the SEC) and corporate governance standards of the NYSE.New York Stock Exchange. The Audit Committee acts under a charter that is reviewed annually and was last amended by the Board on December 1, 2015, and11, 2019.The charter is available on the Governance section of Grainger's website at www.grainger.com/investorhttp://invest.grainger.com/.
Management is responsible for the Company's internal controls and the financial reporting process and for compliance with applicable laws and regulations. Ernst & Young LLP ("Ernst & Young")(EY), the Company's independent auditor, was responsible for performing an independent audit of the Company's most recent consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States, of America, as well as expressing an opinion on the effectiveness of the Company's internal control over financial reporting. The Audit Committee's responsibility is to monitor and oversee these processes.
In performing these responsibilities, the Audit Committee reviewed and discussed the Company's audited consolidated financial statements and the effectiveness of internal control over financial reporting with management and Ernst & Young.EY. The Audit Committee discussed with Ernst & YoungEY matters required to be discussed under Statement on Auditing Standards No. 1301 "Communications with Audit Committees" adopted by the Public Company Accounting Oversight Board ("PCAOB")(PCAOB). Ernst & YoungEY also provided to the Audit Committee the letter and written disclosures required by PCAOB standards concerning Ernst & Young'sEY's independence and the Audit Committee discussed with Ernst & YoungEY the matter of the firm's independence.
Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, as filed with the SEC.
E. Scott Santi,V. Ann Hailey, Chair
Brian P. AndersonV. Ann Hailey
Neil S. Novich
E. Scott Santi
Lucas E. Watson
Members of the Audit Committee of
the
Board of Directors
34 www.grainger.com
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The following table sets forth the fees for professional services rendered by Ernst & Young LLP (EY) with respect to fiscal years 20162019 and 2015,2018, respectively:
Fee Category | 2016 | 2015 | |||||
|---|---|---|---|---|---|---|---|
Audit Fees | $ | 5,695,900 | $ | 5,028,197 | |||
Audit-Related Fees | 192,400 | 187,000 | |||||
Tax Fees | 1,302,627 | 1,529,228 | |||||
All Other Fees | 43,000 | 3,000 | |||||
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Total Fees | $ | 7,233,927 | $ | 6,747,425 | |||
Fee Category | | | 2019 | | | 2018 | | |||||
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Audit Fees(1) | | | $ | 5,519,000 | | | $ | 5,736,000 | | |||
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Audit-Related Fees(2) | | | | 177,000 | | | | 223,500 | | | ||
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Tax Fees(3) | | | 372,000 | | | 700,000 | | |||||
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All Other Fees(4) | | | | 7,000 | | | | 7,000 | | | ||
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Total Fees | | | $ | 6,075,000 | | | $ | 6,666,500 | | |||
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Pre-Approval Policy for Audit and Non-Audit Services
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The Audit Committee has adopted a policy for the pre-approval of all audit and permitted non-audit services to be provided to Grainger by its independent auditor and is responsible for the review and approval of any fees associated with those services. Also, specific pre-approval by the Audit Committee is required for any proposed services exceeding pre-approved fee levels.
Pre-approvals for categories of services are granted at the start of each fiscal year and are applicable for 12 months from the date of pre-approval. In considering these pre-approvals, the Audit Committee reviews detailed supporting documentation from the independent auditor for each proposed service to be provided. Unused pre-approval amounts are not carried forward to the next year.
The Company's Controller monitors services provided by the independent auditor and overall compliance with the pre-approval policy. The Corporate Controller reports periodically to the Audit Committee about the status of outstanding engagements, including actual services provided and associated fees, and must promptly report any noncompliance with the pre-approval policy to the Chairman of the Audit Committee.
The Audit Committee may delegate pre-approval authority for audit and non-audit services to one or more of its members, and such authority has been delegated to the Chair of the Audit Committee. The decisions of any member to whom such authority is delegated must be presented to the full Audit Committee at its next scheduled meeting. The Audit Committee may not delegate to management its responsibilities to pre-approve services performed by the Company's independent auditor. The Audit Committee periodically reviews reports summarizing all services provided by the independent auditor.
Proxy Statement 35
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 | The Audit Committee is directly responsible for the appointment, compensation, retention, evaluation, termination and oversight of the independent external audit firm that performs audit services. In considering Ernst & Young LLP's (EY) appointment for the 2020 fiscal year, the Audit Committee reviewed the firm's qualifications and competencies, including the following factors: •
• EY's capability and expertise in handling the breadth and complexity of the Company's operations; • the qualifications and experience of key members of the engagement team, including the lead audit partner, for the audit of the Company's financial statements; • the quality of EY's communications with the Audit Committee regarding the conduct of the audit, and with management with respect to • external data on audit quality and performance, including recent PCAOB reports on EY; and • EY's reputation for integrity and competence in the fields of |
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm that performs audit services. In considering Ernst & Young's appointment for the 2017 fiscal year, the Committee reviewed the firm's qualifications and competencies, including the following factors:
Ernst & YoungEY has been retained as the Company's independent auditor continuously since 2005. In order toTo ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent auditor. The Audit Committee ensures that the mandated rotation of Ernst & Young'sEY's personnel occurs routinely and the Audit Committee and its Chairman areis directly involved in the review, selection and evaluation of Ernst & Young'sEY's lead engagement partner.
The Audit Committee and the Board of Directors believe that the continued retention of Ernst & YoungEY to serve as the Company's independent auditor for the year ending December 31, 20172020 is in the best interests of the Company and its shareholders, and the Board is asking shareholders to ratify this appointment. Representatives of Ernst & YoungEY are expected to be present at the meeting to respond to appropriate questions of shareholders and to make any desired statements.
Approval of the proposal requires the affirmative votes of a majority of the shares of Grainger common stock represented in person or by proxy at the meeting and entitled to vote. Abstentions will have the same effect as votes against the proposal. In the event the proposal is not approved, the Board will consider the negative vote as a mandate to appoint another independent auditor for the next year.
36 www.grainger.com
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
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The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and AnalysisCD&A be included in the Company's proxy statement for its 20172020 annual meeting of shareholders and in its Annual Report on Form 10-K for the year ended December 31, 2016,2019, as filed with the SEC. The Compensation Committee acts under a charter, last amended on December 12, 2018, that is reviewed annually, was last reviewed by the Board on December 13, 2016,annually.The Amended and Restated charter is available in the Governance section of Grainger's website at www.grainger.com/investor.http://invest.grainger.com/.
Michael J. Roberts, Chairman
Rodney C. Adkins
Stuart L. LevenickGary L. RogersBeatriz R. Perez
James D. Slavik
Members of the Compensation Committee of
the
Board of Directors
INDEPENDENT COMPENSATION CONSULTANT; FEES
In overseeing the Company's compensation programs, the Compensation Committee of the Board (the Compensation Committee) develops programs based on its own deliberations, programs and recommendations from management, and compensation and benefits consultants, including its independent compensation consultant.
After a review of the factors prescribed by the SEC and the NYSE rules and regulations, the Compensation Committee determined that Deloitte Consulting LLP (Deloitte Consulting) is independent and retained Deloitte Consulting as its independent compensation consultant.
At the Compensation Committee's direction, the independent compensation consultant:
Proxy Statement 37
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The Compensation Committee has engaged Deloitte Consulting LLP (Deloitte Consulting) as its independent compensation consultant. The following table sets forth the fees for services rendered by Deloitte Consulting and its affiliates with respect to fiscal year 2016:2019:
Type of Fee | 2016 | |||
|---|---|---|---|---|
Executive Compensation Consulting | $ | 237,666 | ||
All Other Consulting | $ | 711,375 | ||
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Total Fees | $ | 949,041 | ||
Type of Fee | | | 2019 | | ||
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Executive Compensation Consulting | | | $ | 182,724 | | |
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All Other Consulting | | | | $ | 1,214,821 | |
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Total Fees | | | $ | 1,397,545 | | |
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Executive Compensation Consulting Fees: Consists of fees billed for services provided to advise the Compensation Committee of the Board with respect to executive and directorDirector compensation.
All Other Consulting Fees: Consists of fees billed for all other services provided to Grainger. None of these fees are related to compensation matters.
Since 2003, affiliatesAffiliates of Deloitte Consulting have provided other services to Grainger that are unrelated to executive compensation matters. The decision to engage an affiliate of Deloitte Consulting for these other services was made by management. The Board has been informed of this ongoing work and the use of an affiliate of Deloitte Consulting but neither the Board nor the Compensation Committee specifically approved these services. After a review of the factors prescribed by the SEC and the NYSE rules and regulations, the Compensation Committee determined that its compensation consultant, Deloitte Consulting, did not have any conflicts of interest.
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| ompensation Discussion and Analysis | ||
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This Compensation Discussion and Analysis (CD&A) describes the Company's compensation philosophy and programs generally, andresponse to the 2019 Say on Pay vote, explains the compensation paid to the six most highly compensated executives in 2016—theCompany's Named Executive Officers (NEOs). in 2019 and describes the Company's compensation philosophy and programs generally.
Named Executive Officers (NEOs) for 20162019 Say on Pay and Shareholder Engagement
Since Grainger began submitting to shareholders an annual advisory vote to approve the compensation of its NEOs, we have historically received very strong support, with at least 94% of voting shareholders approving our pay proposal each year from 2011 to 2018. However, at the 2019 annual meeting of shareholders, there was only 83% support for our annual Say on Pay vote, which was below the Company's expectations.
The titles inCompany strongly believes that its compensation systems must be aligned with shareholder interests and value creation. We value the table above reflect positions held by the NEOs asperspectives of our shareholders and take their feedback seriously. In light of the end of 2016. These titles remain unchanged2019 annual Say on Pay vote, the Company understood that it needed to carefully review its overall compensation program, including each component, as of the date of this proxy statement. As explained under "Leadership Changes" below, between January 1, 2016 and September 30, 2016, Mr. Ryan servedwell as the Company's Chairman, Presidentoverall compensation delivered.
As described below, as a result of an extensive feedback and CEO, while Mr. Macpherson served asanalysis effort, we have made changes to our executive compensation program to directly respond to shareholders' concerns and better align with their expectations. We believe these changes will strengthen the Company's Chief Operating Officer (COO).link between pay and performance.
Leadership Changes Our Review Process
Long term CEO succession planning is crucialThe Compensation Committee and Company management completed a three-step process:
As part of a planned successionthis process, the Company named Mr. Macpherson CEO,reached out to a significant number of shareholders, including all major shareholders who did not support the 2019 Say on Pay vote as well as significant shareholders who supported the program. This included conversations with Mr. Ryan continuing to serve as Chairman of the Board. Concurrent with his appointment as CEO, Mr. Macpherson was also appointed to the Board.
Prior steps in the succession planning included promoting Mr. Macpherson to COO in August 2015. In that role, Mr. Macpherson was responsible for the Company's day-to-day operations and reported to Mr. Ryan. Previously, Mr. Macpherson had served the Company as Senior Vice President and Group President, Global Supply Chain and International since 2013; Senior Vice President and President, Global Supply Chain and Corporate Strategy,shareholders representing a position assumed in 2012; and Senior Vice President, Global Supply Chain, a position assumed in 2008.
The Board believes that Mr. Ryan's continued service as Chairman of the Board has enabled the Company to execute a smooth transition of the CEO role, while ensuring that the Board and Mr. Macpherson have retained Mr. Ryan and his significant knowledgelarge percentage of the Company's operations, strategy, peopleoutstanding shares.
We also had discussions with the leading proxy advisory firms, one which had recommended voting against our 2019 Say on Pay proposal and resources duringone which had recommended voting for the succession process.proposal. These discussions helped us understand the reasons for their voting recommendations on our compensation program.
Proxy Statement 39
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The feedback received from significant shareholders and the proxy advisory firms identified specific concerns with the level of CEO compensation in 2018. Specifically, there was a view that the compensation delivered under the long-term incentive program was not sufficiently tied to rigorous performance metrics. We agreed with the shareholders and proxy advisors that two design features of the long-term compensation program caused amounts awarded to be less connected to performance than expected.
The first feature was our method for determining the number of shares granted to all plan participants (including the CEO and other NEOs). The Company's long-standing practice for determining the number of shares for equity award grants was based on the average stock price over a 200-day period. In 2018, significant volatility in our stock price caused share prices to vary 83% from peak-to-trough within the 200-day period. As a result, the number of shares and value delivered also increased.
To avoid a similar outcome in the future, beginning with the 2019 long-term incentive program, we shifted our approach to use a 20-day average price when determining the number of shares awarded to plan participants.
The second feature was the performance target and single performance condition for the performance restricted stock units (PRSUs). PRSUs were half of the long-term compensation component in 2018 and were designed to be attainable with an 18% three-year average return on invested capital (ROIC) target that was within the Company's historic performance. Some of our shareholders and the proxy advisory firm that recommended against the Company's 2019 Say on Pay proposal viewed this target and the single performance trigger as insufficiently challenging.
To make our long-term compensation program more performance-based and to avoid a similar outcome in the future, beginning in 2020, the Company restructured its long-term incentive vehicles to replace stock options and PRSUs with 50% performance share units (PSUs) and 50% restricted stock units (RSUs). For the PSUs granted in 2020, we have established three performance measures that are aligned with the Company's growth strategy: (1) U.S. share gain, (2) endless assortment businesses' revenue growth, and (3) operating margin, each having challenging targets.
In addition to the actions taken in direct response to shareholder feedback, the Compensation Committee reduced executive pay levels to more closely approximate market median in 2020. The Committee, in consultation with its independent compensation consultant, based these adjustments on changes to the Company's peer group and the resulting median compensation levels for certain positions.
We believe that our new approach addresses the concerns raised in the 2019 annual Say on Pay vote, and we are committed to maintaining a program that links compensation to our strategy, goals and performance.
40 www.grainger.com
Compensation Discussion & Analysis Topics:
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Compensation Discussion and Analysis | | | |
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The table below sets out the concerns we heard from shareholders and the proxy advisory firms, and the actions we have taken in response to those concerns, in order to further align our executive compensation program with shareholder expectations:
| Area of Concern | | | Factors | | | Actions Taken | | | Effective | |||
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CEO Pay | | | | • Use of a 200-day average stock price to determine the number of long-term incentive shares resulted in a higher grant date value due to an unusually high stock price increase and volatility during this period. • CEO compensation above market median. | | | | ✓ The stock price used to determine the number of shares awarded under the 2019 grants was based on a 20-day average. ✓ The 2020 grants also used a 20-day average price to determine the number of shares awarded. | | | | 2019 and beyond |
| | | | | | | | ✓ Executive pay levels were reduced to more closely approximate the market median in 2020. These adjustments were based on recent changes to the Company's peer group. | | | | 2020 and beyond | |
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Long-Term Incentive—Strengthening Pay and Performance Link | | | • Some of our shareholders and one of the leading proxy advisory firms did not deem our long-term incentive mix of time-vested stock options and performance restricted stock units (PRSUs) as sufficiently performance-based. | | | ✓ Stock options and PRSUs have been eliminated from the 2020 long-term incentive program. ✓ The 2020 long-term incentive program includes 50% performance share units (PSUs) and 50% restricted stock units (RSUs). ✓ The PSU performance metrics are rigorous and based on a formulaic approach with traditional minimum, target, and maximum performance levels. | | | 2020 and beyond | |||
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Long-Term Incentive—Performance Target | | | | • The PRSUs had a single performance trigger requiring the achievement of a three-year average ROIC target of 18% or higher to vest into shares. • The PRSUs were designed so there would be no payout if the ROIC performance target was not met. | | | | ✓ We have replaced the PRSUs with PSUs for the long- term incentive program. ✓ The PSUs have three performance metrics: (1) U.S. share gain, (2) endless assortment businesses' revenue growth, and (3) operating margin, each having challenging targets. | | | | 2020 and beyond |
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Long Term Incentive—Alignment to Company Strategy | | | • The PRSUs required achievement of a three-year average ROIC target of 18% or higher to vest into shares. • Some shareholders believed that the single ROIC trigger was insufficiently aligned to Company strategy. | | | ✓ The 2020 long-term incentive plan is based on a formulaic structure comprised of three performance measures: (1) U.S. share gain, (2) endless assortment businesses' revenue growth, and (3) operating margin, each having challenging targets. ✓ The new metrics position the Company to gain share and grow profitability and are at the core of the Company's growth strategy as described in "Executive Summary" and "Long-Term Incentives." | | | 2020 and beyond | |||
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Short-Term and Long-Term Incentives—Overlapping Performance Conditions | | | | • The Company used capital efficiency (ROIC) and revenue (sales growth) in both its annual and long-term incentive plans, although we used different measurement periods and performance targets for each plan. | | | | ✓ For 2020, we have separate and unique performance measures for our annual and long-term plans. ✓ The 2020 annual incentive metrics continue to be focused on ROIC and sales growth targets. ✓ The 2020 long-term incentive metrics are based on different performance measures than the short-term incentive plan: (1) U.S. share gain, (2) endless assortment businesses' revenue growth, and (3) operating margin. | | | | 2020 and beyond |
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Proxy Statement 41
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Table of ContentsExecutive Summary—2019 Executive Compensation Program
1. Executive Summary
The Company's compensation program is based upon a philosophy that is applied to all Company employees—to attract and retain the best people and provide them appropriate performance-based incentives that encourage them to achieve results that create long-term shareholder value.
Named Executive Officers (NEOs) for 2019
| Officer | | | Title | |
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| D.G. Macpherson | | | Chairman of the Board & Chief Executive Officer (CEO) | |
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| Thomas B. Okray | | | | Senior Vice President & Chief Financial Officer |
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| John L. Howard | | | Senior Vice President & General Counsel | |
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| Paige K. Robbins | | | | Senior Vice President, Chief Technology, Merchandising, Marketing and Strategy Officer |
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| Deidra C. Merriwether | | | Senior Vice President & President, North American Sales & Service | |
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The Company's overall NEO compensation structure is designed to drive profitable growth leading to shareholder value creation. Employeescreation and create a strong link between pay and Company short-term and long-term performance. This philosophy extends throughout the Company as employees at all levels, of the Company, including its executives, are provided incentives to grow the business (Sales Growth) while achieving attractive investment returns (Return on Invested Capital, or ROIC) for the Company's shareholders. For executives, the compensation program is designed to link pay to performance and is structured to reward both annual and long-term Company performance while not encouraging excessive risk taking. The Company is focused on gaining share and propelling sales growth as part of its strategic objectives over the next several years and this is directly reflected in the 2020 long-term incentive design for executives which further reinforces pay for performance.
The basic compensation structure did not changeIncentives earned in 2016. Highlights include:2019 reflect our pay for performance philosophy, including the following financial results against our performance metrics:
NEO compensation includes
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| Compensation Discussion and Analysis |
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Table Compensation Overview
In 2019, NEO compensation mix did not change, as it includes a combination of Contents
base salary, short-term incentives, long-term equity incentives including PRSUs and stock options, and a performance-based retirement vehicle. The Company's 2019 NEO compensation usesis comprised of the following components:
| Element | | | Purpose | | | Link to Performance | | | Short/Long Term | |||||||
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| Establishes a market competitive and appropriate level of fixed compensation to attract and retain leaders. | | | | | Short-Term | ||||||||||
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| Annual Incentives (Management Incentive Program) | | | | Encourages annual results that create shareholder value. | | | | Linked to annual achievement of predetermined Company objectives—sales growth and ROIC. | | | | Short-Term | ||||
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| Retirement/Profit Sharing | | | Aligns the interests of the employees and shareholders as the Company's annual contribution varies year to year based on ROIC. | | | Linked to financial performance—contributions greater than 8% are based on Company performance. | | �� | | Long-Term | ||||||
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| | | | The initial grant value (above or below target) is linked to individual performance, while the ultimate value of the program is linked to stock price performance prior to exercise. | | | | Long-Term | ||||||||
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| Long-Term Incentive Plan Effective in 2019—PRSUs(1) | | | | | Linked to achieving a predetermined Company three-year profitability. | | | Long-Term | ||||||||
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Proxy Statement 43
| | | |
| | | Compensation Discussion and Analysis |
In 2020, the NEO compensation mix has been updated to reflect changes in the Company's Long-Term Incentive Program as a result of shareholder feedback relating to the 2019 Say on Pay vote and comprises the following compensation mix:
| Effective | | | Element | | | Purpose | | | Link to Performance | | | Short/Long Term | ||||||
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| | | Long-Term Incentive Plan Effective in 2020—Restricted Stock Units | | Links long-term incentives to stock appreciation. | | The initial grant value (above or below target) is linked to individual performance, while the ultimate value of the program is linked to stock price appreciation. | | Long-Term | |||||||||
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| New in 2020 | | | | Long-Term Incentive Plan Effective in 2020—Performance Share Units | | | | Aligns compensation with the Company's long-term strategic growth and profitability goals. | | | | Performance based and linked to achieving a predetermined Company three-year average profitability and growth goals. | | | | Long-Term | ||
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| | | Base Salary | | | Establishes a market competitive and appropriate level of fixed compensation to attract and retain leaders. | | | Fixed and based on individual performance. | | | Short-Term | |||||||
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| Elements Continuing from 2019 | | | | Annual Incentives (Management Incentive Program) | | | | Encourages annual results that create shareholder value. | | | | Linked to annual achievement of predetermined Company objectives—sales growth and ROIC. | | | | Short-Term | ||
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| | | Retirement/Profit Sharing | | | Aligns the interests of the employees and shareholders as the Company's annual contribution varies year to year based on ROIC. | | | Linked to financial performance—contributions greater than 8% are based on Company performance. | | | Long-Term | |||||||
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In order to encourage profitable growth while protecting shareholders' interests,2019, the Company's long-term incentive PRSU program focused on achieving three-year average ROIC performance above 18%. Performance is measured at the Company-wide level. PRSUs are capped at 100% of the target shares. The Company's long-term stock option program reflects stock price appreciation over the 10-year term of the stock option.
Changes in Long-Term Incentive Vehicles—The Company's long-term incentive plan reflects a change in long-term equity incentives from stock options and PRSUs to RSUs and PSUs for all 2020 grants. The 2020 NEO compensation programs includemix is comprised of base salary, short-term incentives, and long-term equity incentives including PSUs and RSUs, and a performance-based retirement vehicle.
Changes in Long-Term Incentive Metrics—The Company has modified the following risk mitigating features:2020 long-term incentive design and underlying metrics to correspond directly with the Company's strategic initiatives, which are critical to providing sustained shareholder returns and future growth. The metrics for 2020 PSU awards focus on three-year average U.S. share gain, endless assortment businesses' revenue growth, and operating margin. The Compensation Committee selected these performance measures because they are directly aligned with the Company's business strategy to gain share and grow profitability as:
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Compensation Discussion and Analysis | | | | ||||
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by being the go-to-partner for people who build and run safe, sustainable and productive operations.
Compensation Elements Continuing from 2019—The Company's annual incentive plan, retirement and base salary practices remain unchanged in 2020. The annual incentive plan focuses on one-year sales growth compared to the prior year and a predetermined level of ROIC, with both measures linked to the Company's one-year plan. Performance is measured at the Company-wide level. Short-term incentive plans are capped at 200% of the target award.
Determination of Total Target Compensation
Target total compensation for the Company's employees is generally set to approximate the market median. The weighting of the individual compensation components varies by level, with more senior level executives having a greater emphasis on performance-based long-term compensation—which aligns management incentives to the interests of shareholders. NEO compensation is generally structured so that the largest individual component is long-term equity, (stock options and performance shares), followed by base salary and the performance-based annual incentives (this detail is shown in the following table).incentives. Each NEO's compensation is compared to equivalent positions in a comparator group selected by the Compensation Committee (with assistance from the Committee's independent compensation consultant). NEO base salaries and long-term incentive grants are determined based on many factors including individual performance, responsibilities, internal equity and the overall relation to market levels of compensation.
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These components and the use of performance-based pay are consistent with the compensation mix seen inof the comparator group. The tables below show compensation components as a percentage of the total target compensation package.
Proxy Statement 45
Table of ContentsPerformance vs. Fixed Compensation
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| | Performance Based Compensation | | Fixed/Individual Based Compensation | |||||||||||||
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| NEO | | Company | | Peers | | Company | | Peers | ||||||||
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| Mr. Macpherson | 88% | 88% | 12% | 12% | ||||||||||||
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| Mr. Jadin | 79% | 78% | 21% | 22% | ||||||||||||
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| Mr. Howard | 75% | 74% | 25% | 26% | ||||||||||||
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| Mr. High | 74% | 73% | 26% | 27% | ||||||||||||
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| Ms. Robbins | 62% | 70% | 38% | 30% | ||||||||||||
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Annual vs. Long-Term Compensation
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| | Annual Compensation | | Long-Term Compensation | |||||||||||||
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| NEO | | Company | | Peers | | Company | | Peers | ||||||||
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| Mr. Macpherson | 27% | 28% | 73% | 72% | ||||||||||||
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| Mr. Jadin | 38% | 40% | 62% | 60% | ||||||||||||
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| Mr. Howard | 44% | 45% | 56% | 55% | ||||||||||||
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| Mr. High | 45% | 45% | 55% | 55% | ||||||||||||
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| Ms. Robbins | 59% | 49% | 41% | 51% | ||||||||||||
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"Performance Based Compensation" consists of the annual incentive plan, long-term incentives, and profit sharing.
"Fixed/Individual Based Compensation" consists of base salary.
"Annual Compensation" consists of base salary and the annual incentive plan.
"Long-term Compensation" consists of stock options, performance shares, and profit sharing. Annual profit sharing contributions are based on the Company's short-term performance, distributions are restricted, and full vesting occurs after five years of service, making this component a long-term benefit.
"Peers" was determined from the comparator group in the 2016 Aon Hewitt Compensation Study as described further within Topic 7.
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The Company's compensation structure links pay with Company performance. 2016 financial results did not meet expectations and therefore both the annual bonus payments and long-term performance share program were settled below target:
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Table of Contents Risk Mitigating Actions
In order to encourage profitable growth while protecting shareholders' interests, the Company's compensation programs include the following risk mitigating features:
Compensation Program vs. Risk Mitigating Action | | | Annual Incentives | | | Stock Options | | | PRSUs | |||
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Robust Goal Setting | | | ✓ | | | | | |||||
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Balanced Performance Measures | | | | ✓ | | | | ✓ | | | | ✓ |
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Claw-Back Policies | | | ✓ | | | ✓ | | | ✓ | |||
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Stock Ownership Requirements | | | | N/A | | | | ✓ | | | | ✓ |
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Performance Payouts Capped | | | ✓ | | | ✓ | | | ✓ | |||
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No Dividend Equivalents Paid on PRSUs | | | | N/A | | | | N/A | | | | ✓ |
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Compensation Committee Oversight | | | ✓ | | | ✓ | | | ✓ | |||
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Internal and Independent External Risk Review | | | | ✓ | | | | ✓ | | | | ✓ |
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Restrictions on Hedging and Pledging | | | N/A | | | ✓ | | | ✓ | |||
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The Company is focused on profitable daily sales growth overbelieves that the short-appropriate metrics are used in its incentive plan design and long-term. Using ROIC and sales growth for both short-term and long-term incentive awards doesthe metrics do not create unreasonable risk because:risk.
Different Performance Goals. The short-term incentive program focuses on sales growth compared to the prior year and a pre-determined ROIC, with both measures linked to the Company's one-year plan. The long-term incentive program focuses on a specific sales dollar goal in the third year of the performance period. In addition, the long-term incentive program requires a threshold level of ROIC over the performance period in order for the awards to vest.
2. Compensation Philosophy, Plans, and Practices
As part of the Company's pay for performance philosophy, the Company's compensation program includes several features that maintain alignment with shareholders:
46 www.grainger.com
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Compensation Discussion and Analysis | | | |
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discovered to have caused damage or injury to the Company's property or reputation or violations of non-competition or non-solicitation agreements, or in the event an Executive receives any amount in excess of what the Executive should have received for any reason.
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The Company's compensation programs also maintain alignment with shareholders by not including certain features:
Overall, the Company's compensation program is designed to be straightforward and understandable to its employees and shareholders, and to drive long-term shareholder value creation by aligning compensation with both individual and Company performance.
3. Compensation Committee of the Board
The Compensation Committee of the Board is responsible for the Company's compensation programs.
The Compensation Committee oversees the Company's compensation and benefit programs for all officers and employees. The Compensation Committee is responsible for ensuring that the Company's compensation practices provide appropriate incentives to increase long-term shareholder value, reflect the highest level of integrity, and protect the interests of shareholders. One of its responsibilities is to make certain that a competitive compensation structure is in place that will attract, reward, and retain employees and to motivate them to grow the business profitably. The Compensation Committee is also charged with ensuring that compensation, especially for executives, is linked to both individual and Company performance, and ensuring that compensation policies and practices for all employees do not include incentives to take inappropriate risk.
In setting individual compensation levels, the Compensation Committee selects a compensation comparator group of companies and reviews studies of total compensation paid to executives in those comparator group companies with similar duties and responsibilities. The Compensation Committee then considers a variety of reference points, including competitive compensation data at the 25th, 50th,
Proxy Statement 47
| | | |
| | | Compensation Discussion and Analysis |
and 75th percentiles, individual and Company performance, the executive's overall experience, replaceability, internal equity, unique skills, and management's recommendation to determine appropriate compensation for each executive. All elements of compensation are valued and reviewed in evaluating the relative competitiveness of the Company's compensation practices against the comparator group. Target total compensation for the Company's employees and executives as a whole (including the NEOs) is generally set to approximate the market median.
The Compensation Committee reviews at least annually a tally sheet for each NEO to evaluate the potential value of all compensation. The tally sheet includes each NEO's current base salary, annual incentive award, and the value of all outstanding equity-based awards (both vested and unvested), deferrals, benefits, and perquisites, as well as potential payments under retirement and certain change in control situations. Since no NEO has an employment agreement with the Company that guarantees continued employment, the tally sheets also facilitate the Compensation Committee's evaluation of the reasonableness ofvested and unvested awards and their likelythe retention value.
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Tablevalue of Contentsthese awards.
Under its charter, the Compensation Committee makes executive compensation decisions and recommends actions to the Board of Directors and to shareholders (for example, related to the advisory Say on Pay vote or equity plan proposals), as appropriate.
In discharging its responsibilities, the Compensation Committee regularly consults with independent advisors, compensation consultants, and the Company's management. After a review of the factors prescribed by the SEC and the NYSE, the Compensation Committee determined that its compensation consultant, Deloitte Consulting, is an independent advisor under the applicable rules and regulations.The Compensation Committee's charter can be foundis available in the Governance section of Grainger's website at www.grainger.com/investor.http://invest.grainger.com/.
48 www.grainger.com
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Compensation Discussion and Analysis | | | |
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The following steps are performed each year to review, recommend, and approve NEO compensation. These steps are described further under "Role of Management," "Compensation Comparator Group," and "Base Salaries."
| | | | | Determine Comparator Group | | | Perform Executive Compensation Study | | | Determine CEO Pay | | | Determine NEO (other than CEO) Pay | | |||||
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| Purpose | | | A review of the comparators is performed to maintain a group of companies that are relatively similar in complexity and size to Grainger | | | An analysis of NEO compensation versus the comparator group is performed to ensure compensation is market competitive | | | Recommendations for base salaries and changes to the structure and targets of short- term and long-term incentive programs are made in part based on market data | | |||||||||
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| Timing of Analysis | | | | Annual | | | | Annual | | | | Annual | | | | Annual | | | |
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| Recommendation | | | Recommended by the independent compensation consultant to the Compensation Committee | | | Recommended by the independent compensation consultant to the Compensation Committee | | | Reviewed and recommended by the Compensation | | | Recommended by the Chairman and CEO | | ||||||
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| Approval | | | Reviewed and approved by the Compensation Committee | | | Reviewed by the Compensation Committee | | | Committee and approved by Independent Directors in Executive Session | | | Reviewed and recommended by the Compensation Committee, then to be approved by the Board | | ||||||
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| Planned Timing of Approval | | | | July | | | | October | | | | February | | | | February | | | |
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Proxy Statement 49
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| | | Compensation Discussion and Analysis |
The Compensation Committee's oversight responsibility includes assessing the relationship between potential risk created by the Company's compensation programs and their impact on long-term shareholder value. The Company's compensation programs are designed to include risk-mitigating features, and the Compensation Committee also engaged its independent compensation consultant, (Deloitte Consulting)Deloitte Consulting, to assist within the process of an annual internal risk assessment of all incentive-based compensation, including short-term and long-term incentive programs.
The incentive compensation programs include risk-mitigating components, such as:
Since 2009, the Compensation Committee has engaged its independent compensation consultant, Deloitte Consulting, to conduct a risk assessment that is completed every three years. The independent consultant will conduct its nextDeloitte Consulting conducted the Company's most recent triennial risk assessment in 2018.2018 and the results were discussed with the Compensation Committee. For the interim years, the Company conducts an annual internal risk review based on practices and methodologies recommended by the Compensation Committee's independent compensation consultant. The results of the internally-conducted 2016 risk review were discussed with the Committee.
Based on the risk review conducted in 2019 and the Compensation Committee's discussions, the Compensation Committee does not believe that the Company's compensation policies and practices are reasonably likely to have a material adverse effect on the Company.
5. Say on Pay
At the 2016 annual meeting of shareholders, the advisory vote to approve the compensation of the Company's NEOs received the support of 96% of the shareholders voting on the proposal. The Compensation Committee has considered these results and believes that they confirm the appropriateness of the Company's current executive compensation policies and practices. The Company routinely discusses its compensation philosophy with its shareholders as part of investor relations activities.
The Company is required to check with shareholders on the frequency of the advisory Say on Pay vote every six years. In 2011 and 2017, management recommended an annual advisory Say on Pay vote. The next advisory frequency vote is scheduled for 2023.
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6. Role of Management
Management assists the Compensation Committee in the design, recommendation, and implementation of compensation programs.
Members of management assist the Compensation Committee by routinely recommending programs that management believes will provide the appropriate level of compensation and incentives consistent with the Company's compensation philosophy. Consistent with this process, management works with advisors from Aon HewittDeloitte Consulting 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 and approved by the Board. For NEOs other than Messrs. Ryan andMr. Macpherson, the recommendations also include the structure and targets of short-term and long-term incentive programs, as well as changes to programs required for regulatory compliance. These recommendations are reviewed and approved by the both the Chairman of the Board and the CEO before they are presented to the Compensation Committee. Messrs. Ryan andMr. Macpherson's compensation is reviewed by the Compensation Committee in conjunction with its independent compensation consultant, together with other independent directorsDirectors (as directed by the Board), in executive session without members of management present.
7. 50 www.grainger.com
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Compensation Discussion and Analysis | | | |
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The Company's compensation program is regularly benchmarked against a Compensation Committee-approved comparator group of companies that are similar to the Company in size and complexity. The Company performs these studies to understand current market practices and to provide a reference point for compensation discussions.
Every other year, the Compensation Committee determines a compensation comparator group of companies and undertakes a study of total compensation paid to executives occupying similar positions with similar duties and responsibilities in the comparator companies. All elements of compensation are valued and considered when determining the relative competitiveness of the Company's compensation practices. A comparator group compensation study was conducted in 2016 (20162019 (2019 Compensation Study).
The 20162019 comparator group consists of 2218 businesses that are relatively similar in complexity and size to the Company and represent the types of major companies with which the Company historically competes for executive talent. The companies that were selected for the 20162019 Compensation Study are generally within a range of 0.5 to 2.0 times Grainger's annual revenue. The competitive market for executive talent includes companies both within and outside the same industry or sector as the Company. Most of the Company's publicly traded direct competitors tend to be too small in sales or scope of operations for direct compensation comparisons with the Company. Including a broader range of companies provides a more representative depiction of the Company's competitive market for talent. Therefore, companies used for compensation comparison purposes differ from those in the industry indices used in the Company Performance Graph in Part II, Item 5 of the Company's most recent Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2019.
Management played a minimal role in selecting the 2016 compensation comparator group, as theThe Committee relied on Aon Hewittits independent compensation consultant, Deloitte Consulting, for survey and market data and its independent compensation consultant (Deloitte Consulting) for assistance.data. The role of management in selecting the comparator group was limited to providing general comments on the relevance of each industry represented by the comparator companies.
Proxy Statement 51
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Listed below are the 20162019 Compensation Study comparator group and the 20152018 revenues and enterprise values for each company.
| | | | | | | | | | Company | | | | 2018 Revenue ($mil)* | | | 2018 Enterprise Value ($mil)** | |
Company Name | | 2015 Revenue ($mil) | | 2015 Enterprise Value* ($mil) | |||||||||||||
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Air Products and Chemicals, Inc. | $ | 9,895 | $ | 33,467 | |||||||||||||
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AutoZone, Inc. | $ | 10,187 | $ | 26,791 | |||||||||||||
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Ball Corporation | $ | 7,997 | $ | 13,042 | |||||||||||||
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CH Robinson Worldwide Inc. | $ | 13,476 | $ | 9,802 | |||||||||||||
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The Clorox Company | $ | 5,655 | $ | 15,433 | |||||||||||||
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Cummins Inc. | $ | 19,110 | $ | 15,806 | |||||||||||||
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Dover Corporation | $ | 6,956 | $ | 11,525 | |||||||||||||
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Eastman Chemical Company | $ | 9,648 | $ | 17,116 | |||||||||||||
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Eaton Corporation | $ | 20,855 | $ | 32,235 | |||||||||||||
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Genuine Parts Company | $ | 15,280 | $ | 13,387 | |||||||||||||
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HD Supply Holdings, Inc. | $ | 7,388 | $ | 11,046 | |||||||||||||
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Illinois Tool Works Inc. | $ | 13,405 | $ | 38,503 | |||||||||||||
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Ingersoll-Rand plc | $ | 13,301 | $ | 18,412 | |||||||||||||
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Mattel, Inc. | $ | 5,703 | $ | 11,192 | |||||||||||||
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The Mosaic Company | $ | 8,895 | $ | 12,252 | |||||||||||||
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Owens-Illinois, Inc. | $ | 6,156 | $ | 8,501 | |||||||||||||
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Parker-Hannifin Corporation | $ | 12,712 | $ | 17,495 | |||||||||||||
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PPG Industries, Inc. | $ | 15,330 | $ | 29,827 | |||||||||||||
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Rockwell Automation, Inc. | $ | 6,308 | $ | 12,955 | |||||||||||||
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The Sherwin-Williams Company | $ | 11,339 | $ | 26,038 | |||||||||||||
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Textron Inc. | $ | 13,423 | $ | 15,182 | |||||||||||||
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WESCO International, Inc. | $ | 7,519 | $ | 3,206 | |||||||||||||
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| | Anixter International Inc. | | | $8,400 | | | $3,012 | |||||||||
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25th Percentile | $ | 7,421 | $ | 11,706 | |||||||||||||
| | | | | | | | | | Avnet, Inc. | �� | | | $19,037 | | | | $5,215 |
Median | $ | 10,041 | $ | 15,308 | |||||||||||||
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75th Percentile | $ | 13,419 | $ | 24,132 | |||||||||||||
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| | Beacon Roofing Supply, Inc. | | | $6,418 | | | $5,052 | |||||||||
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W.W. Grainger, Inc. | $ | 9,973 | $ | 14,360 | |||||||||||||
| | | | | | | | | | CDW Corporation | | | | $16,241 | | | | $15,528 |
W.W. Grainger, Inc. Percentile Rank | 49 | % | 45 | % | |||||||||||||
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| | Eaton Corporation plc | | | $21,609 | | | $36,594 | ||||||||||
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| | eBay Inc. | | | | $10,746 | | | | $31,437 | |||||||
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| | Fastenal Company | | | $4,965 | | | $15,270 | ||||||||||
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| | Genuine Parts Company | | | | $18,735 | | | | $16,699 | |||||||
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| | HD Supply Holdings, Inc. | | | $5,121 | | | $8,622 | ||||||||||
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| | Henry Schein, Inc. | | | | $13,202 | | | | $14,733 | |||||||
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| | Illinois Tool Works Inc. | | | $14,768 | | | $47,855 | ||||||||||
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| | Ingersoll-Rand Plc | | | | $15,668 | | | | $25,514 | |||||||
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| | Insight Enterprises, Inc. | | | $7,080 | | | $1,841 | ||||||||||
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| | LKQ Corporation | | | | $11,877 | | | | $11,684 | |||||||
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| | Parker-Hannifin Corporation | | | $14,302 | | | $23,861 | ||||||||||
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| | Sanmina Corporation | | | | $7,110 | | | | $1,831 | |||||||
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| | Univar Solutions Inc. | | | $8,633 | | | $5,026 | ||||||||||
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| | WESCO International, Inc. | | | | $8,177 | | | | $3,385 | |||||||
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| | 25th Percentile | | | | $7,377 | | | | $5,032 | |||||||
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| | 50th Percentile | | | $11,311 | | | $13,209 | ||||||||||
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| | 75th Percentile | | | | $15,443 | | | | $22,071 | |||||||
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| | W.W. Grainger, Inc. | | | $11,221 | | | $17,783 | ||||||||||
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| | Percent Rank | | | | 50% | | | | 71% | |||||||
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The Compensation Committee reviewed and approved the comparator group and considered the findings of the 20162019 Compensation Study in conjunction with a tally sheet listing the potential value of all compensation available for the NEOs. The Compensation Committee concluded that the NEOs' earned and potential awards for 20162019 were consistent with the Company's pay philosophy, Company and individual performance, and market practices (as reflected in the 20162019 Compensation Study). Based on this review and the strong support from shareholders on the Say on Pay proposal, the Committee did not make specific adjustments to the design of the Company's compensation programs. The next Compensation Study and comparator group validation is scheduled to take place in 2018.2020.
52 www.grainger.com
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Base salaries are intended to provide an appropriate level of fixed compensation to attract and retain executives. Base salaries are determined after a detailed evaluation of individual performance, competitive market levels, and executive experience.
Annual base salary adjustments are considered and implemented to reflect individual performance, contribution and experience, and to maintain market competitiveness. The 20162019 Compensation Study showed that, on average, the Company's base salaries for NEOs were approximately 2% belowwithin the market median.range.
Base salary increases for the NEOs, with the exception of Messrs. Ryan andMr. Macpherson, are reviewed and approved by both the Chairman of the Board and the CEO before they are presented to the Compensation Committee. In approving recommendations,Committee for review and recommendation to the Board. The Compensation Committee reviews these recommendations in conjunction with its independent compensation consultant.
The compensation awarded to Messrs. Ryan andMr. Macpherson iswas determined by the Board with assistance from the Compensation Committee and its independent compensation consultant.Deloitte Consulting. The Compensation Committee reviews and approves the corporate goals and objectives relevant to Messrs. Ryan andMr. Macpherson's compensation and evaluates each individual'shis performance in light of those goals and objectives. Together with the other independent directorsDirectors (as directed by the Board), the Compensation Committee determinesdetermined and approves Messrs. Ryan andapproved Mr. Macpherson's compensation level based on this evaluation, in executive session without members of management present.
Following the annual performance management review process (which is similar to the process in which all employees participate), base salaries are reviewed and adjusted (if appropriate) to reflect individual and Company performance, base salaries for comparable positions from market studies, experience, tenure, fairness and internal equity.
Based on the process outlined above, on April 1, 2016, Mr. Ryan's base salary was increased to $1,191,942 (+3.0%) and Mr. Macpherson's base salary was increased to $850,000 (+6.3%). In addition, as a result of the Company naming him Chief Executive Officer on October 1, 2016, Mr. Macpherson's base salary was increased to $1,000,000 (+17.6%).
In addition,2019, the following base salary adjustments were made for the other NEOs effective April 1, 2016:2019:
| Name | | | Percentage Increase | | | Base Salary Effective 4/1/2019 | ||
| | | | | | | | | |
| D.G. Macpherson | | | 3% | | | $1,060,900 | ||
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| Thomas B. Okray | | | | 2% | | | | $715,000 |
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| John L. Howard | | | 1% | | | $715,000 | ||
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| Paige K. Robbins | | | | 4%(1) | | | | $530,000 |
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| Deidra C. Merriwether | | | 5%(2) | | | $475,000 | ||
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Proxy Statement 53
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Annual incentives are intended to provide an appropriate level of variable compensation to encourage executives to achieve annual results that create shareholder value without encouraging excessive risk taking.
NEOs are eligible to receive short-term cash-based incentives on the achievement of specified annual Company-wide financial performance measures set forth in the Company Management Incentive Program (MIP). The Company structures the MIP to motivate performance that balances short-term and long-term results and aligns the interests of management with shareholders.
Each NEO's target incentive award under the annual incentive program is based on a review of competitive market practice and is designed to approximate a market value that is generally at the median of the comparator group. The following table displays the 20162019 MIP target (program and payment)payment, which is paid based on total Company results, applicable to each NEO.
| Name | | | 2019 Target Incentive (as a % of base salary) | | | Actual Payment (as a % of the target) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||
| D.G. Macpherson | | | 135% | | | 75% | ||||||||||||||||||||
| | Name | | | 2016 Target Incentive (as a % of base salary) | | | Program | | | Actual Payment (as a % of the target) | | | | | | | | | ||||||||
| Thomas B. Okray | | | | 90% | | | | 75% | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||
| John L. Howard | | | 80% | | | 75% | ||||||||||||||||||||
| | James T. Ryan | | | | 130% | | | | Company | | | 75% | | | | | | | | | | |||||
| Paige K. Robbins | | | | 80% | | | | 75% | ||||||||||||||||||
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| Deidra C. Merriwether | | | 60%(1) | | | 75% | ||||||||||||||||||||
| | D.G. Macpherson | | | | | 125% | * | | | | Company | | | | 75% | | | | | | | | | | ||
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| | Ronald L. Jadin | | | | 85% | | | | Company | | | 75% | | |||||||||||||
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| | John L. Howard | | | | | 75% | | | | | Company | | | | 75% | | ||||||||||
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| | Joseph C. High | | | | 75% | | | | Company | | | 75% | | |||||||||||||
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| | Paige K. Robbins | | | | | 55% | | | | | Company | | | | 75% | | ||||||||||
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The Compensation Committee and management perform a thorough analysis in setting financial measures and goals for the Company MIP to ensure the program appropriately balances the Company's objectives, is aligned with long-term shareholder interest, and has appropriate and effective risk-mitigating components. While the measures and goals are clearly aligned with the Company's strategy, they also account for current economic conditions. The combination of sales growth and ROIC performance, as well as threshold, target, and maximum payment levels, serves to mitigate risk to the Company's shareholders.
The Company believes the design of the annual incentive program createssupports the creation of shareholder value andas it encourages performance by focusingmanagement to focus on profitable sales growth and ROIC. The basic framework of the MIP has been in place for more than ten10 years, although specific objectives and performance target levels have been modified on a year-by-year basis in light of the current economic and competitive environment. This framework was selected to align with Company strategy and to balance sales growth with profitability, efficiency, expense management, and asset management. ROIC reflects how effectively management uses Company assets and is generally defined by the Company as pre-tax operating earnings divided by net working assets. Year-over-year daily sales growth is determined by year-over-year results. Acquisitions and divestitures that occur during the year are not included in the calculation of daily sales growth or ROIC. These measures are consistent with the Company's objective of growing profitably over time, which it believes is closely linked with shareholder value creation.
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The 20162019 Company MIP was based on the Company's 2019 Adjusted ROIC(1) and year-over-year daily sales growth. The Company determined the payment earned for ROIC and the payment earned for sales growth, and the two amounts were added together:
MIP Payment=(SalesPayment = (Sales Growth Performance+Performance + ROIC Performance)
54 www.grainger.com
| | | |
Compensation Discussion and Analysis | | | |
| | |
The following table shows various payout scenarios that were established at the beginning of the year:year for 2019:
2016 Management Incentive Program
| ROIC Performance | | | % Payout* | | ||||||||
| ROIC Performance* | | | % Payout** | |||||||||
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| <21.60% | | | | 0% | | | ||||||
| < 11.3% | | | 0% | |||||||||
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| 21.60% | | | | | 50% | | | |||||
| 24.6% | | | | 25% | ||||||||
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| 24.10%** | | | | 75% | | | ||||||
| 30.5% to 30.7% | | | 50% | |||||||||
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| ³26.60% | | | | | 100% | | | |||||
| 36.5% | | | | 75% | ||||||||
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| 49.8% | | | 100% | |||||||||
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| Daily Sales Growth Performance | | | % Payout* | | ||||
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| £5.50%** | | | | 0% | | | ||
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| 6.15% | | | | | 25% | | | |
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| 6.80% | | | | 50% | | | ||
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| ³8.10% | | | | | 100% | | | |
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| Daily Sales Growth Performance* | | | % Payout** | |
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| < –13.3% | | | 0% | |
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| 0.0% | | | | 25% |
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| 6.3% to 7.7% | | | 50% | |
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| 12.5% | | | | 75% |
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| 25.8% | | | 100% | |
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The Company believes that it establishes sales growth and ROIC targets that are rigorous and provide an appropriate level of motivation. Under the Terms and Conditions of the MIP, the Committee has the discretion to adjust the reported financial results for incentive plan purposes to correct for any unusual circumstances, both positive and negative, that might affect ROIC or sales growth. For 2016, the Compensation Committee adjusted ROIC for the impact of certain items that the Company believes are not indicative of ongoing operations relating to (1) accounting adjustments related to customer unclaimed property; (2) increasing the Company's pre-tax reserve for resolving tax, freight, and miscellaneous billing issues relating to government contracts with the General Services Administration; and (3) the impairment charge attributable to the Fabory Group to reflect the Company's operating performance during the year. A more detailed discussion of these items is included in Part II, Item 6 and Item 8, Note 17 to the Consolidate Financial Statements, of the Company's most recent Annual Report on Form 10-K. The net effect of these adjustments increased the Company MIP payout from 62% to 75% of target.
Incentive amounts paid to Messrs. Ryan, Macpherson, Jadin, Howard, and High were based on the performance targets established for the 2016 MIP and were made under a separate annual incentive program described in the 2015 Incentive Plan. This program is designed to ensure that annual incentives are performance-based and fully tax deductible by the Company under Section 162(m) of the Internal Revenue Code. Under the program, the Committee allocates a portion of an incentive pool to each participant. The pool is funded with 5% of the Company's net earnings and the independent members of the Board have the authority to make specific awards. The sum of the individual participants' percentages may not be greater than 100% of the pool. The independent members of the Board may use their discretion to reduce these amounts but may not increase them. Consistent with prior years, the independent members of the Board used their discretion to reduce the amounts to yield payments equal to those that would have made using the same financial target and measures as the 2016 MIP.
Consistent with current practice, the 2017 MIP will continue to utilize daily sales growth along with ROIC as performance measures and all NEOs will be aligned to the Company MIP.
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The Company annually provides long-term incentives to NEOs and other key managers in order to align with the following elements of the Company's strategy to improve shareholder value:
The Company's long-term incentives for NEOs consist of stock options and performance shares and are provided under shareholder-approved incentive plans. In 2016, the Company structured awards such that stock options represent approximately 70% of the total value of long-term incentive compensation and performance shares represent approximately 30% of the total value. Providing a mix of different types of equity awards is consistent with market practice for senior executives. Using both stock options and performance shares provides incentives to drive shareholder value creation and the three year vesting schedule aids in executive retention.
The target number of shares provided for stock options and performance share awardsgranted to the NEOs is designed to approximate anthe median economic value that targets the median of the compensation comparator group for comparable jobs. The Compensation Committee annually establishes the target value of the award based on the executive's position. The actual award may be adjusted up or down to reflect individual performance. The value
Proxy Statement 55
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| | | Compensation Discussion and Analysis |
In 2019, the Company's long-term incentive mix continued to be comprised of 50% stock options and 50% PRSUs. Beginning with the 2019 equity grants, Grainger adjusted the methodology for calculating the underlying shares for both Directors and grant-eligible employees from using thea 200-day average price to a 20-day average stock price as ofended January 31 into better reflect market practice. Beginning with the year of grant. The use of2020 equity grants, Grainger has adjusted this methodology to be the 200-day20-day average to calculate the number of shares is intended to smooth stock price volatility that can distort the number of shares awarded.through March 31.
NEO Long-Term Incentives Overview
The long-term incentives provided to NEOs during 2019 and for 2020 are summarized as follows:
| Year | | | Award | | | Weight | | | Vesting & Term | | | Performance Measure | ||||
| | | | | | | | | | | | | | | | | |
| 2019 | | | Stock Options | | | 50% | | | Three-year vesting; 20-day average stock price as of 1/31 used to determine the number of shares granted; exercise price based on the closing stock price on the date of grant; 10-year term. | | | Grant allocated based on individual performance; long-term value based on appreciation in stock price. | ||||
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| | |
| | | | 50% | | | | Three-year cliff vesting contingent on performance; 20-day average stock price as of 1/31 used to determine the number of shares to be granted 4/1. | | | | Three-year average ROIC. | |
| | | | | | | | | | | | | | | | | |
2020 | | |
| | | 50% | | | Three-year graded vesting; 20-day average stock price as of 3/31 to be used to determine the number of shares to be granted on 4/1. | | | Grant allocated based on individual performance; long-term value based on appreciation in stock price. | ||||
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| | |
| | | | 50% | | | | Three-year cliff vesting contingent on performance; 20-day average stock price as of 3/31 to determine the number of shares to be granted on 4/1. | | | | U.S. share gain, endless assortment businesses' revenue growth, and operating margin percentage. | |
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Changes to Long-Term Incentive Plan Effective in 2020
After careful review and consideration informed by the Company's engagement with shareholders following the 2019 Say on Pay voting results, the Company modified the Long-Term Incentive Plan effective in 2020. In response to shareholder input and a review of market practice, the Company utilizes a vehicle mix of 50% RSUs and 50% PSUs.
The Company also utilizes a 20-day average stock price ending March 31 to determine the number of shares awarded the NEOs to further mitigate significant differences in the value used to convert shares and the stock price value on the day of grant. The Company will continue to evaluate equity vehicles
56 www.grainger.com
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Compensation Discussion and Analysis | | | |
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for future programs to provide appropriate incentives to drive long-term shareholder value creation, align Management with the Company's strategic initiatives, and remain responsive to market practice.
Long-Term Incentive Plan Effective in 2020 (PSUs)
The Company's 2020 Performance Share Unit program provides the NEOs and other executives with a potential share payout depending on U.S. share gain, endless assortment businesses' revenue growth, and operating margin achievement over a three-year cycle measured at the end of the third year based on the period average. The Compensation Committee (with the assistance of its independent compensation consultant) and management perform a thorough analysis in setting the financial measures and threshold, target, and maximum goals for a three-year performance cycle that begins January 1 of the first year. No dividend equivalents are paid on PSUs. The Compensation Committee may use different objectives and targets from year to year to maximize alignment with then-current business objectives and to reflect economic conditions.
The Company believes that these metrics are essential to gaining share and achieving profitable growth and are the appropriate performance measures to align with our pay for performance philosophy.
Long-Term Incentive Plan Effective in 2020 (RSU)
The Company's RSU program provides the NEOs and other executives with RSUs denominated in units of common stock with grants allocated based on individual performance. RSUs align NEO's and other executives' interests with stock price movement over time and three-year vesting encourages meaningful retention.
2017-2019 Performance Share Unit Cycle
For the 2017-2019 PSU cycle, the program was designed to reward for achievement based on a three-year average ROIC and 2019 sales. The sales goal was established when 2016 sales were $10.0 billion. The Company's net sales in 2019 and 2017-2019 Adjusted Average ROIC(1) determined the number of shares earned.
The Company calculated the payment earned for Company net sales and the payment earned for 2017-2019 Adjusted Average ROIC(1), and the two amounts are added together based on the respective tables for each measure:
Total Company | | | % Payout | |||||||||
| | | | | | ||||||||
<$11.4B | | | 0% | |||||||||
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$11.9B | | | | 50% | ||||||||
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³$12.4B | | | ||||||||||
100% | ||||||||||||
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Three-Year Average ROIC | | | % Payout | |
| | | | | |
£19.1% | | | 0% | |
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21.6% | | | | 50% |
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³24.0% | | | 100% | |
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Three-year average ROIC at or above 24% or sales at or above $12.24 billion in 2019 would have independently achieved 100% of the target award. Achieving both would have yielded 200% of the target award.
Proxy Statement 57
| | | ||
| | | Compensation Discussion and Analysis |
In 2019, sales were $11.5 billion, and 2017-2019 Adjusted Average ROIC(1) was 27.5%. Accordingly, the participants earned 109% of their target. The Compensation Committee has approved the Company's calculation of 2017-2019 Adjusted Average ROIC(1) for purposes of the 2017-2019 PSU cycle.
2018-2020 PRSU Cycle
The Company's PRSU program provides the NEOs and other executives with a potential share payout depending on ROIC achievement over a three-year cycle. The actual number of shares paid to an NEO will be either 0% or 100% of the target number of PRSUs awarded. The Compensation Committee (with the assistance of its independent compensation consultant) and management perform a thorough analysis in setting the financial measures and goals for a three-year performance cycle that begins January 1 of the first year. The ROIC component is measured at the end of the third year based on the three-year average. These measurement dates reinforce a long-term focus. No dividend equivalents are paid on PRSUs.
The 2018 PRSU Program focuses on maintaining profitability over a three-year period and retaining key talent during our pricing initiative. Vesting is based on achieving total Company three-year average ROIC of 18%, as shown in the table below.
Three-Year Average ROIC | | | % Payout | ||||||||||
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<18% | | | |||||||||||
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³18% | | | | ||||||||||
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This award will remain at risk through 2020.
2019-2021 PRSU Cycle
The Company made one final grant of its previous PRSU program with the same features as the 2018 program. The 2019 PRSU Program focuses on maintaining profitability over a three-year period. Vesting is based on achieving total Company three-year average ROIC of 18%, as shown in the table below.
Three-Year Average ROIC | | | % Payout | |
| | | | | |
<18% | | | 0% | |
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³18% | | | | 100% |
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This award will remain at risk through 2021.
Stock OptionsLong-Term Incentive Plans Effective in 2019 (Stock Options)
The Company's stock options provide the right to purchase Company stock at a specified price over a ten-year10-year term with three-year cliff vesting. They are intended to directly link management's and shareholders' interests by tying a substantial portion of long-term incentives to stock price appreciation. The ten-year term is designed to focus the NEOs on long-term value creation. Three-year cliff vesting encourages meaningful retention before an executive canmay realize any value created by stock price appreciation. Stock option repricing is not permitted under any of the Company's equity incentive plans. Stock options are awarded at an exercise price equal to the closing price of the Company's common stock reported on the business day of the grant.
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Performance Shares
The Company's performance share program provides the NEOs and other executives with a potential share payout depending on sales growth and ROIC achievement over a three-year cycle. The actual number of shares paid to an NEO can range from 0% to 200% of the target number of performance shares awarded. The Compensation Committee (with the assistance of its independent compensation consultant) and management perform a thorough analysis in setting the financial measures and goals for a three-year performance cycle that begins January 1 of the first year. The sales growth component is measured at the end of the cycle's third year and the ROIC component is measured at the end of the third year based on the three-year average. These measurement dates reinforce a long term focus. Dividend equivalents are not paid on performance shares. Due to the three-year cycle that each award covers, the Company has three performance share cycles ongoing at all times.
|
For the 2014-2016 performance share cycle, the 2016 sales target of $11.9 billion was established when 2013 sales were $9.4 billion. The Company's net sales in 2016 determined the number of shares earned, while vesting remained dependent on meeting a three year average ROIC hurdle of 18%. The payout of the target performance share awards for this program cycle was made according to the following table:
|
For the 2015-2017 performance share cycle, the 2017 sales target of $12.2 billion was established when 2014 sales were $10.0 billion. The Company's net sales in 2017 will determine the number of shares earned, while vesting remains dependent on meeting a three year average ROIC hurdle of 18%. The payout of the target performance share awards for this program cycle will be made according to the following table:
Sales of $12.2 billion in 2017 are required for participants to earn 100% of target award, assuming the average ROIC for the three-year period 2015-2017 is greater than 18%. This award remains at risk through 2017.
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| Compensation Discussion and Analysis |
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For the 2016-2018 performance share cycle, the program was designed to reward for achieving a three-year average ROIC and 2018 sales. The sales goal was established when 2015 sales were $10.0 billion. The Company's average ROIC performance over the three-year period ending in 2018 and net sales in 2018 will determine the number of shares earned. The payout of the target performance share awards for this program cycle will be made according to the following table:
| 3-Year Average ROIC Performance (2016 - 2018) | | | % Payout* | | ||||
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| £21.6% | | | | 0% | | | ||
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| 23.8% | | | | | 50% | | | |
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| ³26.0% | | | | 100% | | | ||
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Three-year average ROIC at or above 26% or sales at or above $12.2 billion in 2018 can independently achieve 100% of the target award. Achieving both will yield 200% of the target award. This award will remain at risk through 2018.
The Compensation Committee selected these performance measures because they balance sales growth with long-term profitability, expense management, and asset management and align with objectives established in the annual incentive program. The Committee may use different sales growth and ROIC objectives and targets from year to year to maximize alignment with then-current business objectives and to reflect economic conditions.
The 2017-2019 performance share cycle will continue to include both three-year ROIC and three-year sales growth targets.
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Consistent with Grainger's historical practice of promotional awards with seven-year cliff vesting, the Company granted 8,896 performance-vested restricted stock units (PRSUs) to Mr. Macpherson to recognize his promotion to Chief Executive Officer effective October 1, 2016. The potential share payout on the 7th anniversary of the grant is dependent on achieving average ROIC over 18% during a three-year performance cycle commencing October 1, 2016 through September 30, 2019. The actual number of PRSUs that vest on the 7th anniversary of the grant will be either 0% or 100% of the number of shares awarded, based on achievement of the ROIC goal. Dividend equivalents are not paid on PRSUs.
In addition, the Company granted 481 restricted stock units (RSUs) to Ms. Robbins with three-year cliff vesting effective November 1, 2016, to recognize her increased responsibilities.
Changing Mix of Stock Options and Performance Shares for 2017
In 2017, the Company is planning to change the mix of long-term incentives 70% stock options and 30% performance shares to a 50%/50% balance of both vehicles. The change is designed to be responsive to market practices while continuing to provide appropriate incentives to drive shareholder value creation.
11. Stock Ownership Guidelines
As of December 31, 2016,2019, all officers subject to stock ownership guidelines, including the NEOs, are in compliance with the guidelines.
The Company continues to believe that requiring executive ownership of Company stock creates alignment between executives and shareholders and encourages executives to act to
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increase shareholder value. In 1996, the Company established stock ownership guidelines for its NEOs and other officers. In 2011, the Company increased the minimum ownership requirement for the CEO from 5x base salary to 6x and established a retention ratio for equity awards. The stock ownership guidelines for the current NEOs are as follows:
NEO | | | Minimum Ownership Requirement as a Percentage of Base Salary | | | Currently in Compliance? | |||||
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| | | 6x | | | Yes | |||||
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| | | | 3x | | | | Yes | |||
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John L. Howard | | | 3x | | | Yes | |||||
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| | | | 3x | | | | Yes | |||
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| | | 3x | | Yes | ||||||
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These stock ownership guidelines must be met within three years of being appointed an officer or assuming a new position and are reviewed annually by the Board. NEOs are required to hold exercised option shares and other stock awards until ownership requirements are met. Officers who fail to achieve these ownership levels will not receive future equity-basedbe allowed to sell shares received from the vesting of equity awards until they comply with the guidelines. Shares owned directly by the officer (including those held as a joint tenant or as a tenant in common), RSUs, shares owned in a self-directed IRA, and certain shares owned or held for the benefit of a spouse or minor children, PRSUs, and RSUs are counted toward meeting the guidelines. Stock options (whether vested or unvested) and performance share awards are not counted toward meeting the ownership guidelines.
It is the Company's long-term goal for executives to also meet a second ownership requirement that is expressed in outright ownership (in actual shares and/or deferred vested shares). The Company has implemented a required 25% after-tax share retention ratio for NEOs. Upon receiving shares from the Company following the exercise or settlement of equity awards, if NEOs do not hold outright ownership of shares worth the required ownership multiple, they will be required to retain 25% of the shares received from all such equity awards (net of any shares used to satisfy tax withholding obligations) until the stock ownership guidelines are met with shares owned outright.
12. Hedging and Pledging Prohibition
The Company's Business Conduct Guidelines (which are available under "Governance" in the GovernanceInvestor Relations section of Grainger'sour website at www.grainger.com/investor)http://invest.grainger.com/) prohibit employees and the Board of Directors from engaging in any financial arrangement (including, without limitation, short sales, put and call options and short sales)options) that establish a short position in Company stock and are designed to hedge or offset, aany decrease in market value. Effective January 1, 2013, by policy,value of the Company's (or its subsidiaries') equity securities. Company officers and directorsDirectors are also prohibited from pledging any additional Company stock at any amount as collateral for a loan or for a margin account. No Directors or executive officers have hedged or pledged any of the shares beneficially owned by them.
The other components of the Company's compensation program for NEOs are substantially similar to those available for most of the Company's other employees.employees, other than the benefits discussed in this section. This includes the same health and welfare benefits and the same performance-based retirement profit sharing contribution methodology that is applied to the U.S.-based employees who are retirement profit sharing participants. The Company provides Supplemental Profit Sharing Plans solely to maintain an equal percentage of retirement profit sharing compensation contribution to approximately 215 employees, including NEOs, who would be subject to contribution or compensation limitations imposed160
Proxy Statement 59
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employees, including NEOs, who would be subject to contribution or compensation limitations imposed on qualified plans by the Internal Revenue Code. The Company does not provide any other supplemental retirement benefits to its NEOs or other employees based in the United States.
ProfitRetirement profit sharing is the primary Company-sponsored retirement vehicle for U.S.-based employees. ProfitRetirement profit sharing aligns the interests of the Company's employees, management, and shareholders as the Company's annual contribution to retirement profit sharing is based on ROIC. The Company contributes a minimum of 8% of payroll to the plan and provides employees the opportunity to share in the success of the Company beyond this amount only if a threshold return on capital as the same may be adjusted for all eligible employees under the terms of theis achieved. The Company's Profit Sharing Plan is achieved.
As part of the 2016 Profit Sharing Plan, the Company implementedincludes a 401(k) feature for all U.S.-based employees, including the NEOs. TheOf the 8% Company will contributeminimum contribution, the first 3% of pay to the 401(k) feature and this amount(which is funded from the retirement profit sharing pool. As mentioned above, the minimum Company contribution is 8% of pay with the first 3% goingpool) will go into the 401(k).
Effective April 2011, the Company requires that the NEOs and certain other Company officers have periodic physical examinations.examinations that are paid for by the Company. The Company believes that periodic physical exams are important to maintainhelpful in maintaining the effectiveness of its executive talent. There are currently eight participants in the program.
Effective December 31, 2009, the Company discontinued its executive death benefit program for executives hired or promoted after this date. The NEOs (except for Mr. HighMessrs. Macpherson and Ms. Robbins) and certain other Company officersHoward have grandfathered participation in the Company's former Executive Death Benefit Plan.Plan that was discontinued effective December 31, 2009. The beneficiary of a participant who dies while employed by the Company is entitled to a taxable benefit of 120 monthly payments of 50% of the participant's monthly compensation, calculated on the basis of salary and target annual incentive. UnlessThe Company's policy is that, unless offered to other Company employees, the Companyit will not make payments, grants, or awards following the death of an executive in the form of unearned salary or unearned bonuses, accelerated vesting or the continuation in force of unvested equity grants, awards or ungrantedun-granted equity, perquisites, and other payments or awards made in lieu of compensation.
Effective January 1, 2017,Mr. Howard has grandfathered participation in the Company discontinued its U.S. pre-tax deferred compensation program whereby NEOs and certain other officers could elect to defer receipt of up to 50% of base salary and 85% of annual cash incentives under the 2004Company's Voluntary Salary and Incentive Deferral Plan, an unfunded deferred compensation plan. The purposewhich was discontinued effective December 31, 2016 (the Voluntary Salary and Incentive Deferral Plan). Participants of thethis plan waswere previously able to provide executives with retirement savings and financial planning opportunities that were unavailable to them in tax-qualified retirement plans due to Internal Revenue Code limitations. The investment choices and returns for the nonqualified program were the same as those offered to participants in profit sharing.
NEOs were eligible to be reimbursed fordefer up to $10,000 in financial services in 2016. The financial service reimbursements are fully taxable50% of their base salary and not grossed-upup to cover taxes. 85% of their bonus through this plan.
Officers are allowed the business use of corporate aircraft, andwhich is chartered by the Company from a third-party provider on an as needed basis. Officers also are allowed the business use of a car and driver, while each of Messrs. Ryan andMr. Macpherson is also allowed personal use of a car and driver, subject to reimbursement of the incremental cost of use. These benefits represent a cost-effective method of allowing the Company's top executives to more effectively use their time. All other benefits, including the retirement profit sharing contribution percentages and various welfare benefits provided to U.S. NEOs and other executive officers, are comparable to those provided to the majority of salaried and hourly U.S.-based Company employees.
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Compensation Discussion and Analysis | | | |
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| Summary Compensation Table | Summary Compensation Table | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Name and Principal Position | | | Year | | | Salary | | | Bonus | | | Stock Awards1 | | | Option Awards2 | | | Non-Equity Incentive Plan Comp.3 | | Change in Pension Value and NQDC Earnings | | | All Other Comp.4 | | | Total | | | Year | | | Salary | | | Bonus | | | Stock Awards (1) | | | Option Awards (2) | | | Non-Equity Incentive Plan Comp. | | | Change in Pension Value and NQDC Earnings | | | All Other Comp. (3) | | | Total | ||||||||||||||||||||||||||||
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James T. Ryan | 2016 | $ | 1,183,263 | $ | 0 | $ | 2,100,137 | $ | 3,512,151 | $ | 1,162,143 | $0 | $ | 187,006 | $ | 8,144,700 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman of the Board | 2015 | $ | 1,150,169 | $ | 0 | $ | 2,266,070 | $ | 3,063,077 | $ | 715,165 | $0 | $ | 333,106 | $ | 7,527,587 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | $ | 1,123,500 | $ | 0 | $ | 1,960,612 | $ | 3,028,115 | $ | 1,044,325 | $0 | $ | 554,908 | $ | 7,711,460 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a) | | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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D.G. Macpherson | | | 2016 | | $ | 875,000 | | $ | 0 | | $ | 2,511,744 | | $ | 1,070,785 | | $ | 796,875 | | $0 | | $ | 284,128 | | $ | 5,538,532 | | | 2019 | | | $1,053,175 | | | $0 | | | $2,901,333 | | | $2,081,098 | | | $1,074,161 | | | $0 | | | $555,360 | | | $7,665,127 | ||||||||||||||||||||||||||||
| Chairman of the Board & | | | 2018 | | | $1,030,000 | | | $0 | | | $4,086,887 | | | $3,100,501 | | | $1,842,464 | | | $0 | | | $395,992 | | | $10,455,844 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | | | 2015 | | $ | 725,750 | | $ | 0 | | $ | 2,322,855 | | $ | 669,245 | | $ | 350,400 | | $0 | | $ | 293,893 | | $ | 4,362,143 | | | 2017 | | | $1,022,500 | | | $0 | | | $2,634,042 | | | $1,643,409 | | | $1,210,250 | | | $0 | | | $456,158 | | | $6,966,359 | ||||||||||||||||||||||||||||
| | | 2014 | | $ | 659,750 | | $ | 0 | | $ | 1,370,245 | | $ | 656,722 | | $ | 417,027 | | $0 | | $ | 272,617 | | $ | 3,376,361 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||
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Ronald L. Jadin | 2016 | $ | 721,885 | $ | 0 | $ | 486,615 | $ | 813,818 | $ | 463,577 | $0 | $ | 99,328 | $ | 2,585,223 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sr. Vice President and | 2015 | $ | 701,625 | $ | 0 | $ | 2,122,365 | $ | 708,618 | $ | 288,048 | $0 | $ | 183,108 | $ | 4,003,764 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Financial Officer | 2014 | $ | 685,125 | $ | 0 | $ | 642,780 | $ | 700,517 | $ | 433,067 | $0 | $ | 316,338 | $ | 2,777,827 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Thomas B. Okray | | | | 2019 | | | | $711,250 | | | | $0 | | | | $885,359 | | | | $634,924 | | | | $482,625 | | | | $0 | | | | $162,886 | | | | $2,877,044 | |||||||||||||||||||||||||||||||||||||||||||||
| Sr.Vice President & Chief | | | | 2018 | | | | $498,630 | | | | $0 | | | | $2,450,059 | | | | $0 | | | | $567,000 | | | | $0 | | | | $795,845 | | | | $4,311,534 | |||||||||||||||||||||||||||||||||||||||||||||
| Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||
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John L. Howard | | | 2016 | | $ | 673,828 | | $ | 0 | | $ | 332,937 | | $ | 556,807 | | $ | 381,808 | | $0 | | $ | 93,599 | | $ | 2,038,979 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sr. Vice President and | | | 2015 | | $ | 654,900 | | $ | 0 | | $ | 1,368,565 | | $ | 452,741 | | $ | 237,240 | | $0 | | $ | 133,159 | | $ | 2,846,605 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Counsel | | | 2014 | | $ | 639,450 | | $ | 0 | | $ | 444,292 | | $ | 394,054 | | $ | 356,643 | | $0 | | $ | 330,757 | | $ | 2,165,196 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Joseph C. High | 2016 | $ | 495,250 | $ | 0 | $ | 256,192 | $ | 428,323 | $ | 281,250 | $0 | $ | 68,099 | $ | 1,529,114 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sr. Vice President and | 2015 | $ | 478,050 | $ | 0 | $ | 758,863 | $ | 393,682 | $ | 173,160 | $0 | $ | 98,949 | $ | 1,902,704 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| John. L. Howard | | | 2019 | | | $712,500 | | | $0 | | | $565,733 | | | $405,659 | | | $429,000 | | | $0 | | | $397,717 | | | $2,510,609 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sr.Vice President & General | | | 2018 | | | $703,533 | | | $0 | | | $796,617 | | | $604,376 | | | $749,486 | | | $0 | | | $185,994 | | | $3,040,006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Counsel | | | 2017 | | | $694,042 | | | $0 | | | $622,544 | | | $388,434 | | | $492,889 | | | $0 | | | $261,308 | | | $2,459,217 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Paige K. Robbins | | | 2016 | | $ | 441,769 | | $ | 0 | | $ | 202,621 | | $ | 171,356 | | $ | 191,813 | | $0 | | $ | 51,835 | | $ | 1,059,394 | | | | 2019 | | | | $531,667 | | | | $0 | | | | $270,519 | | | | $194,040 | | | | $342,000 | | | | $0 | | | | $110,016 | | | | $1,448,242 | |||||||||||||||||||
SVP GSC, Branch Network, Contact Center, and Corporate Strategy | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sr. Vice President, Chief | | | | 2018 | | | | $508,500 | | | | $0 | | | | $846,722 | | | | $262,778 | | | | $516,375 | | | | $0 | | | | $118,944 | | | | $2,253,319 | |||||||||||||||||||||||||||||||||||||||||||||
| Technology, Merchandising, | | | | 2017 | | | | $484,185 | | | | $0 | | | | $203,537 | | | | $126,996 | | | | $268,464 | | | | $0 | | | | $94,921 | | | | $1,178,103 | |||||||||||||||||||||||||||||||||||||||||||||
| Marketing and Strategy Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||
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| Deidra C. Merriwether | | | 2019 | | | $469,491 | | | $0 | | | $221,411 | | | $158,748 | | | $204,844 | | | $0 | | | $80,479 | | | $1,134,972 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sr. Vice President & President, | | | 2018 | | | $448,922 | | | $0 | | | $293,843 | | | $210,209 | | | $305,749 | | | $0 | | | $100,035 | | | $1,358,758 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Proxy Statement 61
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Grants of Plan-Based Awards | Grants of Plan-Based Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | | All Other | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | | | | | | | Estimated Possible Payouts | | | Estimated Future Payouts | | | No. of | | | No. of | | | or Base | | | Value of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | Under Non-Equity Incentive | | | Under Equity Incentive | | | Shares of | | | Securities | | | Price of | | | Stock and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | Grant | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards1 | | | Estimated Future Payouts Under Equity Incentive Plan Awards2,3 | | | All Other Stock Awards: No. of Shares of Stock | | | All Other Option Awards: No. of Securities Underlying | | | Exercise or Base Price of Option | | | Actual Closing Price on Option Approval | | | Grant Date Fair Value of Stock and Option | | | | Grant | | | Approval | | | Plan Awards (1) | | | Plan Awards (2) | | | Stock or | | | Underlying | | | Option | | | Option | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Name | | | Date | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | or Units4 | | | Options5 | | | Awards6 | | | Date7 | | | Awards8 | | | Date | | | Date | | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | Units | | | Options (3) | | | Awards (4) | | | Awards (5) | ||||||||||||||||||||||||||||||||||||
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James T. Ryan | 1/1/16 | $0 | $ | 1,549,525 | $ | 3,099,050 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
D.G. Macpherson | | | | | | | $0 | | | $1,432,215 | | | $2,864,430 | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1/1/16 | 5,583 | 11,165 | 22,330 | $ | 2,100,137 | | | 4/1/19 | | | 2/19/19 | | | | | | | | | 0 | | | 10,221 | | | 10,221 | | | | | | | | | $2,901,333 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/1/16 | 78,152 | $ | 234.38 | $ | 234.38 | $ | 3,512,151 | | | 4/1/19 | | | 2/19/19 | | | | | | | | | | | | | | | | | 30,663 | | | $311.26 | | | $2,081,098 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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D.G. Macpherson | | | 1/1/16 | | $0 | | $ | 1,062,500 | | $ | 2,125,000 | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas B. Okray | | | | | | | | | | | | $0 | | | | $643,500 | | | | $1,287,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 1/1/16 | | | | | | | | | | | 1,702 | | | 3,404 | | | 6,808 | | | | | | | | | | | | | | $ | 640,292 | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | 0 | | | | 3,119 | | | | 3,119 | | | | | | | | | | | | | | | | $885,359 | ||||||||||||||||||||||||
| | | 4/1/16 | | | | | | | | | | | | | | | | | | | | | | | 23,827 | | $ | 234.38 | | $ | 234.38 | | $ | 1,070,785 | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,355 | | | | $311.26 | | | | $634,924 | ||||||||||||||||||||||||
| | | 10/3/16 | | | | | | | | | | | 0 | | | 8,896 | | | 8,896 | | | | | | | | | | | | | | $ | 1,871,452 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
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Ronald L. Jadin | 1/1/16 | $0 | $ | 618,103 | $ | 1,236,206 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1/1/16 | 1,294 | 2,587 | 5,174 | $ | 486,615 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/1/16 | 18,109 | $ | 234.38 | $ | 234.38 | $ | 813,818 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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John L. Howard | | | 1/1/16 | | $0 | | $ | 509,078 | | $ | 1,018,156 | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 1/1/16 | | | | | | | | | | | 885 | | | 1,770 | | | 3,540 | | | | | | | | | | | | | | $ | 332,937 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 4/1/16 | | | | | | | | | | | | | | | | | | | | | | | 12,390 | | $ | 234.38 | | $ | 234.38 | | $ | 556,807 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Joseph C. High | 1/1/16 | $0 | $ | 375,000 | $ | 750,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John. L. Howard | | | | | | | $0 | | | $572,000 | | | $1,144,000 | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1/1/16 | 681 | 1,362 | 2,724 | $ | 256,192 | | | 4/1/19 | | | 2/19/19 | | | | | | | | | 0 | | | 1,993 | | | 1,993 | | | | | | | | | $565,733 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/1/16 | 9,531 | $ | 234.38 | $ | 234.38 | $ | 428,323 | | | 4/1/19 | | | 2/19/19 | | | | | | | | | | | | | | | | | 5,977 | | | $311.26 | | | $405,659 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Paige K. Robbins | | | 1/1/16 | | $0 | | $ | 255,750 | | $ | 511,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $0 | | | | $456,000 | | | | $912,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | | 1/1/16 | | | | | | | | | | | 273 | | | 545 | | | 1,090 | | | | | | | | | | | | | | $ | 102,515 | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | 0 | | | | 953 | | | | 953 | | | | | | | | | | | | | | | | $270,519 | ||||||||||||||||||||||||
| | | 4/1/16 | | | | | | | | | | | | | | | | | | | | | | | 3,813 | | $ | 234.38 | | $ | 234.38 | | $ | 171,356 | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,859 | | | | $311.26 | | | | $194,040 | ||||||||||||||||||||||||
| | | 11/1/16 | | | | | | | | | | | | | | | | | | | | 481 | | | | | | | | | | | $ | 100,106 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Deidra C. Merriwether | | | | | | | $0 | | | $273,125 | | | $546,250 | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 4/1/19 | | | 2/19/19 | | | | | | | | | 0 | | | 780 | | | 780 | | | | | | | | | $221,411 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 4/1/19 | | | 2/19/19 | | | | | | | | | | | | | | | | | 2,339 | | | $311.26 | | | $158,748 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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62 www.grainger.com
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Outstanding Equity Awards at Fiscal Year-End
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| | | Option Awards | | | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Name | | | No. of Securities Underlying Unexercised Options Exercisable1 | | | No. of Securities Underlying Unexercised Options Unexercisable1 | | | Equity Incentive Plan Awards: No. of Securities Underlying Unexercised Unearned Options | | | Option Exercise Price2 | | | Option Expiration Date3 | | | No. of Shares or Units of Stock That Have Not Vested4 | | | Market Value of Shares or Units of Stock That Have Not Vested5 | | | Equity Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights That Have Not Vested6 | | | Equity Incentive Plan Awards: Market or Payout of Unearned Shares, Units or Other Rights That Have Not Vested7 | | | No. of Securities Underlying Unexercised Options Exercisable (1) | | | No. of Securities Underlying Unexercised Options Unexercisable (1) | | | Equity Incentive Plan Awards: No. of Securities Underlying Unexercised Unearned Options | | | Option Exercise Price (2) | | | Option Expiration Date (3) | | | No. of Shares or Units of Stock That Have Not Vested | | | Market Value of Shares or Units of Stock That Have Not Vested (4) | | | Equity Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights That Have Not Vested (5) | | | Equity Incentive Plan Awards: Market or Payout of Unearned Shares, Units or Other Rights That Have Not Vested (6) | ||||||||||||||||||||||||||||
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James T. Ryan | 65,000 | $ | 81.49 | 4/28/19 | 0 | $ | 0 | 28,647 | $ | 6,653,266 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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D. G. Macpherson | | | 16,923(7) | | | | | | | $204.01 | | | 4/24/2022 | | | 12,139(16) | | | $4,109,294 | | | 42,979(17) | | | $14,549,251 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 15,741(8) | | | | | | | $245.86 | | | 4/23/2023 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 12,266(9) | | | | | | | $248.22 | | | 4/29/2024 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 14,380(10) | | | | | | | $231.88 | | | 3/31/2025 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 23,827(11) | | | | | | | $234.38 | | | 3/31/2026 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | 36,415(12) | | | | | $231.20 | | | 4/2/2027 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | 46,063(13) | | | | | $276.64 | | | 4/1/2028 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 122,000 | $ | 108.15 | 4/27/20 | | | | | 30,663(14) | | | | | $311.26 | | | 3/31/2029 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Thomas B. Okray | | | | | | | | 9,355(14) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | 5,823(18) | | | | $1,971,202 | | | | 3,119(19) | | | | $1,055,844 | ||||||||||||||||||||||||||||||||||||||||||||||
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John. L. Howard | | | 11,543(8) | | | | | | | $245.86 | | | 4/23/2023 | | | 2,869(20) | | | $971,214 | | | 9,797(21) | | | $3,316,480 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96,400 | $ | 149.02 | 4/26/21 | | | 7,360(9) | | | | | | | $248.22 | | | 4/29/2024 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 78,100 | $ | 204.01 | 4/24/22 | | | 9,728(10) | | | | | | | $231.88 | | | 3/31/2025 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 70,465 | $ | 245.86 | 4/23/23 | | | 12,390(11) | | | | | | | $234.38 | | | 3/31/2026 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 56,558 | $ | 248.22 | 4/29/24 | | | | | 8,607(12) | | | | | $231.20 | | | 4/2/2027 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 65,816 | $ | 231.88 | 3/31/25 | | | | | 8,979(13) | | | | | $276.64 | | | 4/1/2028 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 78,152 | $ | 234.38 | 3/31/26 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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D.G. Macpherson | | | 26,000 | | | | | | | | $ | 108.15 | | | 4/27/20 | | | 0 | | $ | 0 | | | 28,509 | | $ | 6,621,215 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 24,876 | | | | | | | | $ | 149.02 | | | 4/26/21 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 16,923 | | | | | | | | $ | 204.01 | | | 4/24/22 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 15,741 | | | | | | | | $ | 245.86 | | | 4/23/23 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | 12,266 | | | | | $ | 248.22 | | | 4/29/24 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | 14,380 | | | | | $ | 231.88 | | | 3/31/25 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | 23,827 | | | | | $ | 234.38 | | | 3/31/26 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Ronald L. Jadin | 30,000 | $ | 81.49 | 4/28/19 | 0 | $ | 0 | 14,850 | $ | 3,448,913 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 29,000 | $ | 108.15 | 4/27/20 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 25,336 | $ | 149.02 | 4/26/21 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 19,527 | $ | 204.01 | 4/24/22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 16,790 | $ | 245.86 | 4/23/23 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 13,084 | $ | 248.22 | 4/29/24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 15,226 | $ | 231.88 | 3/31/25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 18,109 | $ | 234.38 | 3/31/26 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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John L. Howard | | | 21,000 | | | | | | | | $ | 81.49 | | | 4/28/19 | | | 0 | | $ | 0 | | | 9,802 | | $ | 2,276,515 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 19,500 | | | | | | | | $ | 108.15 | | | 4/27/20 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 14,990 | | | | | | | | $ | 149.02 | | | 4/26/21 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 11,716 | | | | | | | | $ | 204.01 | | | 4/24/22 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 11,543 | | | | | | | | $ | 245.86 | | | 4/23/23 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | 7,360 | | | | | $ | 248.22 | | | 4/29/24 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | 9,728 | | | | | $ | 231.88 | | | 3/31/25 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | | | | | 12,390 | | | | | $ | 234.38 | | | 3/31/26 | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Joseph C. High | 10,415 | $ | 204.01 | 4/24/22 | 0 | $ | 0 | 6,578 | $ | 1,527,741 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 8,920 | $ | 245.86 | 4/23/23 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 7,360 | $ | 248.22 | 4/29/24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 8,459 | $ | 231.88 | 3/31/25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 9,531 | $ | 234.38 | 3/31/26 | | | | | 5,977(14) | | | | | $311.26 | | | 3/31/2029 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paige K. Robbins | | | 3,840 | | | | | | | | $ | 149.02 | | | 4/26/21 | | | 8,713 | | $ | 2,023,594 | | | 1,295 | | $ | 300,764 | | | | 3,840(15) | | | | | | | | | | | | $149.02 | | | | 4/26/2021 | | | | 4,038(22) | | | | $1,366,944 | | | | 2,255(23) | | | | $763,363 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,790(7) | | | | | | | | | | | | $204.01 | | | | 4/24/2022 | | | | 938(24) | | | | $317,532 | | | | | | | | |
| | | 2,790 | | | | | | | | $ | 204.01 | | | 4/24/22 | | | | | | | | | | | | | | | | 2,330(8) | | | | | | | | | | | | $245.86 | | | | 4/23/2023 | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,127(9) | | | | | | | | | | | | $248.22 | | | | 4/29/2024 | | | | | | | | | | | | | | | | |
| | | 2,330 | | | | | | | | $ | 245.86 | | | 4/23/23 | | | | | | | | | | | | | | | | 3,122(10) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,813(11) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | |
| | | | | | 2,127 | | | | | $ | 248.22 | | | 4/29/24 | | | | | | | | | | | | | | | | | | | | 2,814(12) | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,904(13) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | |
| | | | | | 3,122 | | | | | $ | 231.88 | | | 3/31/25 | | | | | | | | | | | | | | | | | | | | 2,859(14) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deidra C. Merriwether | | | 2,127(9) | | | | | | | $248.22 | | | 4/29/2024 | | | 5,092(25) | | | $1,723,744 | | | 780(26) | | | $264,046 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 2,496(10) | | | | | | | $231.88 | | | 3/31/2025 | | | 773(27) | | | $261,676 | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 2,860(11) | | | | | | | $234.38 | | | 3/31/2026 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | 2,318(12) | | | | | $231.20 | | | 4/2/2027 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | 3,123(13) | | | | | $276.64 | | | 4/1/2028 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | 2,339(14) | | | | | $311.26 | | | 3/31/2029 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | 3,813 | | | | | $ | 234.38 | | | 3/31/26 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
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Proxy Statement 63
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| | | Compensation Discussion and Analysis |
Option Exercises and Stock Vested
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| | | Option Awards | | | Stock Awards | | Option Awards Exercised | | Stock Awards Vested | ||||||||||||||||||||||||||||
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Name | | | No. of Shares Acquired on Exercise1 | | | Value Realized on Exercise2 | | | No. of Shares Acquired on Vesting3 | | | Value Realized on Vesting4 | | No. of Shares Acquired on Exercise(1) | | Value Realized on Exercise(2) | | No. of Shares Acquired on Vesting | | Value Realized on Vesting(3) | |||||||||||||||||
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James T. Ryan | 0 | $ | 0 | 6,342 | $ | 1,284,826 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
D.G. Macpherson | | | 0 | | $ | 0 | | | 1,417 | | $ | 287,070 | 0 | $0 | 3,302 | $1,038,974 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ronald L. Jadin | 0 | $ | 0 | 1,512 | $ | 306,316 | |||||||||||||||||||||||||||||||
Thomas B. Okray | | 0 | | $0 | | 2,867 | | $788,024 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John L. Howard | | | 11,000 | | $ | 1,585,980 | | | 1,039 | | $ | 210,491 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
Joseph C. High | 5,800 | $ | 462,492 | 4,803 | $ | 1,035,880 | |||||||||||||||||||||||||||||||
John. L. Howard | 11,716 | $1,191,111 | 1,717 | $540,254 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paige K. Robbins | | | 0 | | $ | 0 | | | 175 | | $ | 35,453 | | 0 | | $0 | | 1,010 | | $315,002 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deidra C. Merriwether | 0 | $0 | 397 | $124,916 | |||||||||||||||||||||||||||||||||
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64 www.grainger.com
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Nonqualified Deferred Compensation
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Name | | Plan | | | Executive Contributions in Last FY1 | | | Company Contributions in Last FY2 | | | Aggregate Earnings in Last FY3 | | | Aggregate Withdrawals/ Distributions | | | Aggregate Balance at Last FYE4 | | | Plan | | | Executive Contributions in Last FY | | | Company Contributions in Last FY (1) | | | Aggregate Earnings in Last FY (2) | | | Aggregate Distributions | | | Aggregate Balance at Last FYE (3) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
James T. Ryan | SPSP & SPSP II | $ | 0 | $ | 213,335 | $ | 44,366 | $ | 0 | $ | 4,735,128 | |||||||||||||||||||||||||||||||||||||||||||
| Deferred RSUs | $ | 0 | $ | 0 | $ | 593,200 | $ | 0 | $ | 4,645,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 0 | $ | 213,335 | $ | 637,566 | $ | 0 | $ | 9,380,128 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
D.G. Macpherson | | SPSP & SPSP II | | $ | 0 | | $ | 92,462 | | $ | 74,995 | | $ | 0 | | $ | 981,570 | | | SPSP & SPSP II | | | $0 | | | $310,510 | | | $319,944 | | | $0 | | | $1,976,635 | |||||||||||||||||||
| | Total | | $ | 0 | | $ | 92,462 | | $ | 74,995 | | $ | 0 | | $ | 981,570 | | | Total | | | $0 | | | $310,510 | | | $319,944 | | | $0 | | | $1,976,635 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
Ronald L. Jadin | Voluntary Salary & Incentive Deferral | $ | 569,559 | $ | 69,774 | $ | 225,200 | $ | 0 | $ | 4,389,552 | |||||||||||||||||||||||||||||||||||||||||||
Thomas B. Okray | | | | SPSP & SPSP II | | | | $0 | | | | $117,892 | | | | $12,480 | | | | $0 | | | | $130,372 | ||||||||||||||||||||||||||||||
| | | | Total | | | | $0 | | | | $117,892 | | | | $12,480 | | | | $0 | | | | $130,372 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
John. L. Howard | | | Frozen Salary & Incentive Deferral | | | $0 | | | $0 | | | $481,806 | | | $0 | | | $3,393,844 | ||||||||||||||||||||||||||||||||||||
| SPSP & SPSP II | $ | 0 | $ | 27,016 | $ | 59,692 | $ | 0 | $ | 853,261 | | | SPSP & SPSP II | | | $0 | | | $152,499 | | | $316,307 | | | $0 | | | $2,390,246 | ||||||||||||||||||||||||||
| Total | $ | 569,559 | $ | 96,790 | $ | 284,892 | $ | 0 | $ | 5,242,813 | | | Deferred RSUs | | | $0 | | | $0 | | | $1,123,200 | | | $0 | | | $6,770,400 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
John L. Howard | | Voluntary Salary & Incentive Deferral | | $ | 193,601 | | $ | 26,438 | | $ | 93,181 | | $ | 0 | | $ | 2,571,162 | |||||||||||||||||||||||||||||||||||||
| | SPSP & SPSP II | | $ | 0 | | $ | 56,415 | | $ | 72,519 | | $ | 0 | | $ | 1,650,095 | |||||||||||||||||||||||||||||||||||||
| | Deferred RSUs | | $ | 0 | | $ | 0 | | $ | 593,200 | | $ | 0 | | $ | 4,645,000 | |||||||||||||||||||||||||||||||||||||
| | Total | | $ | 193,601 | | $ | 82,853 | | $ | 758,901 | | $ | 0 | | $ | 8,866,257 | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Joseph C. High | SPSP & SPSP II | $ | 0 | $ | 46,606 | $ | 15,112 | $ | 0 | $ | 235,746 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 0 | $ | 46,606 | $ | 15,112 | $ | 0 | $ | 235,746 | | | Total | | | $0 | | | $152,499 | | | $1,921,313 | | | $0 | | | $12,554,490 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
Paige K. Robbins | | SPSP & SPSP II | | $ | 0 | | $ | 39,779 | | $ | 12,179 | | $ | 0 | | $ | 146,241 | | | | SPSP & SPSP II | | | | $0 | | | | $79,274 | | | | $61,897 | | | | $0 | | | | $374,453 | |||||||||||||
| | Total | | $ | 0 | | $ | 39,779 | | $ | 12,179 | | $ | 0 | | $ | 146,241 | | | | Total | | | | $0 | | | | $79,274 | | | | $61,897 | | | | $0 | | | | $374,453 | ||||||||||||||
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Deidra C. Merriwether | | | SPSP & SPSP II | | | $0 | | | $66,540 | | | $28,614 | | | $0 | | | $185,742 | ||||||||||||||||||||||||||||||||||||
| | | Total | | | $0 | | | $66,540 | | | $28,614 | | | $0 | | | $185,742 | |||||||||||||||||||||||||||||||||||||
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For Messrs. Jadin and Howard, this represents make-whole contributions to the SPSPs that would otherwise have been made had they not voluntarily deferred salary in 2016.
Messrs. Jadin and Howard and other officers voluntarily participated in this plan in 2016. None of the amounts reported in this column are reported in the 2016 Summary Compensation Table.
Proxy Statement 65
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14. Employment Contracts, Change in Control Arrangements, and Termination of Employment ArrangementsEMPLOYMENT CONTRACTS, CHANGE IN CONTROL AGREEMENTS, AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Company does not maintain any employment agreements with its Named Executive Officers.NEOs.
Change in Control—Equity Plans
Under the terms of the Company's 2015 Incentive Plan, which is the source for all equity awards granted after April 2015, "double trigger" vesting provisions apply to all equity awards (i.e., both a change in control occurs and a participant is involuntarily terminated within one year of the change in control).
The Company has 2x Change in Control Agreements (CIC Agreements) with a number of executives, including the NEOs. These CIC Agreements are intended to ensure that in the event of a pending or threatened change in control, the Company retains its management and that their full attention is focused on the best interests of the Company and its shareholders and not on the uncertainty of their future employment prospects under those circumstances.
Deductibility of Executive Compensation; Accounting ConsiderationsCompensation
Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to a public company for compensation over $1 million per fiscaltaxable year paid to the Company's NEOs. CompensationPrior to the Tax Cuts and Jobs Act of 2017 (TCJA), compensation that qualifiesqualified as "performance-based" compensation iswas not subject to the deductibility limit. A Company objective isEffective for taxable years beginning after December 31, 2017, subject to attemptcertain transition relief, the TCJA eliminated this exception. Stock Options granted to maximize the deductibility of compensation under Section 162(m)our NEOs prior to the extent doing so is reasonable and consistent with Company strategies and goals. AwardsNovember 2, 2017 under the annual incentive plan in which2015 Incentive Plan qualify for the NEOs participate,transition relief, and gains on exercises of such stock options and shares received as the result of performance share awards and PRSUs are considered to be "performance-based" compensation not subject to the Section 162(m)$1 million deductibility limit. Awards of RSUs are not exempt fromAny other compensation paid to our NEOs, including awards other than the grandfathered stock options, is subject to the Section 162(m) deductibility limit and all or a portion of these awardssuch compensation may be nondeductible when the awards vest.nondeductible. While the tax treatment applicable to the Company's compensation programs was taken into accountconsidered, the Company intends to authorize compensation that will not be deductible under Section 162(m) as it believes doing so is in designing those programs, it was not a significant consideration. The Company does not time the grant of long-term incentive awards in respectbest interest of the releaseCompany and its shareholders.
66 www.grainger.com
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Compensation Discussion and Analysis | | | |
| | |
Upon vesting, settlement, or maturity, equity awards under the 2015 Incentive Plan and predecessor plans are distributed in the form of shares of the Company's common stock. Under the Accounting Standards Codification (ASC) 718 (formerly FAS 123R), these types of awards are considered equity awards. As a result, the total amount of compensation expense to be recorded for the awards is based on the fair value of the awards on the grant date. This fair value is then recorded over the vesting period, usually three years, and is recorded to compensation expense and as an increase in paid-in capital. The amount of compensation expense is not subsequently adjusted for changes in the Company's share price, but it is
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adjusted for the estimated number of shares to be distributed. If an equity award is forfeited, all previously recorded compensation expensed is reversed. While the accounting treatment described above was considered in the development of the long-term incentive program, it was not a material consideration.
15. Compensation Recoupment Policy (Clawbacks)(Claw-Backs)
In 2010connection with using long-term incentives as a method to align management and shareholder interests, the Company expandedprovides an annual equity award agreement that sets forth the executive compensationterms of the award, including continued employment, and compliance with the Company's Business Conduct Guidelines and applicable laws and regulations. In addition, the Company's equity award agreements contain recoupment policy (or clawback) forclaw-back) provisions that specify situations granting the Company discretion to recoup both cash and equity and annual incentive payments made to officers. Thecompensation.
Under the recoupment terms of these agreements, the Company canmay recover incentive compensation (cash or equity) compensation:
This policy applies to any incentive compensation awarded or paid to an employee at a time when he or she is an officer. Subsequent changes in status, including retirement or termination of employment, do not impact the Company's rights to recover compensation under this policy.
Proxy Statement 67
| | | |
| | | Compensation Discussion and Analysis |
The Company does not have employment contracts and does not maintain severance programs for its NEOs. The executive's CIC Agreements provide the potential for a lump sum payment following a change in control. Except for a limited period of time following a change in control, the NEOs are not entitled to severance upon termination.
The definition of retirement eligibility is the same for all U.S. employees. Under this definition, an employee is retirement-eligible upon attaining any of the following:
Mr. Ryan and Mr. High are retirement-eligible.Howard is the only NEO who is retirement-eligible as of the date hereof.
The Company provides the following upon retirement for all retirement-eligible employees, including NEO's:NEOs:
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The following tables illustrate the potential incremental payments and benefits that could be received by the NEOs upon his or her retirement, death or disability or upon a termination or change in control of the Company. The amounts shown belowin the following tables assume that any such terminationretirement, death, disability or change in control, as applicable, was effective as of December 31, 20162019 and thus only includes amounts earned through such date. However, the actual amounts that would be paid out under each circumstance can only be determined at the time of separation.
68 www.grainger.com
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Ryan, James T.Other Potential Post-Employment Payments
Macpherson, D.G.
Type of Payment | | | Retirement (7) ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Type of Payment | | | Involuntary Termination without Cause or Voluntary Termination with Good Reason ($) | | | Involuntary Termination for Cause or Voluntary Termination without Good Reason ($) | | | Retirement10 ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | | ||||||||||||||||||||||||||||||||||||
Cash Compensation | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $5,584,578 | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Long-Term Incentives | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 6,140,886 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Stock Options | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Management Incentive Program | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unvested and Accelerated Awards (1) | | | $0 | | | $7,594,310 | | | $7,594,310 | | | $7,594,310 | | | $7,594,310 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Restricted Stock Units | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
| Prorated Annual Bonus Guarantee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Unvested and Accelerated Awards (2) | | | $0 | | | $0 | | | $0 | | | $0 | | | $0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Long-Term Incentives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
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Unvested and Accelerated Awards (3) | | | $0 | | | $18,658,545 | | | $18,658,545 | | | $18,658,545 | | | $18,658,545 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Benefits | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards2 | $ | 0 | $ | 0 | $ | 24,352 | $ | 24,352 | $ | 24,352 | $ | 24,352 | $ | 24,352 | ||||||||||||||||||||||||||||||||||||||||||||
Continuation of Health & Welfare Benefits (4) | | | $0 | | | $0 | | | $0 | | | $0 | | | $34,990 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Life Insurance and Death Benefit Payout (5) | | | | $0 | | | | $10,824,135 | | | | $0 | | | | $0 | | | | $1,726,344 | |||||||||||||||||||||||||||||||||||||||
| Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Perquisites and Tax Payments | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards3 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $159,135 | |||||||||||||||||||||||||||||||||||||||
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Total | | | $0 | | | $37,076,990 | | | $26,252,855 | | | $26,252,855 | | | $33,757,902 | ||||||||||||||||||||||||||||||||||||||||||||
| Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
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| Unvested and Accelerated Awards4 | $ | 0 | $ | 0 | $ | 2,320,100 | $ | 2,320,100 | $ | 2,320,100 | $ | 4,776,686 | $ | 4,776,686 | ||||||||||||||||||||||||||||||||||||||||||||
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| Retirement Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Profit Sharing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Unvested and Accelerated Awards5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Deferred Compensation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Continuation of Health & Welfare Benefits6 | $ | 0 | $ | 0 | $ | 466,414 | $ | 0 | $ | 0 | $ | 0 | $ | 34,155 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Life Insurance and Death Benefit Payout7 | | $ | 0 | | $ | 0 | | $ | 1,537,209 | | $ | 11,193,081 | | $ | 0 | | $ | 0 | | $ | 2,366,977 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
| Disability Payments | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Perquisites and Tax Payments | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Excise Tax & Gross-Up8 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Outplacement9 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 178,791 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Total | $ | 0 | $ | 0 | $ | 4,348,075 | $ | 13,537,533 | $ | 2,344,452 | $ | 4,801,038 | $ | 13,521,847 | ||||||||||||||||||||||||||||||||||||||||||||
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Macpherson, D.G.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Type of Payment | | | Involuntary Termination without Cause or Voluntary Termination with Good Reason ($) | | | Involuntary Termination for Cause or Voluntary Termination without Good Reason ($) | | | Retirement10 ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Compensation | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Severance1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 4,620,000 | | ||||||||||||||||
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| Management Incentive Program | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prorated Annual Bonus Guarantee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||
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| Long-Term Incentives | ||||||||||||||||||||||||||||||||||||||
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| Stock Options | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards2 | $ | 0 | $ | 0 | $ | 0 | $ | 5,321 | $ | 5,321 | $ | 5,321 | $ | 5,321 | ||||||||||||||||||||||||
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| Restricted Stock Units | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards3 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Shares | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards4 | $ | 0 | $ | 0 | $ | 0 | $ | 1,030,756 | $ | 1,030,756 | $ | 5,309,700 | $ | 5,309,700 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retirement Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Profit Sharing | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred Compensation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuation of Health & Welfare Benefits6 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,155 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Life Insurance and Death Benefit Payout7 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 8,420,940 | | $ | 0 | | $ | 0 | | $ | 1,461,741 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Disability Payments | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Perquisites and Tax Payments | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Excise Tax & Gross-Up8 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outplacement9 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 150,000 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 0 | $ | 0 | $ | 0 | $ | 9,457,017 | $ | 1,036,077 | $ | 5,315,021 | $ | 11,580,917 | ||||||||||||||||||||||||
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Proxy Statement 69
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Jadin, Ronald L.Okray, Thomas B.
Type of Payment | | | Retirement (6) ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Type of Payment | | | Involuntary Termination without Cause or Voluntary Termination with Good Reason ($) | | | Involuntary Termination for Cause or Voluntary Termination without Good Reason ($) | | | Retirement10 ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | | ||||||||||||||||||||||||||||||||||||
Cash Compensation | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $3,043,040 | |||||||||||||||||||||||||||||||||||||||
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Long-Term Incentives | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 3,013,434 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Stock Options | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
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| Management Incentive Program | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unvested and Accelerated Awards (1) | | | $0 | | | $255,017 | | | $255,017 | | | $255,017 | | | $255,017 | ||||||||||||||||||||||||||||||||||||||||||||
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Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
| Prorated Annual Bonus Guarantee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Unvested and Accelerated Awards (2) | | | $0 | | | $1,971,202 | | | $1,971,202 | | | $1,971,202 | | | $1,971,202 | ||||||||||||||||||||||||||||||||||||||||||||
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| Long-Term Incentives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
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Unvested and Accelerated Awards | | | $0 | | | $1,055,844 | | | $1,055,844 | | | $1,055,844 | | | $1,055,844 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Benefits | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards2 | $ | 0 | $ | 0 | $ | 0 | $ | 5,634 | $ | 5,634 | $ | 5,634 | $ | 5,634 | ||||||||||||||||||||||||||||||||||||||||||||
Continuation of Health & Welfare Benefits (3) | | | $0 | | | $0 | | | $0 | | | $0 | | | $34,990 | ||||||||||||||||||||||||||||||||||||||||||||
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Life Insurance and Death Benefit Payout (4) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | |||||||||||||||||||||||||||||||||||||||
| Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Perquisites and Tax Payments | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards3 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Outplacement (5) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $107,250 | |||||||||||||||||||||||||||||||||||||||
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Total | | | $0 | | | $3,282,063 | | | $3,282,063 | | | $3,282,063 | | | $6,467,343 | ||||||||||||||||||||||||||||||||||||||||||||
| Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Unvested and Accelerated Awards4 | $ | 0 | $ | 0 | $ | 0 | $ | 1,026,645 | $ | 1,026,645 | $ | 2,833,683 | $ | 2,833,683 | ||||||||||||||||||||||||||||||||||||||||||||
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| Retirement Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Profit Sharing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Deferred Compensation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Continuation of Health & Welfare Benefits6 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,155 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Life Insurance and Death Benefit Payout7 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 5,492,630 | | $ | 0 | | $ | 0 | | $ | 1,104,553 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
| Disability Payments | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Perquisites and Tax Payments | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Excise Tax & Gross-Up8 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Outplacement9 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 109,077 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Total | $ | 0 | $ | 0 | $ | 0 | $ | 6,524,909 | $ | 1,032,279 | $ | 2,839,317 | $ | 7,100,536 | ||||||||||||||||||||||||||||||||||||||||||||
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70 www.grainger.com
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| Compensation Discussion and Analysis |
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Howard, John L.
Type of Payment | | | Retirement (7) ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | ||||||||||||||||||||||||||||||||||||||||||||
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| Type of Payment | | | Involuntary Termination without Cause or Voluntary Termination with Good Reason ($) | | | Involuntary Termination for Cause or Voluntary Termination without Good Reason ($) | | | Retirement10 ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | | ||||||||||||||||||||||||||||||||||||
Cash Compensation | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Cash Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $2,882,880 | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Long-Term Incentives | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2,660,780 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Stock Options | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Management Incentive Program | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unvested and Accelerated Awards (1) | | | $1,642,257 | | | $1,642,257 | | | $1,642,257 | | | $1,642,257 | | | $1,642,257 | ||||||||||||||||||||||||||||||||||||||||||||
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Restricted Stock Units | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
| Prorated Annual Bonus Guarantee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Unvested and Accelerated Awards (2) | | | $0 | | | $0 | | | $0 | | | $0 | | | $0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Long-Term Incentives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
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Unvested and Accelerated Awards (3) | | | $4,287,694 | | | $4,287,694 | | | $4,287,694 | | | $4,287,694 | | | $4,287,694 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Benefits | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards2 | $ | 0 | $ | 0 | $ | 0 | $ | 3,599 | $ | 3,599 | $ | 3,599 | $ | 3,599 | ||||||||||||||||||||||||||||||||||||||||||||
Continuation of Health & Welfare Benefits (4) | | | $421,988 | | | $0 | | | $0 | | | $0 | | | $34,990 | ||||||||||||||||||||||||||||||||||||||||||||
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Life Insurance and Death Benefit Payout (5) | | | | $621,716 | | | | $5,587,653 | | | | $0 | | | | $0 | | | | $1,143,008 | |||||||||||||||||||||||||||||||||||||||
| Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Perquisites and Tax Payments | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards3 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $107,250 | |||||||||||||||||||||||||||||||||||||||
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Total | | | $6,973,655 | | | $11,517,604 | | | $5,929,951 | | | $5,929,951 | | | $10,098,079 | ||||||||||||||||||||||||||||||||||||||||||||
| Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
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| Unvested and Accelerated Awards4 | $ | 0 | $ | 0 | $ | 0 | $ | 1,007,247 | $ | 1,007,247 | $ | 1,851,266 | $ | 1,851,266 | ||||||||||||||||||||||||||||||||||||||||||||
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| Retirement Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Profit Sharing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||||||||||||||||||||||
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| Deferred Compensation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Continuation of Health & Welfare Benefits6 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,155 | ||||||||||||||||||||||||||||||||||||||||||||
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| Life Insurance and Death Benefit Payout7 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 4,849,841 | | $ | 0 | | $ | 0 | | $ | 1,052,677 | | ||||||||||||||||||||||||||||||||||||
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| Disability Payments | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Perquisites and Tax Payments | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Excise Tax & Gross-Up8 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Outplacement9 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 101,816 | | ||||||||||||||||||||||||||||||||||||
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| Total | $ | 0 | $ | 0 | $ | 0 | $ | 5,860,687 | $ | 1,010,846 | $ | 1,854,865 | $ | 5,704,293 | ||||||||||||||||||||||||||||||||||||||||||||
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Proxy Statement 71
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High, Joseph C.Robbins, Paige K.
Type of Payment | | | Retirement (7) ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | ||||||||||||||||||||||||||||||||||||||||||||
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| Type of Payment | | | Involuntary Termination without Cause or Voluntary Termination with Good Reason ($) | | | Involuntary Termination for Cause or Voluntary Termination without Good Reason ($) | | | Retirement10 ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | | ||||||||||||||||||||||||||||||||||||
Cash Compensation | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Cash Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $2,298,240 | |||||||||||||||||||||||||||||||||||||||
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Long-Term Incentives | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 1,960,000 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Stock Options | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
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| Management Incentive Program | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unvested and Accelerated Awards (1) | | | $0 | | | $621,514 | | | $621,514 | | | $621,514 | | | $621,514 | ||||||||||||||||||||||||||||||||||||||||||||
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Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
| Prorated Annual Bonus Guarantee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Unvested and Accelerated Awards (2) | | | $0 | | | $1,366,944 | | | $1,366,944 | | | $1,366,944 | | | $1,366,944 | ||||||||||||||||||||||||||||||||||||||||||||
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| Long-Term Incentives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
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Unvested and Accelerated Awards (3) | | | $0 | | | $1,080,894 | | | $1,080,894 | | | $1,080,894 | | | $1,080,894 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Benefits | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards2 | $ | 0 | $ | 0 | $ | 3,130 | $ | 3,130 | $ | 3,130 | $ | 3,130 | $ | 3,130 | ||||||||||||||||||||||||||||||||||||||||||||
Continuation of Health & Welfare Benefits (4) | | | $0 | | | $0 | | | $0 | | | $0 | | | $34,990 | ||||||||||||||||||||||||||||||||||||||||||||
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Life Insurance and Death Benefit Payout (5) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | |||||||||||||||||||||||||||||||||||||||
| Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Perquisites and Tax Payments | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards3 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $85,500 | |||||||||||||||||||||||||||||||||||||||
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Total | | | $0 | | | $3,069,352 | | | $3,069,352 | | | $3,069,352 | | | $5,488,082 | ||||||||||||||||||||||||||||||||||||||||||||
| Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Unvested and Accelerated Awards4 | $ | 0 | $ | 0 | $ | 435,826 | $ | 435,826 | $ | 435,826 | $ | 1,102,491 | $ | 1,102,491 | ||||||||||||||||||||||||||||||||||||||||||||
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| Retirement Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
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| Profit Sharing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Unvested and Accelerated Awards5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Deferred Compensation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
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| Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Continuation of Health & Welfare Benefits6 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,155 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Life Insurance and Death Benefit Payout7 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Disability Payments | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Perquisites and Tax Payments | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Excise Tax & Gross-Up8 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| Outplacement9 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 178,791 | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| Total | $ | 0 | $ | 0 | $ | 438,956 | $ | 438,956 | $ | 438,956 | $ | 1,105,621 | $ | 3,278,567 | ||||||||||||||||||||||||||||||||||||||||||||
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Robbins, Paige K.
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| Type of Payment | | | Involuntary Termination without Cause or Voluntary Termination with Good Reason ($) | | | Involuntary Termination for Cause or Voluntary Termination without Good Reason ($) | | | Retirement10 ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Compensation | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Severance1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 1,614,480 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Management Incentive Program | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prorated Annual Bonus Guarantee | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-Term Incentives | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards2 | $ | 0 | $ | 0 | $ | 0 | $ | 1,155 | $ | 1,155 | $ | 1,155 | $ | 1,155 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Stock Units | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards3 | $ | 0 | $ | 0 | $ | 0 | $ | 2,023,594 | $ | 2,023,594 | $ | 2,023,594 | $ | 2,023,594 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Shares | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards4 | $ | 0 | $ | 0 | $ | 0 | $ | 111,248 | $ | 111,248 | $ | 230,160 | $ | 230,160 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retirement Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||
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| Profit Sharing | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unvested and Accelerated Awards5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred Compensation | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefits | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuation of Health & Welfare Benefits6 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,155 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Life Insurance and Death Benefit Payout7 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Disability Payments | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Perquisites and Tax Payments | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Excise Tax & Gross-Up8 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outplacement9 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 69,750 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 0 | $ | 0 | $ | 0 | $ | 2,135,997 | $ | 2,135,997 | $ | 2,254,909 | $ | 3,973,294 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
72 www.grainger.com
| | | |
Compensation Discussion and Analysis | | | |
| | |
Merriwether, Deidra C.
| Type of Payment | | | Retirement (7) ($) | | | Death ($) | | | Disability ($) | | | Change In Control Only ($) | | | Change In Control and Termination without Cause or with Good Reason ($) | |||||
| | | | | | | | | | | | | | | | | | | | | |
| Cash Compensation | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Cash Severance (1) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $1,675,800 |
| | | | | | | | | | | | | | | | | | | | | |
| Long-Term Incentives | | | | | | | | | | | ||||||||||
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Stock Options | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | | | |
Unvested and Accelerated Awards (2) | | | $0 | | | $505,780 | | | $505,780 | | | $505,780 | | | $505,780 | |||||
| | | | | | | | | | | | | | | | | | | | | |
Restricted Stock Units | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | | | |
Unvested and Accelerated Awards (3) | | | $0 | | | $1,723,744 | | | $1,723,744 | | | $1,723,744 | | | $1,723,744 | |||||
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Performance Shares | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | | | |
Unvested and Accelerated Awards (4) | | | $0 | | | $525,722 | | | $525,722 | | | $525,722 | | | $525,722 | |||||
| | | | | | | | | | | | | | | | | | | | | |
| Benefits | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | | | |
Continuation of Health & Welfare Benefits (6) | | | $0 | | | $0 | | | $0 | | | $0 | | | $34,990 | |||||
| | | | | | | | | | | | | | | | | | | | | |
Life Insurance and Death Benefit Payout (7) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 |
| | | | | | | | | | | | | | | | | | | | | |
| Perquisites and Tax Payments | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Outplacement (8) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $71,250 |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | | $0 | | | $2,755,246 | | | $2,755,246 | | | $2,755,246 | | | $4,537,286 | |||||
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Proxy Statement 73
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Under SEC rules, we are required to calculate and disclose the ratio of the annual total compensation of Mr. Macpherson, Chairman and CEO, to the annual total compensation of the Company's median employee.
The median employee's estimated 2019 total compensation was $66,072 (which includes compensation of $55,983 and estimated benefits of $10,088). The ratio of CEO pay to median employee pay is 116:1. In calculating 2019 total compensation for our median employee and CEO, we included the estimated Company cost of their respective Company-provided health and wellness benefits. The CEO's total compensation reported in the Summary Compensation Table for 2019 is $7,665,127. The CEO's total compensation for purposes of our pay ratio disclosure calculation is $7,675,215, which differs from the total compensation described in the Summary Compensation Table on page 61 of this document by his health and wellness benefits amount.
The reasons the ratio of CEO pay to median employee pay differs from the ratio disclosed in the Company's prior proxy statement include:
The Company identified the median employee in 2017. The Company's median employee's circumstances have not materially changed relative to 2017. Therefore, we believe the previously identified median employee for 2017 remains appropriate for 2019. The Company has not had significant changes in our workforce, such as employee population size fluctuations, acquisition or divestitures, nor have we had significant changes in our pay programs that we reasonably believe would result in a significant change to this pay ratio disclosure. As of December 31, 2019, Grainger had approximately 25,300 employees, of whom approximately 23,800 were full-time and 1,500 were part-time or temporary.
As permitted under the SEC rules, the following process was used to identify the median employee in 2017:
74 www.grainger.com
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Proxy Statement 75
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| | | Compensation Discussion and Analysis |
The Company is asking its shareholders for their non-binding advisory approval of the 2019 compensation of its Named Executive Officers (NEOs).
The Company's philosophy is to attract and retain the best people and provide appropriate performance-based incentives that encourage them to achieve results that create long-term shareholder value. The Company sets target compensation to approximate the market median of companies that are of similar size and complexity. The 2019 program provided NEOs incentives to grow the business (Sales Growth) while achieving investment returns for the Company's shareholders (ROIC). The overall 2019 compensation program is structured to reward long-term performance while not encouraging excessive risk taking. Please see the "Compensation Discussion and Analysis" on pages 39-78 of this proxy statement.
At 83%, the support for last year's Say on Pay proposal was below the Company's expectations. In response, the Compensation Committee of the Board and Company management completed a three-step process: (1) outreach to shareholders and proxy advisors to learn about and consider their concerns; (2) review our compensation design and evaluate potential changes; and (3) verify the design changes with additional feedback before implementing the 2020 program.
As described in the "Compensation Discussion and Analysis", the Compensation Committee made significant changes to directly respond to shareholders' concerns by strengthening the link between pay and performance. These changes include replacing a long-term vehicle with a single metric with a more performance-focused vehicle with three rigorous performance metrics, each aligned to the Company's strategy.
In addition to the actions taken in direct response to shareholder feedback, the Compensation Committee reduced executive pay levels to more closely approximate market median in 2020. The Committee, in consultation with its independent compensation consultant, based these adjustments on changes to the Company's peer group and median compensation levels for certain positions.
The changes to our executive compensation program reflect our continuing commitment to strengthen the Company's pay for performance alignment and to embrace compensation and governance best practices.
This Say on Pay vote is intended to address the 2019 compensation of the NEOs as disclosed in the "Compensation Discussion and Analysis" as a whole rather than any specific item or amount of executive compensation. We are asking our shareholders to vote "FOR" the approval of the compensation of the Company's NEOs, as disclosed in the "Compensation Discussion and Analysis" section of this proxy statement, including the related tables, notes and narrative.
Approval of the proposal requires the affirmative votes of a majority of the shares of Grainger common stock represented in person or by proxy at the meeting and entitled to vote. Abstentions will have the same effect as votes against the proposal. Broker non-votes will not affect the outcome of the vote.
While this Say on Pay vote is advisory and non-binding, the Board of Directors and the Compensation Committee of the Board, which is comprised of independent Directors, value the opinions expressed by our shareholders and will consider the outcome of this Say on Pay vote when making future compensation decisions regarding the NEOs.
The Company is required to seek a shareholder vote on the frequency of the advisory Say on Pay vote every six years. In 2011 and 2017, management recommended an annual advisory Say on Pay vote. The next advisory frequency vote is scheduled for 2023.
76 www.grainger.com
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Compensation Discussion and Analysis | | | |
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This table contains information as of December 31, 20162019 about Grainger's equity compensation plans, all of which have been approved by Grainger's shareholders.
| | | | Number of common shares to be issued upon exercise of outstanding stock options warrants, and rights | | Weighted-average exercise price of outstanding stock options, warrants, and rights | | Number of common shares available for future issuance under equity compensation plans (excluding common shares reflected in the first column) | | |||||||||||||||||||||||||||||||
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| Equity compensation plans approved by shareholders | 1,592,915(1)(2) | $246.39(3) | 2,285,700(4) | ||||||||||||||||||||||||||||||||||||
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| | | | | Number of common shares to be issued upon exercise of outstanding stock options warrants, and rights | | | Weighted-average exercise price of outstanding stock options, warrants, and rights | | | Number of common shares available for future issuance under equity compensation plans (excluding common shares reflected in the first column) | | Equity compensation plans not approved by shareholders | | 0 | | N/A | | 0 | | ||||||||||||||||||||
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| Total | 1,592,915 | $246.39 | 2,285,700 | ||||||||||||||||||||||||||||||||||||
| | Equity compensation plans approved by shareholders | | | | 2,812,239 | 1 | | | | $ | 186.59 | 2 | | | | 2,906,875 | 3 | | | | | | | | | | | | | | | | | | |||||
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| | Equity compensation plans not approved by shareholders | | | | 0 | | | | | N/A | | | | | 0 | | | ||||||||||||||||||||||
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| | Total | | | | | 2,812,239 | | | | | | $ | 186.59 | | | | | | 2,906,875 | | | ||||||||||||||||||
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Proxy Statement 77
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Grainger's Business Conduct Guidelines require that conflicts of interest in any form be avoided. The Board has adopted written policies and procedures, to be applied by the Board Affairs and Nominating Committee,BANC, for the review, approval, or ratification of any transactions with related persons. Those policies and procedures apply to any proposed transaction in which Grainger is a participant, the amount involved exceeds $120,000, and any director,Director, executive officer, or significant shareholder or any immediate family member of such a person has a direct or material indirect interest. The policy requires that any such proposed transaction be reviewed by the Board Affairs and Nominating CommitteeBANC to determine, among other things, the benefits of the transaction to Grainger, the availability of other sources of comparable products or services, and whether the terms of the proposed transaction are comparable to those provided to unrelated third parties. The BANC determined that the Company did not engage in any related person transactions in 2019.
In the ordinary course of its operations during 2019, Grainger engaged in various types of transactions with organizations with which Grainger Directors are associated in their principal business occupations or otherwise. Specifically, in the ordinary course of its business during 2019, Grainger bought products and/or services from, or sold products and/or services to, companies with which Ms. Perez, Messrs. Santi, Slavik and Watson, and the New Nominee are or were associated as senior executives or otherwise as of December 31, 2019. In no instance did the total amount of the purchases from or sales to any such company during 2019 represent more than 0.295% of the consolidated gross revenues of that company for the year or more than 0.183% of the consolidated gross revenues of Grainger for the year. We believe that such transactions have been conducted on an arms'-length basis and do not represent a material interest to the Directors or the New Nominee, as applicable.
In addition, as part of its overall 2019 charitable contributions program, Grainger made donations to tax-exempt organizations with which one or more Directors serve as officers, directors or trustees. In no instance did the total amount of the contributions to any charitable organization exceed $15,000 during 2019.
78 www.grainger.com
| Q | uestions and Answers | |
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What is the purpose of this proxy statement? |
This proxy statement relates to the 2020 annual meeting of shareholders of Grainger, to be held on April 29, 2020, and any adjournment of that meeting to a later date. It contains information intended to help you make your voting decisions. We are sending this proxy statement to you because Grainger's Board of Directors is soliciting your proxy to vote your shares at the meeting. This proxy statement and other proxy-soliciting materials were first sent or made available to shareholders on or about March 19, 2020.
What does it mean if I receive more than one set of proxy materials? |
Receiving multiple sets of proxy-soliciting materials generally means that your Grainger shares are held in different names or in different accounts. You must sign, date and return all proxy forms to ensure that all of your shares are voted.
May I revoke my proxy? |
Yes. You may revoke your proxy at any time before the voting at the meeting. You can do so in one of the following ways:
Who is entitled to vote? |
Holders of shares of common stock outstanding on Grainger's books at the close of business on March 2, 2020, the record date for the meeting, may vote. There were 53,673,069 shares of common stock outstanding on that date.
Proxy Statement 79
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| | | Questions and Answers |
What is the difference between holding shares as "shareholder of record" and as "beneficial owner"? |
If your shares are registered directly in your name with Grainger's transfer agent, Computershare Trust Company, N.A., you are the shareholder of record with respect to those shares and you have the right to instruct us directly how to vote your shares or to vote in person at the meeting.
If your shares are held in street name by a brokerage firm, bank, or other nominee, you are the beneficial owner of the shares. Your nominee is required to vote your shares according to your direction.If you do not instruct your nominee how you want your shares voted, your shares cannot be voted for the election of Directors or on the advisory vote on the compensation of Grainger's Named Executive Officers (NEOs). Please contact your brokerage firm, bank, or other nominee with instructions to vote your shares for the election of Directors and on the advisory vote on the compensation of Grainger's NEOs, and on other matters to be considered at the meeting.
If my shares are held in "street name," can my broker vote for me? |
Unless you have given specific voting instructions to your broker, your broker cannot vote your shares on the election of Directors, on the advisory vote related to executive compensation, or on any non-routine matters.
What is cumulative voting? How many votes do I have? |
You have the right to cumulative voting in the election of Directors. This means that you have a number of votes in the election equal to the number of shares you own multiplied by the number of Directors being elected. You can cast those votes for the nominees as you choose. For example, you may cast all your votes for one nominee, or you may apportion your votes among two or more nominees.
Cumulative voting is only available for Director elections. In any matter other than the election of Directors, each of your shares is entitled to one vote.
Does Grainger have majority voting for the election of Directors with a resignation policy for Directors failing to receive the required majority vote? |
Yes. As required under Illinois law, Directors may only be elected by the votes of a majority of the shares represented in person or by proxy at the meeting and entitled to vote. Moreover, in accordance with the Company's Criteria for Membership on the Board of Directors, any Director standing for re-election (including the 11 nominees standing for election at the annual meeting) who fails to receive the required majority vote is expected to tender his or her resignation for consideration by the BANC. The BANC will consider the resignation and make a recommendation to the Board of Directors concerning the acceptance or rejection of the resignation. The Board will then take formal action on the BANC's recommendation within 90 days after the results of the Director election at the annual meeting are certified. Following the Board's decision on the BANC's recommendation, the Company will publicly disclose the Board's decision.
80 www.grainger.com
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| Questions and Answers |
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The Company is asking its shareholders for their non-binding advisory approvalRatification of the compensation of its Named Executive Officers (Say on Pay) as disclosed in the "Compensation Discussion and Analysis" section of this proxy statement in accordance with the SEC rules.
As described in detail under "Compensation Discussion and Analysis," the Company's compensation program is based upon a philosophy that is applied to all Company employees—to attract and retain the best people and provide appropriate performance-based incentives that encourage them to achieve results that create long-term shareholder value. The Company sets target compensation for the Named Executive Officers to approximate the market median of compensation at companies of similar size and complexity. Employees at all levelsappointment of the Company, including its executives, are provided clear incentives to growindependent auditor requires the business (Sales Growth) while achieving investment returns (Return on Invested Capital or ROIC) for the Company's shareholders. The compensation program is structured to significantly reward long-term performance while not encouraging excessive risk taking. Please read the "Compensation Discussion and Analysis" beginning on page 35 for additional details about the compensationaffirmative votes of a majority of the Named Executive Officers.shares represented in person or by proxy at the meeting and entitled to vote.
This Say on Pay
What voting standard applies to the advisory vote on the compensation of the NEOs? |
Although the shareholders' vote is intended to addressadvisory and therefore non-binding, the vote on the compensation of the Named Executive Officers as disclosed(Say on Pay)—Grainger's five highest paid officers whose compensation is discussed in the "CompensationCompensation Discussion and Analysis"Analysis section of this proxy statement as a whole rather than any specific item or amount of executive compensation.
We are asking our shareholders to vote "FOR" the following advisory resolution at the Company's 2016 annual meeting:
"Resolved, that the compensation of the Company's Named Executive Officers, as disclosed in the "Compensation Discussion and Analysis" section of this proxy statement, including the related tables, notes and narrative is hereby approved by the Company's shareholders."
This advisory vote on the compensation of Grainger's Named Executive Officers statement—is determined by the votes of a majority of the shares represented in person or by proxy at the meeting and entitled to vote. Abstentions will have the same effect as votes against the proposal. Broker non-votes will not affect the outcome of the vote.
This Say on Pay vote is advisory and non-binding on the Company, our Board of Directors and the Compensation Committee of the Board. However, the Board of Directors and the Compensation Committee of the Board, which is comprised of independent directors, expect to take into account the outcome of this Say on Pay vote when making future compensation decisions regarding Grainger's Named Executive Officers.
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The Board of Directors has determined to hold an advisory vote on the compensation of the Named Executive Officers (Say on Pay) at every annual meeting of shareholders. Shareholders have the opportunity to cast an advisory vote on the frequency of Say on Pay votes at least every six years. At the 2017 annual meeting, the shareholders voted for one year as the frequency of the Say on Pay vote. The next advisory vote on the frequency of the Say on Pay vote will occur at Grainger's 2023 annual meeting.
What if I don't indicate my voting choices? |
If Grainger receives your proxy in time to permit its use at the meeting, your shares will be voted in accordance with the instructions you indicate. If we have received your proxy and you have not indicated otherwise, your shares will be voted as recommended by Grainger's Board. Specifically, your shares will be voted, either individually or cumulatively:
If you are a beneficial owner and the shares you own are held in street name by a brokerage firm, bank, or other nomineeyou must specifically instruct your nominee how you want your shares voted for the election of Directors, on the advisory resolution on the compensation of Grainger's NEOs, and on the frequency of the shareholder advisory votes on the compensation of Grainger's NEOs; otherwise, your nominee is not allowed to vote your shares. Please contact your brokerage firm, bank, or other nominee with instructions to vote your shares for the election of Directors and on other matters to be considered at the meeting.
Proxy Statement 81
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How does discretionary voting apply? |
Grainger is not aware of any matter not described in this proxy statement that will be presented for consideration at the meeting. If another matter is properly presented, your shares will be voted on the matter in accordance with the judgment of the person or persons voting the proxy unless your proxy withholds discretionary authority.
What constitutes a quorum at the meeting? |
A majority of the outstanding shares entitled to vote on a matter, whether present in person or by proxy, constitutes a quorum for consideration of that matter at the meeting. A quorum is necessary for valid action to be taken on the matter. Your shares will be present by proxy and count toward the quorum if you give us your proxy by telephone, by Internet, or by signing, dating, and returning a proxy form.
Where can I find the voting results? |
We will report the voting results on a Form 8-K within four business days after the end of our annual meeting.
What is the deadline for receipt of shareholder proposals for inclusion in the 2021 annual meeting proxy statement? |
A shareholder who intends to present a proposal at the next annual meeting of shareholders and who wishes the proposal to be included in our proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (Exchange Act), must submit the proposal in writing to the Corporate Secretary at the address on the notice of annual meeting accompanying this proxy statement. The proposal must be received by Grainger no later than November 19, 2020 and must comply with the applicable SEC rules and other requirements prescribed in our By-laws.
What is the procedure for nomination of Directors at the 2021 annual meeting of shareholders using Grainger's proxy access By-laws? |
A qualifying shareholder, or a group of up to 20 qualifying shareholders, owning 3% or more of the Company's outstanding shares of common stock continuously for at least the previous three years may nominate and include in Grainger's proxy statement and proxy card qualifying Director nominees constituting up to the greater of two Directors or 20% of the Directors then serving on the Board, provided that the shareholder(s) and nominee(s) satisfy the requirements specified in our By-laws.
What is the procedure for other nominations of Directors or proposals to transact business at the 2021 annual meeting of shareholders? |
A shareholder entitled to vote for the election of Directors at an annual meeting and who is a shareholder of record on:
82 www.grainger.com
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The Company is asking shareholders to cast an advisory vote on how often they wish to hold a shareholder advisory vote on Named Executive Officer compensation (Say on Pay). Shareholders are being asked to vote on whether the Say on Pay vote should occur every one year, every two years or every three years.
The Board of Directors and the Compensation Committee of the Board believe that shareholders should have a frequent opportunity to provide the Company with input on its executive compensation and therefore, recommend that shareholders vote for an annual (one year) interval for the shareholder advisory vote on Say on Pay.
If a majority of the votes are not cast for one option, the Board of Directors will consider the option of once every one, two or three years that receives the highest number of votes cast as the shareholders' preferred choice of voting frequency for the advisory vote on Say on Pay. While the Board of Directors and the Compensation Committee of the Board value the opinions of the Company's shareholders and will consider the outcome of the vote, because this vote is advisory and not binding on the Company, Board of Directors or the Compensation Committee of the Board, the Board and the Compensation Committee may decide it is in the best interests of the shareholders and the Company to hold an advisory vote on Say on Pay more or less frequently than the option receiving the most votes of shareholders.
You may cast your vote on your preferred choice of voting frequency by choosing the option of voting every one year, every two years, or every three years or you may abstain from voting, on the enclosed proxy card. Abstentions and broker non-votes will not affect the outcome of the vote. Shareholders are not voting to approve or disapprove the recommendation of the Board of Directors.
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may directly nominate persons for Director or make proposals of other business to be brought before the annual meeting, by providing proper timely written notice to the Corporate Secretary at the address on the notice of annual meeting accompanying this proxy statement.
Our By-laws require that written notice of proposals intended to be presented by a shareholder at the next annual meeting, but that are not intended for inclusion in our proxy statement for that meeting pursuant to Rule 14a-8 of the Exchange Act, be delivered no earlier than December 30, 2020, and no later than January 29, 2021.
Our By-laws also require that written notice of nominees for the election of Directors intended to be made by a shareholder at the next annual meeting be delivered by no later than the date with respect to submission of shareholder proposals under Rule 14a-8 of the Exchange Act as set forth in the proxy statement for the preceding annual meeting of shareholders, which in this case is November 19, 2020.
To be in proper written form, these notices must include certain information required by our By-laws, including information about the shareholder, any beneficial owner on whose behalf the nomination or proposal is being made, their respective affiliates or associates or others acting in concert with them, and any proposed Director nominee.
A copy of our By-laws is available under "Governance" in the Investor Relations section of our website athttp://invest.grainger.com/ or may be obtained free of charge on written request to the Corporate Secretary at the address on the notice of annual meeting accompanying this proxy statement.
What actions has the Company taken in response to the 83% support for its annual Say on Pay advisory vote at last year's annual meeting of shareholders? |
At 83%, the support for last year's Say on Pay proposal was below the Company's expectations. In response, the Compensation Committee and Company management completed a three-step process: (1) outreach to shareholders and proxy advisors to learn about and consider their concerns; (2) review our compensation design and evaluate potential changes; and (3) verify the design changes with additional feedback before implementing the 2020 program.
In addition to the actions taken in direct response to shareholder feedback, the Compensation Committee reduced executive pay levels to more closely approximate market median in 2020. The Compensation Committee, in consultation with its independent compensation consultant, based these adjustments on changes to the Company's peer group and median compensation levels for certain positions.
As described in the "Compensation Discussion and Analysis", the Compensation Committee made significant changes to directly respond to shareholders' concerns by strengthening the link between pay and performance. These changes include replacing a long-term vehicle with a single metric with a more performance-focused vehicle with three rigorous performance metrics, each aligned to the Company's strategy.
The changes to our executive compensation program reflect our continuing commitment to strengthen the Company's pay for performance alignment and to embrace compensation and governance best practices.
Proxy Statement 83
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CATEGORICAL STANDARDS FOR DIRECTOR INDEPENDENCE
Business Transactions. A director'sDirector's independence will not be deemed to be impaired by reason of his or her service as an executive officer of another company that does business with Grainger if in each of the three most recent fiscal years the other company's annual sales to Grainger are less than one percent (1%) of that company's consolidated gross revenues and if in each of the three most recent fiscal years Grainger's sales to the other company are less than one percent (1%) of that company's consolidated gross revenues.
Tax-Exempt Contributions. A director'sDirector's independence will not be deemed to be impaired by reason of his or her service as an officer, directorDirector or trustee of a tax-exempt organization that receives contributions from Grainger if Grainger's contributions to the organization are less than one percent (1%) of the organization's total annual contributions.
A-1 Proxy Statement
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Appendix B—Definitions and Non-GAAP Financial Measures | | | |
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DEFINITIONS AND NON-GAAP FINANCIAL MEASURES
"2017 Adjusted ROIC" means ROIC calculated using operating earnings, adjusted (as reconciled to its most directly comparable GAAP measure in Part II, Item 7 (p. 20) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 28, 2019). The Company's GAAP financial statements are the source for all amounts used in the ROIC calculation. ROIC is calculated using operating earnings divided by net working assets (a five-point average for the year-to-date). Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (5-point average of $84.2 million), deferred taxes, and investments in unconsolidated entities (part of Other Assets), plus the LIFO reserve (part of Inventories—net; 5-point average of $381.7 million). Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit sharing plans, and accrued expenses. For purposes of the 2017-2019 PSU payout, the Compensation Committee has accepted the Company's calculation of 2017 Adjusted ROIC, which was 24.6%.
"2018 Adjusted ROIC" means ROIC calculated using operating earnings, adjusted (as reconciled to its most directly comparable GAAP measure in Part II, Item 7 (p. 20) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 28, 2019). The Company's GAAP financial statements are the source for all amounts used in the ROIC calculation. ROIC is calculated using operating earnings divided by net working assets (a five-point average for the year-to-date). Net working assets are working assets minus working liabilities defined as follows: working assets equal Total assets less cash equivalents (part of Cash and cash equivalents; 5-point average of $173.6 million), deferred taxes, and investments in unconsolidated entities (part of Other Assets), plus the LIFO reserves (part of Inventories—net; 5-point average of $386.7 million). Working liabilities equal Total current liabilities less Short-term debt, Current maturities of long-term debt and Income taxes payable. For purposes of the 2018 MIP payout (previously disclosed in the Company's 2019 Notice of Annual Meeting and Proxy Statement filed with the SEC on March 14, 2019) and the 2017-2019 PSU payout, the Compensation Committee has accepted the Company's calculation of 2018 Adjusted ROIC, which was 28.5%.
"2019 Adjusted ROIC" means the Company's return on invested capital calculated using operating earnings, adjusted (as reconciled to its most directly comparable GAAP measure in Part II, Item 7 (p. 20) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 20, 2020). The GAAP financial statements are the source for all amounts used in the ROIC calculation. ROIC is calculated using operating earnings divided by net working assets (a five-point average for the year-to-date). Net working assets are working assets minus working liabilities defined as follows: working assets equal total assets less cash equivalents (five-point average of $150.2 million), deferred taxes, and investments in unconsolidated entities (part of Other Assets), plus the LIFO reserve (part of Inventories—net; five-point average of $414.1 million). Working liabilities are the sum of trade payables, accrued compensation and benefits, accrued contributions to employees' profit-sharing plans, and accrued expenses. For purposes of the 2019 MIP and 2017-2019 PSU payouts, the Compensation Committee has accepted the Company's calculation of 2019 Adjusted ROIC, which was 29.3%.
"2017-2019 Adjusted Average ROIC" means the average of 2019 Adjusted ROIC (29.3%) plus 2018 Adjusted ROIC (28.5%) plus 2017 Adjusted ROIC (24.6%). For purposes of the 2017-2019 PSU payout, the Compensation Committee has accepted the Company's calculation of 2017-2019 Adjusted Average ROIC, which was 27.5%.
B-1 Proxy Statement
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"Endless assortment businesses" is one of two of Grainger's competitive models, where endless assortment businesses are focused on customers with less-complex needs and includes Zoro Tools, Inc. in the U.S. and MonotaRO Co., Ltd. in Japan.
"Endless assortment businesses' revenue growth" means the Company's revenue growth attributable to Zoro Tools, Inc. in the U.S. and MonotaRO Co., Ltd. in Japan as part of the endless assortment businesses. For purposes of the PSUs granted in 2020, endless assortment businesses' revenue growth will be calculated based on a three-year average.
"High-touch solutions model" means one of two of Grainger's competitive models, where high-touch solutions businesses serve customers with complex needs primarily in North America and Europe.
"Long-term compensation" consists of stock options, PRSUs, and retirement profit sharing. Annual retirement profit sharing contributions are based on the Company's short-term performance; distributions are restricted, with full vesting of contributions once a participant has achieved five years of service with the Company as described further under "Long-Term Incentives" and "Other Benefits."
"Operating margin" means the Company's operating earnings over net sales on a consolidated basis. For purposes of the PSUs granted in 2020, operating margin will be calculated based on a three-year average.
"Peer group" is the Company's comparator group in the 2019 Deloitte Consulting Compensation Study as described further under "Compensation Comparator Group."
"Performance-Based Compensation" consists of the annual incentive plan, long-term incentives, and retirement profit sharing as described further under "Annual Incentives" and "Long-Term Incentives."
"ROIC" means the Company's return on invested capital calculated using operating earnings divided by net working assets.
"U.S. share gain" means the Company's U.S. reportable segment's share gain attributable to the high touch solutions model. For purposes of the PSUs granted in 2020, U.S. share gain will be calculated based on a three-year average.
B-2 www.grainger.com
002CSN788B002CSNAA88
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 1:00 A.M. Central Time,information. Vote by 11:59 P.M. ET on April 27, 2016.04/26/2020 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. W.W. GRAINGER, INC. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 1:00 A.M. Central Time,instructions. Vote by 11:59 P.M. ET on April 27, 2016.04/26/2020 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. W.W. GRAINGER, INC. 100 GRAINGER PARKWAY LAKE FOREST, IL 60045 VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. For Withhold For All Except To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the AllAll The Board of Directors recommends you vote FOR the following: nominee(s) on the line below. 0 0 0 1. Election of Directors Nominees 01 Rodney C. Adkins 06 Neil S. Novich 11 Lucas E. Watson 02 Brian P. Anderson 07 Michael J. RobertsBeatriz R. Perez 03 V. Ann Hailey 08 James T. RyanMichael J. Roberts 04 Stuart L. Levenick 09 E. Scott Santi 05 10 D.G. Macpherson 10 James D.Susan Slavik Williams The Board of Directors recommends you vote FOR proposals 2 and 3. 2. Proposal to ratify the appointment of Ernst & Young LLP as independent auditor for the year ending December 31, 2017.2020. 3. Say on Pay: Advisory proposal toTo approve compensation ofon a non-binding advisory basis the Company's Named Executive Officers. For 0 0 1 year 2 years Against 0 0 3 years 0 Abstain 0 0 Abstain 0 The Board of Directors recommends you vote 1 YEAR on the following proposal: 4. Say When on Pay: advisory proposal to select the frequency of the advisory vote on compensation of the Company's Named Executive Officers. NOTE: In their discretion upon such other matters as may properly come before the meeting or any adjournment or postponement thereof. For 0 0 Against 0 0 Abstain 0 0 0 For address change/comments, mark here. (see reverse for instructions) Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 0000317737_1 R1.0.1.150000446174_1 R1.0.1.18
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/ are available at www.proxyvote.com W.W. GRAINGER, INC. Annual Meeting of Shareholders April 26, 201729, 2020 10:00 AM CDT This proxy is solicited by the Board of Directors The undersigned hereby appoints D.G. Macpherson, Thomas B. Okray, and RonaldJohn L. Jadin,Howard, and each of them, proxies of the undersigned with full power of substitution to represent the undersigned and to vote all of the shares of the Common Stock of W.W. Grainger, Inc., which the undersigned is entitled to vote at the Annual Meeting of Shareholders of W.W. Grainger, Inc. to be held on April 26, 201729, 2020 and at any and all adjournments thereof, with all the powers the undersigned would possess if personally present and voting. A majority of proxies or substitutes who shall be present at the meeting may exercise all powers hereunder. All proxies will be voted as specified. If no specification is made, the proxy will be voted FOR items 1, 2 and 3 and for ONE YEAR for item 4.3. The proxy holders reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable director nominees in their sole discretion. Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be voted, signed and dated on reverse side 0000317737_2 R1.0.1.15
MMMMMMMMMMMM . MMMMMMMMMMMMMMM C123456789 000004 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Daylight Time, on April 26, 2017. MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 Vote by Internet • Go to www.investorvote.com/GWW • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone • Follow the instructions provided by the recorded message Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proposals — MANAGEMENT RECOMMENDS A VOTE “FOR” ITEMS 1, 2, AND 3 AND A VOTE OF “ONE YEAR” FOR ITEM 4. 1. Election of Directors: + For Withhold For Withhold For Withhold 01 - Rodney C. Adkins 02 - Brian P. Anderson 03 - V. Ann Hailey 04 - Stuart L. Levenick 05 - D.G. Macpherson 06 - Neil S. Novich 07 - Michael J. Roberts 08 - James T. Ryan 09 - E. Scott Santi 10 - James D. Slavik For Against Abstain ForAgainst Abstain 2. Proposal to ratify the appointment of Ernst & Young LLP as independent auditor for the year ending December 31, 2017. 3. Say on Pay: advisory proposal to approve compensation of the Company’s Named Executive Officers. 1 Year 2 Years 3 Years Abstain 4. Say When on Pay: advisory proposal to select the frequency of the advisory vote on compensation of the Company’s Named Executive Officers. 5. In their discretion upon such other matters as may properly come before the meeting. Non-Voting Items Change of Address — Please print new address below. Meeting Attendance Mark box to the right if you plan to attend the Annual Meeting. Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. MMMMMMMC 1234567890 J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + 1 U P X3 1 3 6 7 3 1 02JEAC MMMMMMMMM C B A Annual Meeting Proxy Card1234 5678 9012 345 X IMPORTANT ANNUAL MEETING INFORMATION0000446174_2 R1.0.1.18
. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proxy — W.W. GRAINGER, INC. Proxy for Annual Meeting of Shareholders, April 26, 2017 100 Grainger Parkway, Lake Forest, Illinois 60045-5201 The undersigned hereby appoints D.G. Macpherson and Ronald L. Jadin, and each of them, proxies of the undersigned with full power of substitution to represent the undersigned and to vote all of the shares of the Common Stock of W.W. Grainger, Inc. which the undersigned is entitled to vote at the Annual Meeting of Shareholders of W.W. Grainger, Inc. to be held on April 26, 2017 at 10:00 a.m., CDT and at any and all adjournments thereof, with all the powers the undersigned would possess if personally present and voting. A majority of proxies or substitutes who shall be present at the meeting may exercise all powers hereunder. All proxies will be voted as specified. If no specification is made, the proxy will be voted FOR items 1, 2, and 3 and for ONE YEAR for item 4. The proxy holders reserve the right to cumulate votes and cast such votes in favor of the election of some or all of the applicable director nominees in their sole discretion. (Continued and to be voted, signed and dated on reverse side.)
